Having an inflexible communications policy and underestimating the power of rumors is a recipe for disaster, as a client of mine once found out.
I periodically share case histories of organizations which,
in my opinion, badly botched the task of crisis communications. Some companies learn from such mistakes -- if they survive.
[Prologue]
Stodgy Savings was a 50-year-old financial institution traded on the New York Stock Exchange. It had never had a significant crisis and had survived the Resolution Trust Corporation's purge of the U.S. savings and loan industry. Its stock was usually perceived as a solid, conservative "buy" based on consistent and predictable earnings. Its only internal public relations professional was focused on product promotion and investor relations was handled strictly by the CFO and CEO.
[The Crisis]
On a Monday afternoon, Stodgy's stock, then listed at $80 per share, begins to slip significantly, and by end of day was down to $70. There had been no company news to explain the slip and competitors' stock was doing well. After the market closed that day, when Stodgy's CFO was asked for a comment by a Wall Street Journal reporter, his response was, "We don't comment on stock price fluctuations."
On Tuesday, the slip continued, with the stock down to $65 and concerned analysts and investors swamping Stodgy's phone lines. The CFO and others stuck to their "no comment" position. Internally, they debated saying more but felt that their reputation and history would be sufficient to restore investor confidence.
On Wednesday afternoon, with the stock down to $55, a Crisis Manager was called in. He quickly determined that:
* The company had no idea why the sell-off started, nor had they made any attempt to find out why.
* There was, in fact, absolutely no business-based reason for lack of investor confidence.
The Crisis Manager suggested that Stodgy's CFO and CEO ask analysts following the company -- the ones they had been essentially ignoring -- what "the word was on The Street." The Crisis Manager concurrently made his own confidential inquiries with Wall Street sources. Both investigations revealed that:
* A rumor started, on Monday, that a prominent analyst had recommended "sell" on Stodgy's stock.
* Concurrently, for reasons having NOTHING to do with lack of confidence or any rumor, one institution sold off a large block of Stodgy stock.
* Other leading investors and investment advisors, monitoring the usual sources of Wall Street facts and rumors (note -- this situation occurred before the Internet was much of a factor in communications; today, rumor-spreading would have been far worse), saw the large block sell-off, heard the "sell" rumor, and assumed that they were related. The absence of communication by Stodgy acted to confirm their suspicions. The sell-off started in earnest.
* The analyst who allegedly had recommended "sell" claimed he hadn't done so, although there was hearsay that he'd made such a recommendation verbally, albeit not in a formal report.
Perception had, indeed, become reality.
By then it was late Thursday afternoon. The stock was down to $45. Company management finally agreed to start presenting information to assuage the fears of investors. Overnight, a fact sheet highlighting the company's fiscal and management strengths was created and used by company executives to start calling analysts, major investors and media who followed the stock. Plans for future written communication and investment community meetings were initiated.
By Friday, the stock leveled out at $40 and climbed back up to $50 by the end of the following week, but too much damage had been done. The stock never recovered to its previous levels during the subsequent two years, after which Stodgy was acquired by a larger firm, for a value well below what it would have sold for earlier. During the weeks after the sell-off, investors and analysts told company representatives, "Why didn't you call back? Why didn't you comment? When you didn't say anything, we were sure something was wrong!" There were hundreds of expressions of disappointment and betrayal, of trust broken, irrevocably.
[Epilogue]
The bottom line -- it's reasonable and probably legally prudent to have a policy of not commenting on minor stock price fluctuations, but to have no flexibility in a communications policy invites disaster. And to under-estimate the power of rumors virtually GUARANTEES disaster.
