Bad News Demands Good IR

Bad news happens all the time to public companies and it can come in various guises. The loss of a customer, the death or defection of an executive, product defect, labour disruption or environmental incident all have the potential to harm corporate value (and earnings power) and damage the corporate brand/reputation.

In today’s social media world, the impact of bad news travels further and faster than ever. Just ask Volkswagen, or better still view Tweets about Volkswagen, including reports from the U.S. where shaming poor Volkswagen drivers has become ‘a thing’!

Worse still, bad news has a shelf-life far longer than it did when print media was the dominant information source. Search Google and rediscover the gory details of one of the largest product recalls in America (Firestone in 2000), or the listeria outbreak (Maple Leaf Foods 2008). These examples show, in order, the wrong and right ways to handle bad news.

Of course, not all bad news attracts the same attention. An earnings miss is clearly bad news but when reported by a small cap miner, it will likely be ignored by the mainstream media, which needs to attract the most readers/viewers. Conversely, if a miss was reported by a company such as Apple, the coverage would be 24/7 and global. Bear in mind, however, that even for the small cap, bad news can still find an audience because of social media: all it takes is one disgruntled investor with a Twitter account to start the ball rolling.

When bad news strikes, good communication is essential and IROs can play a constructive role in shaping the corporate response. Here’s how.

1. Help to create an internal environment that is quick to acknowledge and report problems. Crisis communications experts agree that getting bad news out quickly is one of the most important strategies in minimizing reputational damage. They know that many bad news events become significantly worse as a result of corporate foot-dragging, which in the black and white world of the media is either a sign of unethical behaviour (a cover-up) or an indication that management was so incompetent that it simply did not recognize the event’s ultimate significance. While IROs are often singularly focused on the investment community, they have a keen sense of how events will be perceived by all external audiences. Further, IROs also maintain strong connections with fellow managers from operations, finance, sales and marketing. That means IROs are often among the first to learn of emerging problems. Consequently, the IRO can be part of an early warning system for the C-Suite and can also help foster a ‘no surprises’ culture. Either way, IROs can have an impact far beyond their defined roles.
2. Take the lead in organizing a SWAT team. IROs have arguably the best and most frequent access to the C-Suite of any manager, including those in public relations, public affairs or communications. They also may interact more frequently with finance and legal officials than their peers in adjacent external relations areas. IROs should use this position to bring various subject matter experts together to ensure that all corporate responses to bad news are well coordinated. IROs recognize that while a corporation may work in silos, there are no silos externally: communications with employees or customers will reach investors and vice versa and messaging must be consistent. Imagine the impact if Volkswagen told investors that recent events had no financial impact on the company while at the same time employees were told to expect massive layoffs. The IRO can also take the lead in organizing exercises to simulate responses to a mock crisis. This prepares the broader team to function efficiently together within well-defined roles.
3. Represent the voice of the shareholder. Lawyers have the legal interests of the corporation at heart. On the other hand, they are not public communications experts and do not spend time building trusted relationships with investors. That’s the job of the IRO in both good and bad times, when it is vital that the voice of the investor be heard while strategies are debated to address bad news. It takes a strong-willed IRO equipped with well-planned and cogent arguments to prevail in those debates, particularly if legal advisers are promoting a cautious communications approach to minimize liability. IROs would do well to take a page from the lawyers’ handbook and bring forward evidence of the value of forthright communications in the form of corporate case studies. Examples of executives who chose to ‘take the 5th’ can also be persuasive.
4. Help your CEO craft appropriate messaging. Communicating in the face of a corporate crisis is fraught with traps. One common mistake is to exaggerate how quickly a problem can be fixed. Corporate turnaround specialists often avoid putting timelines on their efforts, preferring to focus on communicating their diagnosis of problems, the actions they are taking and results achieved. The same should apply when discussing bad news: show that the CEO is dead serious about addressing the problem but don’t get boxed into a corner on timing. Another trap is to prematurely estimate the costs to fix a problem. In the early stage of a bad news event, the financial impact is often unknown. It’s better to say so than guess at a number. IROs can be particularly helpful not only in developing the right key messages but also anticipating nasty questions (investor and media) that may be asked and helping CEOs develop sound responses. Although IROs may take a back seat to media relations specialists, they can play a constructive support role in this important area.
5. Find the silver lining where possible. Corporate malfeasance or bad news involving consumer deaths aside, it is sometimes possible to locate a kernel of good news in a cob full of bad. Giving hope – as long as it’s not false hope – to investors will help to counter the thick layer of criticisms that will be piled on following disclosure. An earnings miss, for example, may have been caused by an isolated event. Without downplaying the significance of the event, it is entirely appropriate to balance the narrative by drawing the investor’s attention to a positive development that has significance for corporate value creation. Putting the bad news development in the context in which the corporation wants it to be seen is also important. For example, the media could focus on how devastating the Volkswagen scandal is to its parts suppliers. Confronted with this narrative by investors, a parts supplier, under the guidance of its IRO, might want to counter that by: a) showing specifically how much revenue is generated annually from customers other than Volkswagen; b) explaining the corporate plan to offset loss of volume; and c) discussing how revenue has been impacted so far (which might be extremely low). Context can be an IRO’s best friend.
6. Don’t ignore social media. Twitter is a rolling news feed, available on demand 24/7. Its power to influence is becoming broadly accepted and IROs need to contemplate both how to use it and how to respond to it. Many IROs now think of Twitter and Facebook like other communications channels and choose to maintain a corporate presence to broadcast official news. When the news is good, it’s easy to send it through social media channels. When the news is bad, the tendency is to avoid ‘promoting’ it and therefore avoid social media. This is not appropriate for those companies already engaged in the social media world. Best practice is to take an even-handed approach and disseminate the good with the bad on all channels that are traditionally used. While this may be difficult, harder still is to determine how to interact with other Twitter followers when they initiate the dialogue. There is no hard and fast rule, but taking into account the nature of the posted Tweets and the number of followers of the third-party Tweeter will help to determine how/whether to respond. If the issue raised by a Tweeter is of significance, it may lead to the development of a news release rather than just a one-off Tweet. In these and, frankly, all bad news circumstances, the IRO needs to exhibit good judgement, plain and simple.

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