Survey: Few Companies Are Prepared to Manage a Crisis
Majority of Analysts Say a Poorly Managed Crisis Causes Detraction in a Company's Value
TORONTO - The biggest mistake companies make during a corporate or operational crisis is a lack of communication and transparency with stakeholders and employees, causing a negative impact on valuations, according to a survey jointly released by the Canadian Investor Relations Institute and Fleishman-Hillard Inc.
The survey polled financial analysts and investor relations officers at companies across Canada and the United States on operational and corporate crisis preparedness. It found that while many companies are mindful of the potential damage crises can cause to their sales, reputation and share value, few have an effective crisis management plan in place to deal with negative scenarios and if they do it is likely out of date.
Further, the survey found that half of responding IROs from the financial services and healthcare industries claim they don't follow a crisis communications plan at all. The survey looked at both operational crises, which are issues impacting a company's day-to-day business, and corporate crises, issues involving a firm's executive team or finances.
"Given the recent widely known sector crises the 2008 financial meltdown, healthcare product recalls, extreme environmental damages, automotive sector crisis and other headline-grabbing frauds and scandals companies need to be armed with a plan," said Tom Enright, CIRI president and CEO. "No sector or company is immune to a crisis; having a crisis communications plan in place is simply prudent risk management.
"The survey reveals that a poorly managed crisis clearly has a negative impact on a company's share valuation, so it is imperative for IROs to be prepared," Enright continued. "A crisis communications plan is one of the most important tools a company can have in its arsenal."
Yet for those who have a crisis plan in place, only 29 per cent of companies update it once a year, according to the survey results. As a rule, it is best practice to update a crisis plan at least once a year to ensure the content is evolving and maintaining relevance in today's marketplace.
Not only is there confusion around the frequency of updating a crisis communications plan, companies also struggle with its focus:
* Eighty-five per cent of responding analysts say a corporate crisis fraud resulting in accounting restatement has the greatest negative impact on a company's value.
* But over 50 per cent of responding IROs say their company builds a plan that prepares them only for an operational crisis.
When focusing on digital communications, the survey found that while many analysts and IROs recognize the potential impact that social media outlets Twitter, Facebook and YouTube can have on their companies, few have a crisis plan in place that incorporates social media protocols.
According to the survey, over 50 per cent of responding analysts look to the corporate blog for information during a crisis, but only 17 per cent of responding IROs say their companies use this tool as a channel for crisis communications. Given that less than half of responding IROs monitor social media platforms during a crisis, IROs clearly need to incorporate these tools in their plans to maintain control of the corporate message during a crisis and minimize wide-spread negativity.
An IRO's role during a crisis is very important. As the conduit between analysts and the company, it's imperative that IROs play a lead role in developing the communications plan. According to the survey:
* Eighty-five per cent of responding analysts say IROs are a main point of contact for a corporate crisis specifically.
* Fifty-five per cent of IRO respondents don't know if the crisis communications plan is updated after a crisis.
* Fifty per cent of IRO respondents don't know if their company conducts crisis simulations.
* Only 19 per cent of responding IROs contribute to the corporate blog, which was deemed as an important source of information by responding analysts.