Lessons from the Recession’s Front Lines
Volume 23/Number 3
Lessons from the Recession’s Front Lines
How America’s Leading Financial Institutions are Using Communications to Preserve their Reputations
The famous adage “may you live in interesting times” is one that many financial services communications executives may be using these days, living through a public relations whirlwind stirred by the present economic maelstrom.
How do you communicate in these interesting times? Makovsky + Company just finished a review of the current tactics and strategies of some of the leading financial services firms with an aim to answer that question.
Here is what we found. In the present economy, some financial services firms are either clamming up or implementing novel programs to address today’s extraordinary conditions. However, the best practices we have identified are the time-honored principles of candor and transparency. Furthermore, the leading firms are going beyond transparency to offer their opinion and insight regarding present economic issues. On the other hand, some have learned a hard negative lesson: In today’s skeptical environment, even unintentional shading of the facts can invite backlash from press, investors and others.
Let’s review the specifics.
Re-Commit to Transparency
It’s easier, of course, to be transparent when the skies are sunny, but when storms strike, it’s tempting to circle the wagons and hunker down. That is a losing posture, precisely because journalists, investors and consumers need and insist on even greater openness in confusing and uncertain times.
We identified several organizations that understand this. Citigroup, subject to a barrage of questions from media and consumers about its lending practices, has begun issuing a quarterly TARP Progress Report that details how it is employing government bailout funds to expand the flow of credit, support homeowners and help the U.S. economy. The report is clear and persuasive.
Candor and transparency should also apply to promotional techniques such as company-sponsored opinion polls and surveys. If these are to remain credible over the long-term, they need to remain true to their findings — even if the economic-influenced results are suddenly uncomfortable for the sponsor putting their business prospects into question. Wells Fargo, for example, has conducted a Small Business Confidence Index for many years. Typically optimistic, the results took a sharp downturn last month, and included unfavorable comments from some participants about the scarcity of credit. Yet the bank published the results — warts and all. We believe the bank’s candor and transparency gives it greater credibility, especially when the time comes to announce an inflection point. In addition, their constant presence in the marketplace also answers the basic needs of consumers and investors for leadership.
Openness goes beyond just disclosure. It also encompasses a focus on community and outreach to key corporate constituents. Consider a recent initiative at Bank of America. Early this year, the bank announced a partnership with the National Urban League, La Raza and the National Coalition for Asian Pacific American Community Development. The goal is to assist multicultural homeowners facing foreclosure. The announcement was well-received at an event in Washington D.C., where a bank spokesperson remarked that, “when times are tough we have the greatest chance to make an impact.”
Building Thought Leadership During Crisis
In some sense, the present economic crisis has brought us to a threshold. We are facing many challenging decisions about everything from regulatory reform to investment strategies. Several senior financial services executives have seized the opportunity to demonstrate their firm’s vision and leadership. In our view, they have been rewarded for it.
Charles Schwab is an organization that has used thought leadership for many years to build its franchise. This commitment emanates from its visionary founder and Chairman Charles R. Schwab. In that tradition, Charles Schwab (the individual) recently published a typically straight-talking essay that addressed “what went wrong” and outlined three fundamental principles to guide financial reform as the industry moves forward.
While Charles Schwab addresses the big picture, the firm is promoting a phalanx of 14 experienced media sources capable of addressing a broad array of nuts and bolts investment issues, ranging from trading and derivatives to investor sentiment. Each of these spokespeople is highlighted in a special website section entitled “Experts” that includes thumbnail photos, extensive biographies and contact information.
Tone du Jour — Now is Not the Time to Spin
In an economy where everyone is hungry for good news, management faces great pressure to accentuate the positive in reporting news. Yet this is sensitive communications territory because any perception of unwarranted optimism or the emphasis on only one aspect of performance can lead to an emotional backlash that can seriously undermine hard-fought credibility.
We saw this situation vividly on display in the recent earnings announcements from Citigroup, Bank of America and others. Citigroup, to take one company, reported a surprising $1.6 billion in first quarter earnings, reflecting, according to its chairman, “the strength of the Citi franchise.” But as analysts and journalists looked behind the numbers, they became convinced — whether rightly or not — that Citi was engaged in an exercise of “fuzzy math” and “creative accounting.” The New York Times wondered why the bank didn’t try to make money the “old-fashioned way,” especially since it is being “sponsored” by the federal government. Analysts at Goldman Sachs reported that Citi’s real situation was a loss of 38 cents per share. These and other comments drove Citigroup stock down eight percent.
Citi’s executives can justly argue that the company was mistreated. But the larger lesson is that today’s environment is hyper-sensitive to any suggestion of hype. For the moment, the tone du jour should be cautious realism.
The overall lesson from our recent review of the financial services marketplace is that candor and open communication have never been more important than they are today. Organizations can not only survive the economic downturn but even use it to create opportunity if they are committed to: transparency; finding creative ways to reach out to constituents; expressing their opinion on vital issues of the day, and avoiding anything that might leave them vulnerable to accusations of spin.
