By Katie Paine
To a very large extent, the current financial crisis isn't about money, it's about trust, transparency and reputation. Before they collapsed, Bear Stearns and Lehman
Brothers had what in normal times would be considered a more than adequate level of liquidity. But when rumors began to spread that maybe that wasn't enough, investors and
customers began to pull money out, causing a run on the institutions, ultimately leading to their demise. In other words, they failed for lack of trust.
When I started this column, writing about the financial winners and losers, I started with names like Bear Stearns, AIG, Lehman, Fannie Mae and Freddie Mac, and then found
myself writing about Iceland, the country, a land of fish, glaciers and apparently a bunch of untrustworthy banks. Icelandic bankers were apparently just as greedy and crazy
as their Wall Street counterparts, but lacked the largesse of American taxpayers to bail them out. As a result, Iceland is now, for all intents and purposes, bankrupt. It has
turned to the IMF as well as Russia for handouts--two organizations you only go to when you have few alternatives.
Dubai on the other hand, may be known for excesses, but more than anything it is known for its solid financial acumen and a knack for trading that has pushed oil to the
relative back burner of its economic foundation. So last week, when every other stock exchange in the world was plummeting, Dubai's was one of the only ones to actually rise.
The stark contrasts between Iceland and Dubai, their reputations, relative levels of trust and the actions they took to weather the crisis provide excellent examples of how
to handle (or not handle) a crisis. (Go to pages 6 and 7 for their PR report cards.) PRN
CONTACT:
Katie Paine is the CEO of KDPaine & Partners. She can be reached at [email protected].
| Iceland | |||
|---|---|---|---|
| Criteria | Grade | Comments | Advice |
| Extent of coverage | F | Essentially the government of Iceland was
left with communications duties on this one. Iceland's bank Lansbanki wasn't saying much, and Iceland's financial authorities essentially took control, leaving the impression of general panic. As a result, the story got worldwide coverage. |
Transparency increases trust. When you need
trust and confidence, you need to overcommunicate. And remember that where your unhappy customers are is where you'll get the most coverage. |
| Effectiveness of spokespeople | F | The only people quoted were representatives
of the Iceland government--clearly not who the customers wanted to hear from. They needed reassurance from the banks, and got panic from the media. |
In the absence of clear communications,
the media will only create more chaos, filling the news hole with whatever they can come up with. If the result is panic and a run on the bank, the bank has no one to blame but itself. |
| Communication of key messages | F | The key message coming out of Iceland was:
Please don't panic (which of course sent everyone into a panic). |
Again, in a situation where you desperately
need trust and confidence, no message at all may be worse than the wrong message. |
| Management of ?negative messages | F | There's nothing like a government official
pleading with people not to panic to guarantee panic in the media, if not the general populace. |
The media will always view customer woes
as major news, especially when your actions affect thousands of citizens of another country. |
| Impact on customers | F | The damage was done as soon as the bankers
refused to comment. Nothing like a "no comment" to guarantee suspicion, fear and, ultimately, panic. |
As markets continue to tumble, it is clear
that customer confidence in banks everywhere may be at historic lows. The only way to build it back up again is by full disclosure, proactive transparency and a total commitment to rebuild trust. And, of course, a measurement system that tells you how much progress you're making. |
| Impact on employees | F | Of all the stakeholders affected by this
mess, the employees are getting the shortest end of the stick. Not only are they probably going to lose their jobs, but they're not being given any reassurances by their bosses or any acceptable answers to the questions their neighbors will invariably ask them. |
Your employees are your best ambassadors
and the front line for establishing trust with your customers. Keep them informed and empowered to communicate, and trust will follow. |
| Overall score | F | Just when good communications, transparency
and clarity were needed most, the folks at Lansbanki dove for cover, and tried to hide out the storm under the nearest glacier. |
It may be counterintuitive to overcommunicate
in times of crisis, but research has showed that it is an effective way to restore trust in any institution. |
|
Dubai |
|||
|---|---|---|---|
| Criteria | Grade | Comments | Advice |
| Extent of coverage | B | To me it should have been major news, but
for the most part the fact that the Dubai stock exchange (DIFX) actually closed higher on the day that saw most markets around the experience historic declines was mostly regional news. |
In times of major crisis, don't expect that
the world will hear your story. However, the world at large may not be your audience. In this case, local markets were key. |
| Effectiveness of spokespeople | B | The statement of confidence issued by Dubai's
Shaikh Rashid was clearly aimed at regional investors, and seemed to work. |
Always get the highest level of spokesperson
you can to issue the most important statements. In this case, there was no higher authority that was going to have any greater impact on consumer confidence. |
| Communication of key messages | A | Shaikh Rashid's statement didn't just say
"don't panic." He added references to UAE's economic history and existing legislation that guarantees protection for the investors. He also cited specifics about property demand as proof. |
In any crisis, the more proof points you
can offer to bolster trust, the better. Statistics, legal proof and corroboration for experts will boost both the media and the consumers' confidence in what you have to say. |
| Management of ?negative messages | NA | Given that most of the UAE media is tightly
controlled by the government, negative messages are unlikely to appear anywhere. However, the long-standing reputation of the UAE for sound, solid economic policies would likely defuse any negative messages. |
While many would argue, there are times
when a less than free media is sometimes not such a bad thing. More importantly, a good reputation and good relationships with investors goes a long way toward boosting confidence. |
| Impact on customers | A | The Shaikh's statement of confidence, combined
with the general high level of trust in the institution, meant that UAE was seen as something of a safe haven in the middle of the economic tsunami. |
Customers aren't always rational, but they
are a lot more so when they are provided with facts, figures and reassurances about what is happening. |
| Impact on employees | B | While I'm sure that employees spent many
very nervous hours watching the ticker, in the end they should have had confidence in the institution and in the fact that their jobs were secure, at least for the moment. |
When the ruler of your country goes out
of his way to explain why the economic system and the organization you work for is sound and why you can trust it, chances are employees will be grateful. |
| Overall score | A | This was not a crisis solved overnight,
but rather the end result of many actions over time that created an environment of trust and confidence that enabled the DIFX to withstand the financial meltdown. Communications of those actions was a key element in the success of their efforts. |
By the time you're in the middle of a communications
crisis, it's way too late to do anything about your levels of trust, confidence or competency. If you want to survive a crisis unscathed, start benchmarking your relationships now (using the Grunig model). Identify strengths and weaknesses, fix the weaknesses, exploit and expand on the strengths. That way you'll at least know what to do when/if the storm breaks. |