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I periodically share case histories of organizations which, in myopinion, badly botched the task of crisis communications. Somecompanies learn from such mistakes -- if they survive.[Prologue]Stodgy Savings was a 50-year-old financial institution tradedon the New York Stock Exchange. It had never had a significant crisisand 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. Itsonly internal public relations professional was focused on productpromotion and investor relations was handled strictly by the CFO andCEO.[The Crisis]On a Monday afternoon, Stodgy's stock, then listed at $80 pershare, 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'sCFO was asked for a comment by a Wall Street Journal reporter, hisresponse was, "We don't comment on stock price fluctuations."On Tuesday, the slip continued, with the stock down to $65 andconcerned analysts and investors swamping Stodgy's phone lines. The CFOand others stuck to their "no comment" position. Internally, theydebated saying more but felt that their reputation and history would besufficient 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 askanalysts following the company -- the ones they had been essentiallyignoring -- what "the word was on The Street." The Crisis Managerconcurrently made his own confidential inquiries with Wall Streetsources. 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 ofconfidence or any rumor, one institution sold off a large block ofStodgy stock.* Other leading investors and investment advisors, monitoringthe usual sources of Wall Street facts and rumors (note -- thissituation occurred before the Internet was much of a factor incommunications; today, rumor-spreading would have been far worse), sawthe large block sell-off, heard the "sell" rumor, and assumed that theywere related. The absence of communication by Stodgy acted to confirmtheir suspicions. The sell-off started in earnest.* The analyst who allegedly had recommended "sell" claimed hehadn't done so, although there was hearsay that he'd made such arecommendation 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 informationto assuage the fears of investors. Overnight, a fact sheet highlightingthe company's fiscal and management strengths was created and used bycompany executives to start calling analysts, major investors and mediawho followed the stock. Plans for future written communication andinvestment 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 beendone. The stock never recovered to its previous levels during thesubsequent two years, after which Stodgy was acquired by a larger firm,for a value well below what it would have sold for earlier. During theweeks after the sell-off, investors and analysts told companyrepresentatives, "Why didn't you call back? Why didn't you comment?When you didn't say anything, we were sure something was wrong!" Therewere hundreds of expressions of disappointment and betrayal, of trustbroken, irrevocably.[Epilogue]The bottom line -- it's reasonable and probably legally prudentto 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 GUARANTEESdisaster. Article Tags: Wall Street, Crisis Manager
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