The Role of Public Relations in Crisis Management ...Document Transcript
The Role of Public Relations in Crisis Management
Presentation by Kay Breakstone
Good morning. I’m delighted to be here to talk with you about the role of public relations in
managing a crisis. Somehow the word crisis doesn’t fit in this beautiful Mexican environment with
the sun and surf right outside our door. But crises do occur even in this very idyllic setting. And,
as we’ll discuss today, the only way to deal effectively with a crisis is to be prepared.
Before we start, let’s talk a little about your experience. How many of you have been confronted
by a crisis in your companies? How many of you were in the investor relations job at the time?
Let’s see a show of hands. Was it a financial or operating crisis? Did it affect your stock price?
Did it make the newspapers or was it strictly within the financial community?
I’ve divided the discussion today into four parts. First, we’ll talk about investor relations and the
markets and how a crisis interferes with what we want to achieve.
Then, we’ll talk about what we mean by crisis and define the different kinds of crises. We’ll also
talk about the short and long term impact of a crisis from the point of view of the financial
Then, let’s review what to do if a crisis occurs – the necessary steps to take and how to work
with the various departments within your company.
And finally, we’ll take a look at the steps one can take to prevent a crisis. And where that isn’t
possible, how to be prepared.
There is a lot to cover here. Please interrupt me if you want me to clarify something, want me to
repeat it or have a question. Rather than talk at you, I’d like this to be a give and take.
How a crisis affects investor relations objectives
I think we agree that the role of investor relations is to manage the flow of information between
a corporation and the financial community. And the objective is to obtain a fair valuation for the
company relative to its potential. That is probably the simplest and most concise definition of
what we do.
We are managing the expectations of those who can have an impact on our stock price. And our
success is often a function of the quality and consistency of the information we communicate and
the confidence we generate in its accuracy. Remember, the market pays a premium for comfort
and confidence – and for consistent, accessible, reliable data.
Clearly a crisis challenges the ability to manage expectations about the future. It interferes with
the free flow of information; it colors what we say about the company and we end up talking
about the crisis, not the future and takes our minds off the basic objectives.
Moreover a crisis can undermine confidence in analytical milestones important to evaluation of a
stock -- consistent earnings growth, a clear strategy and progress against that strategy, changes
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in the competitive position, significant new products and ideas that generate revenue -- and shift
to worries about unforeseen costs and questions about future viability of the company.
A second consideration is reality -- a crisis doesn’t have to be real. A crisis can occur based on
the perception that something is about to happen. And since market values are based on
assumptions about the future, a perceived threat to those future assumptions can be
Let me give you a example of how perception affected the stock price of Qualcomm, the highly
visible, U.S. wireless technology company. At the beginning of September last year an analyst
set the stage when he predicted that Qualcomm would meet, but not exceed estimates for fourth
quarter numbers. As a result, the stock dropped 9% and made investors wary. Two weeks
later, the president skipped an SG Cowen investment conference pleading a conflict. That is all it
took. The stock fell another 7%, 16% in a two week period on the basis of the perception that
something could be wrong because the president cancelled an appearance before analysts.
Reuters ran the story. It was picked up by The Los Angeles Times and The Washington Post.
Raging Bull, the on-line chat room had hundreds of words written about this momentous event
and the news quickly spread to investors around the world that there were questions about
And the third thing to keep in mind is that a crisis is almost always unexpected and the market
hates surprises. The market will always penalize a stock when there is a surprise. While a
positive surprise is less onerous than a negative surprise – the market always responds better to
Look at what happened to Next Level Communications stock price. Recently an analyst
unexpectedly reduced his rating from buy to neutral citing concerns over future sales to the
company’s largest customer. The stock price fell more than 50%, losing more than $4 billion of
value in a short period of time.
It’s important to keep in mind that any crisis -- financial or otherwise – has broad implications.
The impact of mishandling a crisis can go far beyond the financial community. It can result in
• A damaged reputation
• Loss of credibility, trust and confidence in the business
• Jeopardizes employee respect, loyalty and productivity
• Creates problems with customers and suppliers
• Loss of management focus on the business
• Causes senior level personnel changes
• Increased costs for litigation, public relations, and a whole range of communications
In addition to the short-term drop in the stock price, a poorly handled crisis can result in
shareholder suites. Although not common in Mexico yet, there is no reason to assume that a
serious crisis with a Mexican company would not result in class action suits from international
But the long-term risk is loss of credibility – not necessarily resulting from the crisis, but from the
handling of the crisis. Exxon Valdez, Value jet, Texaco, TWA Flight 800, and many more where
the companies suffered serious long term effects either going out of business, going into
bankruptcy or damaging their reputation
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How vulnerable are individual companies to crises?
There are few companies that don’t have some vulnerability to a crisis. As you know, many
companies conduct a vulnerability audit to identify the likely areas where a crisis could occur.
Once the general areas are identified and prioritized, then we do a plan that outlines the steps
required to get the basics in place for management of the crisis. Because speed is such an
integral part of handling a crisis, you can be more effective if you’ve planned ahead rather than
starting from ground zero.
This is particularly important to some of the highflying technology companies – and I’m sure
there are some of you here – where, for example, missing an estimate by one cent can be
If you are a very visible company, with a well-known CEO, well followed, with many earnings
estimates published, and many whisper numbers in the market – your chances of an event
turning into a major crisis are far greater than if you are a small company with limited following
and fewer shareholders. But any company with consumer products or in high-risk industries is
very vulnerable to crisis.
It should make you more comfortable to know that non-US companies have been less vulnerable
than U.S. companies. International companies, particularly those not listed on a U.S. exchange,
have not been held to as exacting standards as many U.S. companies. For example, there have
been cases of serious industrial accidents that went virtually unnoticed. If that were to happen in
the US, it would be all over the newspapers, television and Wall Street. In some cases, the news
never got out of the local market.
What is a crisis?
A crisis is simply an unplanned for event that can seriously damage a company’s reputation or
interfere with business progress.
For purposes of this presentation, I’ve divided crises into three groups: Group one is a crisis
created by financial issues. Group two, is an operational crisis. Group three is a political or
The most common of today’s financial crises is an earnings shortfall or a serious deviation from
anticipated results in profits and in certain circumstance, revenues.
Other examples, of a financial crisis include:
• An unexpected takeover rumor or offer
• Merger of your largest competitors which changes the competitive landscape
• Uncovering financial fraud
• A accounting restatement
• A key executive illness
• A precipitous, unexplained drop in the stock price
• An unexpected analyst downgrade
• Damaging rumors
• Negative media coverage
Speaking of unsupported rumors, look at the example just recently of the fake release about
Emulex Corporation – this is a bit outside the realm of a standard crisis, but in today’s Internet
world, it can happen. For those of you who missed it, a release was put out over Internet Wire
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saying that the president of the Emulex had resigned, its 1998 and 1999 earnings would be
restated along with fourth quarter results showing a loss rather than a gain and the SEC was
The release came out at 9:30. The stock dropped from 100 to 70 within three to four minutes. It
ultimately went to 45 – 67 points below the prior day’s close. NASDAQ stopped trading but the
decline cost investors more than $2.5 billion in market value. Bloomberg, Dow Jones, CNBC-TV,
The Street.com and Yahoo picked up the story.
It did not take too much time to uncover the fact that the release was a fraud. The company put
out a release and the stock started to rebound, but the real damage was done – to investors and
to the company.
Operational crisis generally involve such situations as:
• An accident at a plant that kills employees
• A fire at headquarters that destroys operational systems
• A major computer failure – remember NASDAQ
• A major product recall – for example, how would you like to be the investor relations officer
at Bridgestone-Firestone these days?
• Kidnapping of a key executive
• Loss of a major account
• A government probe
A political or economic crisis can destroy confidence in the country. And here we gave real
examples of real situations:
• The currency crisis of 1994
• Assassination of a presidential candidate
• Failure to pay government loans
• The impact of the Asian crisis
There is no standard answer for dealing with a crisis.
The strategy for your company in a particular situation is a function of the specific characteristics
of your firm and your market position. For example, have you created good relationships in the
financial community? Have you a reservoir of good will. Have you provided the right kind of
service to investors? What is your past history with a crisis? Have you had earnings shortfalls (or
other crisis) before? Is this typical for your industry? Do you have a lot of analysts following you
and are there estimates in the marketplace? How large is your institutional ownership? Have
you developed good will among the media – both in Mexico and the US? Answers to these and
other questions will help shape your response strategy.
What to do if a crisis occurs
In some crisis situations, you will have some advance warning and will have some control over
the release of information. For example, an earnings shortfall would be known ahead of time,
and you can control the timing of the release as well as gather some backup data. This situation
allows you time -- not much -- but some time to plan ahead.
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But just as often, the crisis catches you by surprise – as in the case of Next Level. They found
out at the same time as everyone else and there is no time to start to gather information. What
Respond quickly. Seize control of the situation:
• Act decisively. Make your company the source of information. You want to shape the
information and provide positives and insight as well as negatives. If the company doesn’t
lead, analysts, the wires the press will come up with their own answers. They will interview
competition and others who don’t know the facts to get a story.
• Be forthright and honest. Provide as much information as possible as quickly as facts can be
verified, but maintain control of the information process. This is not a situation where you
can push communications aside until all the facts are known. But, resist the temptation to
speculate or respond to hypothetical situations.
• You must be available to answer questions, to be calm and in control to try to reduce the
emotion of the situation.
• If you do not have enough information to issue an in-depth press release, issue a statement
until you do. This may also be released to the press. This is clearly a response mechanism
and allows you to limit questions, clarify and acknowledge the issues, answer some basic
questions on what, when and how and offer to provide more information as soon as it is
• A formal statement should also be prepared for verbal communications with analysts and the
press. Use language carefully. Because interest is high in a crisis situation, make sure you
identify and address the concerns of your audiences rather than only looking at it from the
company’s point of view.
• In the Qualcomm example, the company had a press release out by the next day outlining a
healthy sales outlook and, explaining a withdrawal from a profit squeezed business. At the
same time, the company was in a position to discuss their forecasts for the quarter, which
called for higher than anticipated earnings, beating consensus estimates. A few hours after
the release, the stock was back up 5%.
Act quickly with the financial community:
• Keep in mind that investors are making decisions to buy and sell your stock hourly. If you
hold information without making it public, you could be vulnerable to shareholder suits and
the potential for insider trading.
Recognize and respect the pressure on analysts, investors and the press:
• You may want to avoid responding to investors and analysts until all the facts are known.
Don’t. Put yourself in their shoes. They need information – particularly the analysts who
have investors calling them for an assessment of the situation. Imagine their frustration if
they can’t reach you. Be sure to give everyone equal access – even those analysts who may
not be that friendly. And don’t forget the domestic analysts and investors.
• Keep in mind that the press also has a job to do. Check back frequently with reporters to
make sure they keep the facts straight. The same for some investors.
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Tell what you don’t know:
• Don’t be afraid to admit what you don’t know. That’s better than ignoring a question. But do
it carefully. You don’t want to look as if management is not in control.
Communicate efficiently by channeling all information through one source:
• That doesn’t mean others won’t talk to analysts and press, but you have to keep control. You
may have to call on other experts in the company. But it is helpful to have one spokesperson
to ensure consistency of message. You also want to minimize the number of approaches into
the company by external sources – analysts, investors, individuals, and media.
Select the team:
• Who is going to be involved? Who is going to lead the team to make decisions on the
message, to decide on activities, to approve necessary actions, to respond to changing
events and to decide on the company’s position? It could be the CEO or the CFO. But the
group should include the IRO, accounting, legal, public relations and possibly planning. When
relevant, it should also include someone from operations particularly if one operation is the
focus of the crisis. The group should be small.
Contain the information:
• Internally, keep the information and strategies within a tightly held group. These things
have a way of leaking. The fewer people involved in decision making the better. After all
someone has to mind the store.
Decide on the strategy:
• For example, if it’s an earnings problem and you have time, should you do an earnings
warning? How far in advance of the end of the quarter is it? Is the timing right for the
earnings release? Should we move the release up? What will the impact of the financial
community be if we don’t give an earnings warning?
• What message do we want to send? Does it have long-term implications? How do we
position it? Was it a shock to us? Why didn’t we know? Did we give earnings guidance that
was wrong? Did we not give any earnings guidance?
• Review all analyst estimates to monitor changes in the consensus. Remember, technology
has made those forecasts available on a far broader scale then ever before, somewhat
exaggerating their importance. And the pressure for a company to meet expectations is far
greater than it was five years ago as the market has become far more speculative.
• Also see if there are whisper numbers connected with your estimates. For those of you
unfamiliar with whisper numbers, these are last minute revisions to analyst estimates that
are not included in reports, but are “whispered” to the firm’s best clients. This practice has
become institutionalized with the introduction of a web site that tracks whisper numbers. It’s
called TheWhisperNumber.com and it makes numbers available to millions of individual
• Select a small number of core messages and communicate them repeatedly.
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Get the details:
• We are living in an era of transparency and masking the true depth of a problem will only
come back to haunt you. Find out the who, what, where, when and how details.
Understand the depth of the problem, the reason for it, the likelihood of its continuing, how it
is going to be contained, the chance of its reoccurrence. Answer the question, how did it
happen? Who is responsible? Outline with management the steps being taken to avoid its
recurrence. Clearly understand the impact on the company, on earnings, on credibility.
Understand remedial action. Investors and the press will want to know exactly what you are
doing about the problem. Don’t mislead. Is there more information?
Plan the actions:
• Decide what you’re going to do. And decide who does what. What facts do we need for back
up? What should the release say? Who is going to write it? Who else should answer
questions. Should we do a conference call? Should we do face-to-face meeting with key
analysts? Should we talk to the larger investors? How do we make sure that there is no
selective disclosure? Should we put the information on the website? Should we do a
webcast? What about a media briefing? Should we set up an e-mail group? What about a
video news release? A white paper? Do we need a letter from the chairman? Is this overkill?
Are we doing too much?
• Is this problem important enough to do a meeting in London? What are the likely questions?
What is the expected impact of this announcement? What can we do to reduce the impact
and retain credibility?
• What is being done for other audiences and how does it dovetail with what we are doing?
Correct inaccuracies quickly:
• Emphasize the positive, while being candid about the negative. Don’t speculate, guess at the
cause, place blame or pretend you know the answer if you don’t. And don’t believe that
anything you say is off the record.
Add telephone support:
• Train several people to answer the phones. They will be instructed not to answer questions,
but to take messages and to make sure that calls are returned. This reduces frustration on
the part of analysts and media trying to get through.
• The actions you take will be the basis for perceptions in the future. Calm, competent,
controlled actions will build confidence with analysts and investors and the media. Tell the
The goal is to minimize media coverage after the initial stories and to retain the support of the
financial community and where relevant, the general public. We want to communicate the strong
impression that the crisis is under control as soon as possible and minimize potential damage to
the company’s reputation.
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Let me give you an example of a situation where there was a fairly serious earnings surprise and
what management did.
The company is called Sybase. It had a $2.2 billion market cap, is located in northern California
and makes software. It went public in August of 1991, listed on NASDAQ and had a good,
consistent growth record.
Three years ago, consensus estimates for Sybase second quarter were for a $15 million profit.
When the numbers came in, it was clear there was no profit, but in fact, Sybase was about to
have a $55 million loss. Keep in mind; management had been giving earnings guidance up until
the end. And analysts had been heeding their comments.
Can you imagine how concerned management was when it was clear that they were not going to
have a profit at all, but a very significant loss? The credibility concerns were serious. Moreover,
management feared that analysts would start to question their internal controls and the handle
that management had on its business.
The lawyers’ advice was to put out a release, and say nothing more. They also suggested that
Sybase management avoid talking to the press.
However, the CEO decided that would make matters worse and would undermine any credibility
he had with external audiences. As a result he approved the following plan.
A very comprehensive release was prepared. It outlined the problem, explained why it
happened, and focused on internal structural improvements that were being made to avoid such
a problem in the future. The release outlined the impact on the second quarter as well as on the
But the important thing about the strategy was the role of the CEO. He was totally available. He
held a conference call for analysts, investors and the press. He spoke personally to key analysts
and major investors to respond to their questions. He took telephone interviews with the key
business press. He invited a reporter from the local paper to spend the day with him as he went
through the activities following the release of the information. He also set up a talk show format
for employees that allowed for questions by phone, which he answered directly, and broadcast
the event over the Intranet. He took personal questions from those at headquarters.
In all cases, he was candid about the reasons for the problem. But he made it clear that he
understood the problem, had it under control and had taken steps to avoid a reoccurrence. He
also made it clear that part of the problem was deferral of income that would have a positive
effect on the next quarter.
The article in the San Francisco Chronicle was positive as it described the efforts of the CEO to
explain the problem. Other press reporting was very low key. The stock went up 12% on the
day after the announcement. And the company’s credibility was enhanced.
One aspect of the positive response was luck. It was a very heavy news day so the press had
many others issues to address.
So far, we’ve focused on the critical audiences to be addressed by the investor relations officers
in a financial crisis -- the sell side analysts – both Mexican, U.S. and probably UK, the institutional
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investors – the portfolio managers and analysts at the institutions that own your stock; the media
including the wire services such as Bloomberg, Dow Jones and Reuters which will be the first to
run the stories which will be picked up in the press.
But, there are other audiences that will hear the news, draw conclusions and have an impact on
perceptions. While they may not be the responsibility of the investor relations department,
nevertheless, information must be coordinated whether the crisis is strictly of a financial nature
or a broader operational, political or economic problem.
Other influential audiences are employees, current and potential customers, distributors,
suppliers, community residents, government officials and politicians, regulators, labor officials
and the company’s board of directors. Banks, debt holders, community and civic leaders could
also be important. There are also third party pressure groups if there are of any importance to
In a really good program, a strategy and activities will be developed for each audience depending
on their importance.
The other important audience, which has become significantly more important to U.S. companies,
but less so for Mexican companies, is the individual investor. The Federal Reserve tells us that
49% of households in the U.S. own stock. That’s up from 19% in 1983 and 40% in 1995. And
these numbers have grown rapidly largely as a result of the strong markets and the convenience
of online investing. However, the U.S. individual investor is still not a big buyer of international
stocks and less so emerging markets shares. But it is changing.
Technology has united this group into an influential force. Data that was confined to the
professionals is now available to the general public in a matter of seconds. And, they can
communicate with each other, and use information to create perceptions that impact your stock
price, your business, your reputation, and your image. There is the Court of Public Opinion to
Working with your lawyers
Lawyers and legal departments frequently present an obstacle to communications. They often
discourage public comment on issues, concerned that it will provide the basis for legal action.
The result in many cases is that companies have won in court, but suffered damage to
At the same time, lawyers have a case. They realize that any admission in a public document
could provide the opposition with information damaging to your company if shareholder suits are
Bottom line – it’s essential to reconcile these two points of view.
There are a few ideas on how to deal with the predicament, but each has to be tailored to the
specific issue, the culture and needs of the company, and the breadth of the crisis.
• Try and get them to agree to let you give an exclusive interview to one or two
publications, which is embargoed until the press release is distributed, The advantage is
that when the story breaks at least one or two publications will have the benefit of your
point of view. The truth is you may not have an opportunity to get the good information
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out once the release is out and the initial stories become the basis for future stories.
Make sure that the publications you choose honor an embargoed story. Some don’t.
• If this is not possible, include all the good and bad facts in the first press release. Put
the bad facts in context as the best way to mitigate damage.
• And avoid giving legs to the story if additional negative information is yet to be
reported. You don’t want a second negative release. Get all the bad news out at once.
• Try to include some good news in the release to demonstrate that action has already
been taken and there is some good financial news – for example, management changes
that will take place or new structures put in place that show you are acting on the
• Involve lawyers in drafting all public comments and releases. Work with them in making
tactical decisions based on a real world risk/benefit analysis. Omitting material
information could be the basis for a future court case. Remember, analyst
recommendations to sell or hold your stock are being made on the basis of information
you are releasing. And your reputation and the credibility of the company are on the
Working with the media in a crisis
This may be an understatement but today, the news media is very aggressive and competitive.
And, we see more and more of the investigative reporting in the Mexican press than in prior
years. But, no matter where you are, there is a huge demand for sensational news. In most
cases, if a company does not provide the requested information voluntarily, the journalists will do
everything to get the information elsewhere.
And while the wires transmit the news quickly, nothing can compare with the speed and reach of
Some basic rules for dealing with the media.
Accept the fact, that in today’s world, if it’s visible, it will probably be of interest to some press.
You cannot escape the media. And keep in mind; many reporters are skeptical of business. At a
minimum, the wires will report the story and may ask for interviews.
Do not use "no comment." This is a sign you are out of the loop or have never managed a crisis
before. It’s as good as saying, "I’m guilty."
Prepare a statement so you can immediately respond. Prepare Q&A as quickly as possible and
rehearse. Also make a list of the media you want to talk to. If you have been doing your job,
you should know some of the reporters who are familiar with your company or who follow your
Never under-estimate the situation. Be as realistic as possible. Assess the true impact of the
crisis on the company. If you underestimate, you will look stupid and reporters will think you are
taking the crisis too lightly.
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Don’t try to shift the blame but to the extent possible, identify the cause of the crisis. If your
company is responsible, lay out your plan to avoid repeating the error and explain the strategy
for solving the problem.
Sometimes, as Sybase did, if you have the right situation, bring the media into the situation to
watch your decision making process. They become part of the process and are less likely to be
• Don’t assume they know your business or industry.
• Return calls. Don’t act intimidated. It looks like you’re hiding something.
• Be patient. And sometimes, that is hard. They have a job to do. So do you. Don’t lose your
temper. You won’t win.
• Avoid on-camera interviews particularly for a taped show that is likely to be extensively
• Even the most charming outgoing CEO can benefit from media training and rehearsal
The role of the Internet in a crisis
This is such a big topic, I’m going to minimize our discussion here and we can talk about it during
The important point about the Internet is that it has changed the rules of crisis management.
Analysts, investors and the media today expect companies to use the Internet to maintain
updated information. Moreover, it is a way for the company to take the initiative to assure the
right information is available, not having to wait to correct some of the erroneous reports that
may appear in the press. But information on the site is immediately accessible. Also keep in
mind that employees are big users of the web site.
When creating your crisis related website think like a journalist or analyst. Think about what
information could be most helpful to these people to help them do their jobs. Give solid
information – avoid fluff. It might make you feel good but it won’t help your audiences.
• Give names of contacts for investor and public relations – e-mail and phone
• Don’t hide the site with another URL – or at least have an obvious link if you do
• Avoid password protected sites
• Provide 24 hour service but don’t give home numbers
• While you don’t want to focus on negative information, a few negative articles give
balance to your site
• Provide a search feature by date, topic, keyword
• Provide background information, white papers, position papers on the topic in addition to
all your press releases, annual report and other information related to the crisis
• Include a hot line for information not available on the site
• Use links to important sites that provide information on the issue
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The example widely used today as the state-of-the art use of the Internet is Odwalla, a West
Coast juice maker. While this is not a financial situation it is considered state-of-the-art use of
the Internet in crisis management.
Management was alerted by state officials that there was a link between E-coli food poisoning
and Odwalla’s apple juice product. They met immediately. Within twenty minutes of the alert,
Odwalla had initiated a recall that ended up amounting to about 70% of its product line. The
company immediately shut down the production facility where 85% of its ingredients originated,
and did a hazard analysis.
Within 72 hours, the company had a crisis website for the media and the general public up and
running. It promoted the site address in news releases and generated 19,000 hits within 48
hours and more than 50,000 in two months. It had links to other sites of interest such as the
Food & Drug Administration and the Center For Disease Control. And the company planned to
link the site to a web page that carries the company’s stock price.
They received feedback from consumers and investors on the website. Created a news bureau on
the website to advise media, analysts and investors of progress. The website and the 800
number script were updated daily.
They set up a system to monitor Internet chat rooms and news groups for any discussion of the
crisis. They reviewed all print, broadcast and on-line coverage of the recall for tone and content.
In addition to effective use of the Internet, the program called for an exhaustive analysis of high
profile contamination cases. They set up an 800 number to help evaluate consumer responses.
They analyzed media coverage to evaluate how messages were received and did primary
research and focus groups to measure the general attitudes toward the company. They also did
analyst research and monitored comments. They held conference calls frequently with the
financial community. They brought in experts to conduct an independent investigation into the
company’s existing production procedures and suggest improvements and announced changes.
They established communications with the trade. The plan was reviewed daily.
They responded to more than 200 media calls the first day and maintained contact with 225 local
and national broadcast and print reporters. A media track, a daily interview schedule with
executives, prepared briefing kits for senior management daily, developed daily message points
to respond to new developments and prepped executives. Set up a media center to monitor local
and national television coverage. They prepared daily press releases.
The result: neutral media coverage, 5,000 newspaper/magazine stories and 850 broadcast
stories carried Odwalla’s message. Kept 80% of its accounts, and 86% of consumers interviewed
said they would buy their products. Successfully reintroduced the products after the recall.
Financial markets responded to communications efforts and the stock price, which was $19
before the crisis, dropped to $9 and started to rebound reaching $13. Analyst comments were
The role of rogue websites and chat rooms
We have to be concerned about rogue sites that pop up depending on the visibility of the crisis.
These sites are generally negative and include posting by employees, angry consumers or
investors. Some that come to mind include the Wal-Mart site – you all know Wal-Mart here –
called walmartsucks.com. Clearly, this is not a positive site. There is untied.com, which is a
United Airlines site for unhappy people responding to the recent crisis.
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You have little control over these sites. The best advice is for management to express concern –
particularly if it a crisis that affects consumers – keep information flowing and to position the
company as concerned and doing their best to resolve the issues.
Chat rooms fall into the same category. You will see immediate response to the event and the
information on the chat rooms as investors’ start to discuss the issues.
Just don’t respond to allegations no matter how onerous. That is an unending battle and one
that lawyers are quite adamant about. Make it clear to employees that they are not to respond
to chat room comments.
Do monitor chat rooms. Some of the discussion is silly but it will give you a sense of the reaction
of investors, the interpretation of what you’ve said to date and important feedback on tone.
And keep in mind that a comment or point of view can be heard around the world in a minute on
Keeping the financial community informed
Make sure you document your contact – phone calls, meetings held communications conducted.
Both legal counsel and public relations people will want to know what has been said. And you
could need it shareholder suits are filed.
Continue to monitor and evaluate the situation. How are communications being received? Are
messages getting across? Do they understand the situation? What type of questions are we
Include ways to obtain feedback and input from the financial community. Feedback will be
important to determine adjustments to communications and to provide input to public relations
As a matter of fact, get feedback wherever you can – the press, employees customers, suppliers.
It helps to direct the program.
As you know, the new Regulation FD recently approved by the SEC and effective October 23 is
fast changing how U.S. companies disclose information to the financial community. In a nutshell,
it is prohibiting the release of selective information to analysts and investors without
communicating it broadly to the general public.
Since foreign issuers are excluded, the impact on Mexican companies is minimal. However, we
think it is very important for all investor relations professionals with U.S. shareholders to
understand the regulation and to some extent, abide by its restrictions when dealing with U.S.
investors or analysts.
And that includes all discussions with analysts and investors in a crisis situation. Try not to be
selective in your discussions. Material information should be distributed broadly.
And the SEC does not believe that a web site posting is as effective a means of news
dissemination as a release on the wire or an SEC filing.
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Preparing for a crisis
One way to assure that an event can turn into a crisis is to be unprepared. That means
anticipating the types of crises to which the company is vulnerable. Then develop a
communications plan that allows you to be prepared to respond immediately if the inevitable
happens. The best time to prepare is when there is no crisis and clearly, if there is no plan in
place, it’s hard to respond effectively to a crisis. And that is when mistakes happen.
A plan can be as comprehensive as your management wants it to be. It can also include training
of those who might be involved. The team should meet once a year to discuss the process. But
at a minimum, here is what should be included.
• Have a clear definition of the purpose of the plan and exactly what it should achieve.
• Select the team members who would be included in the basic core group. Make sure
telephone numbers, e-mail and fax numbers at home, the office and cell phones are
included. Include a mechanism for updating these numbers consistently. Assure they are
familiar with the process.
• Prepare a schedule that shows who is to be called first in the event of a crisis and how
the calling program works.
• Identify the spokesperson. Make sure he or she has media training and is comfortable
with the role.
• Prepare guidelines for releasing news and information to the media. Prepare a disclosure
• Prepare a policy for dealing with analysts and investors, who talks with them, how to
communicate with them. Make sure lists are up to date and include telephone numbers
and e-mail addresses.
• Select location for a war room that can easily be assembled. It should have telephones,
faxes, copiers and computers. It should be private and locked. Also look for a room for a
media briefing that is easily accessible.
• Prepare lists of other groups to be addressed: local and regional authorities,
shareholders, customers, government agencies, or special interest groups that might be
• An emergency response and rumor control hot line with operators during normal
business hours and voice mail messages when the phone is not personally answered.
• Have press materials ready in anticipation of the problem. That might mean fact sheets,
bios of key executives, spokespersons, maps, diagrams, a statement, and outline for a
• And, if you’re serious, do crisis simulation training.
I’d like to close with two examples of crises and how they were handled. Both are international
companies. Lernout&Hauspie – where the crisis is just now unfolding, but has had some serious
consequences. And CEMEX, where the crisis led to a three-year program and a long term
positioning for the company.
The situation started on August 8 with a Wall Street Journal article that questioned the
company’s Korean sales figures. The implication was that they were inflated and worse yet, that
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there were accounting irregularities. The stock fell 19% on the basis of that article. Remember,
we were living in a very volatile time when market moves up or down of 20 to 25% in a day were
not unusual. The important part of the expose, however, is the percentage of revenues
represented by Korean sales. According to L&H, it was 44%. To write the article, the Wall Street
Journal had contacted 18 of the 30 Korean clients identified by L&H.
Three of those contacted said they weren’t customers at all. Another three said the size of the
purchases was significantly lower than the amount L&H quoted. Interestingly, on a follow-up
interview, however, two customers said they lied in their answers to the Journal. But that almost
didn’t matter since the perception that remained in most people’s minds was that L&H lied. Short
sellers compounded the problem and one hedge fund was very outspoken about the company
and their confidence in its management. As soon as that happened, other sources jumped into
the fray to criticize L&H. The Street.Com said that when they called, they didn’t get straight
answers from the PR department.
And so, a crisis is born – sparked by the first article and the substantial decline in the stock, the
crisis worsened, as the unprepared company did nothing in the early days to refute any of the
allegations. In fact, they didn’t speak much at all. Today, where is L&H?
The CEMEX situation was sparked by the December 1999 peso devaluation. A company that was
known for being highly leveraged and obtaining most of its cash flow from Mexico, investors
immediately saw default. The stock plummeted. And CEMEX sprang into action.
The first thing was a meeting that decided message and strategy. The strategy was simple – We
are a multi-national company with cash flows generated by our operations around the world.
While Mexico’s cash will drop, operations from Europe, the U.S. and Venezuela will compensate.
Bottom line, we are multinational.
The strategy – get the story out using the press, direct contact with investors, conference calls
During the months of January and February CEMEX met with more than 500 investors attending
the Morgan Stanley Conference, Goldman Sachs, arranging their own meetings, doing conference
calls. The message – we are multinational.
At the same time, we launched an active media program to support the same message. A press
briefing with the wire services with the Head of International netted three good stories in the
wires focusing on CEMEX’s multinational business. The next big break was a Business Week
article with the headline “CEMEX looks solid as Mexico Sinks.” That article started to turn the tide
of thinking about CEMEX. And the media program ran for another three years and featured
articles in every major business or financial publication. All articles had the same message – we
The stock began to recover after about six months and CEMEX came out of the crisis a hero.
Here we have two very different approaches to dealing with crisis and two very different results.
The moral – don’t hide. Prepare. Address the issues directly. Reach all audiences. Get out the
right information. Be helpful. Take the blame if necessary. Don’t shut out the press.
I’ll be happy to take some questions.
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