Most companies face a crisis at one time or another. Two major airlines have had their share of crises recently as have several large companies involved in major data breaches. As we have seen, negative incidents can have a major impact on a company’s reputation, which can cost it millions in earnings and good will. Most of these larger companies have teams and procedures in place to respond to them. However, for smaller firms, especially those in the “trust business” of managing other people’s money, reputational damage can have devastating consequences.

A crisis and its accompanying reputational damage can be caused by many different factors – investments gone bad, layoffs, client or employee lawsuits, regulatory infractions, scandals in the executive suite, criminal acts, personal transgressions, etc. – but, it’s how the organization responds to the crisis that determines the extent of the damage.

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 of 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 where rumors begin to circulate through social media and the press. When they are ignored by the company’s management, the rumors become perception, which is reality to key stakeholders such as employees, clients and investors, and journalists who want to make a story out of it.

When it gets that far, it is a crisis and, with no protocols in place or no one responsible for managing the crisis, the damage can be severe if not irreparable affecting a wide range of company stakeholders inside and outside the company. That is what I encountered when a financial services firm engaged my firm to help it manage the communications efforts to mitigate the damage, control the messaging and reverse the negative battering it was taking from key audiences.

A Crisis Management Case Study
The company is well-established 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, major projects were cancelled, and key employees began leaving the company.

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 perspective of the CEO or anyone else from the company, the journalist went on to publish a number of negative articles in the press. The negative stories really hurt the company, forcing it into a defensive posture, which only exacerbated their problems.

Setting 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 is vital, but it is important to have the CEO involved and get him or her to commit to the goals, which consisted of the following:

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

Controlling the Message
Overwhelmed with the deteriorating financial condition of the company and the bad news coverage surrounding it, all management could do was focus on the problems. There was no focus on the message, which should be 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 is what 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.

Prioritize the Issues
The third step was to separate the minor and less threatening issues from the vital, mission critical issues. This requires all the executives, including the CEO, to independently list all the issues confronting the company along with their individual perceptions of the risk they presented. Listing the issues is easy. Categorizing them by risk level is more difficult because everyone’s perception is different, 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 issues by their risk level, it no longer seemed insurmountable.

Low Risk
They could see that some of the problems are minor, more of a nuisance than anything else. These issues were perception issues 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 they are 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 need to create a message around it and get everyone on the same page for communicating it. The real threat with these midlevel issues is they can get out of hand and become bigger problems if there is no plan for fixing them and for communicating the right message.

High Risk
The third bucket is the reality bucket that contains the real issues they know to be true but have no specific plan to fix them or the plan is still many months away from executing. These 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, such as “Yes, we’ve lost some key people, but we still have great people and we’re in the process of 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 there is agreement on what they communicate to staff, investors and reporters.

The final product is a proactive communications strategy to support a deliberate messaging strategy. That enables the company to take the lead in shaping the stories, which results in more favorable engagement with different audiences.

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

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 a swarming media and hope 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.

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.