Research & Strategy

By Daniel Redman - Head of Research and Strategy - 05 Mar 2018

Crisis-Management-Blog-Image.png

Having recently attended the very insightful IR Society Forum “Crisis Communications and Shareholder Activism Workshop” hosted by Edelman, it got us thinking about the importance of corporate communications, particularly when companies are faced with a crisis.

Crisis and activism

The UK is described as one of the “most transparent and shareholder friendly markets in Europe”, according to Cas Sydorowitz, CEO at Georgeson, although current economic developments such as Brexit and corporate scandals involving cyberattacks are making UK companies more vulnerable to activism and hostile takeovers. Of course, crisis is not limited to activism and takeovers and can often be directly linked to the risks outlined in annual reports. It is therefore paramount that companies have crisis management practices and procedures in place. Yet a majority of institutional investors still believe that companies are not adequately prepared for the actions of activists or for managing crises in general.

How to address crises in your corporate communications

Companies can certainly use their corporate communications to identify and highlight potential crises before they occur and provide greater clarity on the mitigation activities in place to prevent these situations.

Crises and scandals can dramatically impact a company’s share price through associated reputational costs. Therefore, ensuring adequate planning and preparation are in place, should such a scenario arise, is key to managing any crisis effectively. Proactive communication of these plans can contribute to a strong investment case overall.

The corporate communications suite, both printed and online, includes great tools that can be used to communicate how companies are addressing problems head on, giving a clear, confident direction, which has already been agreed upon by senior management. They can highlight the readiness of companies, and the processes and planning in place to handle such crises and reassure stakeholders. In particular, information should be provided on the activities carried out to mitigate any impact a crisis may have and the new processes established to ensure it does not happen again.

For instance, if the company has previously been impacted by an employee who has breached confidentiality or who has been involved in insider trading or corruption, the company may consider disclosing the procedures they have in place to ensure these issues can be raised by employees.

A good example of disclosing employee procedures can be found in Tullow Oil’s 2016 annual report (p.39-41), where they explain the company’s arrangements for staff to raise concerns, in confidence, about possible improprieties in financial reporting or other matters.

How strategy fits in

It is integral that investors understand the company strategy and can clearly see that this has been set by the Board and senior management, ensuring that everyone shares the same direction and company culture. Clarity and consistency of the company strategy enhances investor confidence.

Undoubtedly, the annual report and company website are the primary platforms to articulate group strategy and how the company will achieve its objectives. The governance report can be just as important in demonstrating how strategy is set by the Board and at what meetings this is discussed and reviewed.

Stakeholder engagement

Corporate communications can also provide a channel to engage with stakeholders further and build relationships to ensure their support for the company should a challenging situation arise. An important area of focus here is reporting confidently and clearly on the company’s approach to ESG issues. Lex Suvanto, Global Managing Director (NYC) of Edelman said:

“The number of shareholders focusing on ESG issues, this year alone, is equal to the previous five years combined.” By taking these issues into consideration, companies can ensure they are not caught off guard.

See our guide to reporting on ESG for more information.

What can save a company in a time of pending, potential or actual crises? Ultimately, preparedness, a clear approach, confidence, and, of course, communication.

If you would like strategic advice on how to strengthen your investment case through risk reporting or corporate communications we can help. Email us at hello@design-portfolio.co.uk