Relax…that crisis communications plan is done and dusted, the CEO has signed it off and you have a list as long as your arm outlining what to do, who to speak to and how to operate when things go wrong.
As you lean back in your armchair, confident that you have covered every possible angle, you switch on the radio to hear that your company’s research director – affable kind of chap – has just presented a paper to an obscure trade conference casting doubt over the viability and safety of the company’s latest prototype. It’s a crisis in the making and you must know how to react immediately.
At this point a slick operational plan can help restore market confidence but the ability to build on sound relationships with the media and investors, often established over a considerable period of time, is the key to ensuring that your company’s actions and supporting messages will be viewed more favorably where there is doubt or controversy.
Whistle blower
British Biotech recently found its share price plunging down a slippery slope due to the actions of a disaffected employee, Dr Andrew Millar. The company saw its stock drop from a high of around 300p to a level of around 32p. Millar fueled growing fears that its pancreatitis treatment, Zacutex, would not receive the green light from the European authorities and that phase two trials of Marimastat, a cancer drug, were not as positive as the company had been making out.
British Biotech says it knew that the most important factor in managing investor perceptions was ‘controlling the flow of information.’ They are, understandably, still nervous about the whole affair as a parliamentary committee is currently investigating the likely effect on the whole of Britain’s biotech industry. A spokesman for British Biotech defends its lack of speed in responding to each of Millar’s accusations as they arose because the company did not know exactly what information the former head of clinical trials had or how far he intended to go with his revelations.
‘We took the prudent approach of conducting a thorough investigation and refuting all the allegations in one statement, which was, of course, at the risk of the investment community accusing the company of being too slow to respond,’ says the spokesman.
But Bob Yerbury, chief investment officer at Perpetual, British Biotech’s largest institutional holder, says the resulting 32-page company statement reads more like a legal testimony. As far as he’s concerned the issues it addresses are nothing more than background noise obscuring more fundamental questions about the company’s long-term strategy.
Recent news that the company is now seeking a partner in the US came as a bolt from the blue to Yerbury and other institutional investors – not because of the apparent strategic shift it represents but because it is a prime example of a company failing to keep key audiences fully informed.
‘There has to be a relationship between shareholders and the company where you can trust the information they are giving you,’ adds Yerbury. ‘But I have been at great pains to point out to people that I don’t actually believe British Biotech has been dishonest. In fact I think one of the company’s former directors summed it up very neatly when he described it as arrogant optimism.’
Arrogant assumption
Mike Regester at London-based crisis management consultants Regester Larkin says the markets and media often assume arrogance on the part of a company during the initial hours of a crisis. Failure to respond in the first 24 to 48 hours can have dire consequences in terms of loss of market share, vulnerability to takeover and even the imposition of new regulations by government.
In British Biotech’s case, its next move – the resignation of chief executive Keith McCullagh from this September, despite full backing from the board – was a classic crisis response. According to Regester, it’s a tactic which is often used to buy time. It’s at its most effective if a new appointment follows soon after.
Unfortunately, British Biotech has yet to appoint a new CEO. Given how long the markets are likely to have to wait before hearing anything positive about the drugs under trial, a new appointment may be the company’s only hope for a short-term lift in its share price.
Of course, resignations can also create a vacuum leaving no-one to communicate to key audiences, which is why some observers argue that non-executives should be more proactive during a crisis. Guy Jubb, head of corporate governance at Standard Life in Edinburgh, is an advocate of greater non-executive involvement – something which he says is being woven into the UK stock exchange’s new super code.
While he echoes the view from British Biotech that controlling the flow of information is all important, he points out: ‘When boards and companies lose the communication initiative they are often on the back foot for some time. If they take charge of the situation and do so with integrity they can regain the initiative which helps restore shareholder confidence.’
Spread response
Integrity is the key word here, as Finnish food and chemicals group Raisio knows too well. The makers of the cholesterol-blocking margarine Benecol were recently hit by news of a rival product under development by the world’s largest margarine producer, Unilever. The manufacturing might of the Unilever group could conceivably restrict the competitiveness of the Benecol product and Raisio’s buoyant share price fell FM90 to FM790 as the news was absorbed by the market.
For Sten von Hellens, head of investor relations at Raisio, there was no time to be on the ‘back foot’. The company had learned from previous experience to strike early to revive flagging market confidence. ‘We stuck to our usual methods. We had a conference call among the senior executive team and agreed to reiterate the message that we have been in the market since 1995 and have an excellent clinical record. When such a fall in share price occurs you have to react instantaneously. And when the phone starts ringing you have to stick to the truth. Whenever something like this happens there is only one person who answers inquiries, and on this occasion it was me.’
Clearly Raisio has benefited from experience. Von Hellens says this was not the first time such an incident had caused a drop in share price, nor does he think will it be the last because of the industry Raisio operates in.
Raol Konnus, a food industry analyst for Carnegie in Helsinki, was cheered by Raisio’s tactics. ‘Their experience definitely counted,’ he says. ‘There have been other rumors of competitors rivaling their products but, in the past, I thought they handled it more clumsily. I spoke to them after Unilever’s announcement and was pleased with the information I received. In the circumstances, I think it was well handled because it’s always difficult for a company to comment on the products of a major competitor when they don’t even know themselves precisely what that product will be like.’
The Unilever incident did not change Carnegie’s valuation of Raisio’s stock nor does Konnus think that a subsequent announcement of a link-up with Johnson & Johnson was the reason for the recovery in share price. The link with J&J had been mooted some months earlier. So, by simple deduction, swift investor and media relations had a positive effect, even though most of it was conducted over the phone during the first few days.
Mike Regester applauds the type of approach taken by Raisio. He emphasizes that when you are at liberty to say something – even if it’s just a holding statement or, in the worst-case scenario, an expression of sympathy to the bereaved – there is no time to lose. Reticence can look like arrogance and can be the final nail in the corporate coffin, too.
Regester cites the classic case of Pan Am after Lockerbie, whose last profitable route was effectively boycotted by customers due to the lack of reassurances about the airline’s safety. The company took the fatal stance of believing that less communication would distance it from the disaster that claimed so many lives. Pan Am ultimately went bankrupt as a direct result of the way it handled its crisis.
While the ability to take remedial action on an operational level varies according to the strength of the company and the nature of its business, the constant factors are honesty and timely communication.
Precipitous stock price declines or drastic sales hits wait for no-one. It is often up to the IRO to field immediate inquiries from analysts, press and shareholders; and they should forget the old adage no news is good news. At the same time, the IRO has to provide investor feedback to a growing audience of senior management, including non-executives.
Regester puts it this way: ‘Good reputation is like having credit in the bank: if something goes wrong you can draw on that credit. But if you have no credit in the bank or are already in the red, it’s going to make things much worse.’
Perhaps it’s best to make sure you’ve done some saving over a longer period.
