Most companies face a crisis at one time or another.

Several major airlines have recently experienced safety-related incidents, and some large companies were involved in leadership issues. Negative incidents can majorly impact a company’s reputation, costing it millions in earnings and goodwill.

Most large companies have teams and procedures in place to respond to them.

However, reputational damage can devastate smaller firms, especially those in the “trust business” of managing other people’s money.

Many factors can cause a crisis and its accompanying reputational damage—investments gone bad, layoffs, client or employee lawsuits, regulatory infractions, scandals in the executive suite, criminal acts, personal transgressions, etc. However, the extent of the damage is determined by how the organization responds to the crisis.

The Anatomy of a Crisis

All too often, incidents that are perceived as minor are handled internally or swept under the rug. However, when bad things happen inside a company, they often create a ripple effect that spills into other areas, affecting different levels of the organization. They eventually leak into the public domain, and rumors begin to circulate through social media and the press.

When company management ignores bad news, the rumors become perceptions, which become reality to key stakeholders such as employees, clients, investors, and journalists who want to make a story out of them.

When it gets that far, it is a crisis. Without protocols in place or someone responsible for managing the crisis, the damage can be severe, if not irreparable, affecting a wide range of stakeholders inside and outside the company.

I encountered this when a financial services firm engaged my firm to help it manage its communications efforts to mitigate the damage, control the messaging, and reverse the negative feedback it received from key audiences.

A Crisis Communications Case Study

The company is a well-established asset manager and has long held a leadership position in its market space. After many years of surging revenues, the company began to experience financial troubles due to internal and market forces. A market downturn forced the company to lay off employees, significant projects were canceled, and key employees began leaving.

As the company’s troubles continued to mount, they caught the attention of a local journalist who began to dig deeper. He interviewed former employees and clients and tried reaching out to the CEO, who wasn’t that accessible.

Without the CEO’s perspective or anyone else from the company, the journalist published several negative articles in the press. The negative stories hurt the company, forcing it into a defensive posture and only exacerbating its problems.

We created a strategic 3-step crisis communication plan:

1. Set goals. Our first step in turning things around was to gain a consensus on what the company needed to do to become strategically proactive and get out in front of the issues. Working with the senior management team, everyone’s input was vital, but it was essential to have the CEO involved and get them to commit to the goals, which consisted of the following:

• Develop messages around key negative perceptions and create plans for communicating positive developments in the future.
• Repair relationships with employees and other stakeholders by improving morale and re-establishing trust.
• Reduce the risk of communicating with journalists and other audiences moving forward.
  

2. Control the message. Overwhelmed by the company’s deteriorating financial condition and the bad news coverage surrounding it, management focused only on the problems. It did not focus on the message, which should have been centered on “who we are” and “what we do” as a company.

As it turns out, the company’s reality includes as many, if not more, positive elements as it does negative. That should form the message that needs to get out to the marketplace. For example, this company has some powerful positives:

• They are still a market leader in their field.
• Despite recent financial difficulties, they still have an enviable track record of growing shareholder value.
• As for the problems, they have overcome several major business challenges and have plans to solve the rest.

All of that is critical messaging for mitigating lingering negative issues.

3. Prioritize the issues. The third step was to separate the minor and less threatening issues from the vital, mission-critical issues. This required all the executives, including the CEO, to independently list all the problems confronting the company along with their individual perceptions of the risk they presented.

Listing the issues is easy. Categorizing them by risk level was more difficult because everyone’s perception differs, especially the CEO, who seemed to want to soft-pedal the threats.

They listed nearly 50 issues, which would overwhelm any senior management team. But, once we were able to segment the problems by their risk level, it no longer seemed insurmountable.

Low risk

The team could see that some of the problems were minor and more of a nuisance than anything else. These issues were perception related or were solved. They presented no real risk to the company and could be easily explained.

Medium risk

Other problems were considered very real but not big enough to hurt the business if dealt with properly. These issues just need a story behind them that includes acknowledgment of the problem and how it was or is being fixed. They also needed to create a message and get everyone on the same page about communicating it. The real threat with these midlevel issues is that they can get out of hand and become more significant problems if there is no plan for fixing them and communicating the right message.

High risk

The high-risk bucket contains the real issues the firm knows to be true but has no specific plan to fix them — or the plan is still many months away from executing.

There are high-risk issues that, left to fester, could cause irreparable harm to the company.

Although many of them would require time to actually fix, the company needs to be able to show that a plan is in place while adding a positive perspective. An example: “Yes, we’ve lost some key people, but we still have great people, and we’re filling some key positions”

Filling in the story with more specifics, such as “She was a valued employee, but she got an offer for her dream job,” helps to create a more favorable perception. The entire process goes back and forth until there is consensus and agreement on what they would communicate to staff, investors, and reporters.

The final product was a proactive communications strategy to support a deliberate messaging strategy. That enabled the company to take the lead in shaping the stories, which resulted in more favorable engagement with different audience.

For example, following some communications coaching, the CEO was ready to sit down with that journalist for a cup of coffee. Given the circumstances, the resulting story was as balanced as it could be.

A Reputation Protection Strategy

A company’s reputation is its most valuable asset and must be protected at all costs.

Smaller companies, such as this firm, are often disadvantaged when it comes to recognizing a crisis in the making. They tend to lack the resources and protocols to effectively deal with negative events, angry stakeholders, or swarming media, hoping that ignoring it will make it go away.

Having a crisis communication plan in place, even if it involves outside professionals, to deal with the issues and shape the story is as vital as any other piece of a company’s risk management strategy.

Want help creating a crisis communication plan? Let’s talk. Schedule a free strategy session and we’ll build a strategy to maintain and grow your reputation.

Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers and mutual funds grow. He can be reached at 703-597-3863.