By Dan Simon
The financial services industry is currently living through its most unusual cycle in over a generation. To get a sense of how unprecedented the current situation is, consider
the heritage of some of the recent Wall Street casualties: Bear Stearns was founded in 1923 and survived the Wall Street Crash of '29 without a single layoff; Lehman Brothers
began as a cotton trading operation in 1850. The remaining three granddaddies of investment banking--Merrill Lynch, Morgan Stanley and Goldman Sachs--have all either been acquired
or turned themselves into commercial banks to avoid insolvency.
To make matters worse, the panic in the financial sector has now spread to almost every major industry, further exacerbating Wall Street's woes. At this point, investors
literally begin to see the mattress as a viable alternative to their checking account or 401(k), creating further pain for the industry stalwarts, including mutual funds and
banks.
For those in the position to drive their firms' communication strategies, however, there is also opportunity to be found amid this crisis. The sheer levels of market
uncertainty have left consumers crying out for reliable information. Suddenly the intricacies of the financial services industry are of interest to a wider audience than ever
before.
At our firm, reporters from NPR's "All Things Considered," Newsweek and others are asking clients to explain global credit markets, instruments such as CDOs and how
hedge fund regulations work. Network morning shows, investigative programs such as 60 Minutes and pop-culture shows such as This American Life have all dedicated
time to explaining the financial crisis to the larger public. Suze Orman and Jim Cramer are more popular than ever as experts on the crisis. For banks, brokers, asset managers and
hedge funds that are brave enough to step into the void, there is a ready pool of prospective customers and investors waiting to be directed.
Turning crisis into opportunity depends on a firm's ability to manage a number of communications elements:
1. Don't pretend there isn't a problem. Even if "no comment" has been the policy since time immemorial, in today's shaken and mistrustful world it sounds too much like you have
something to hide. Ensure senior executives are highly visible and available and avoid anything that could be construed as either negligence or nonchalance.
In July 2007, Bear Stearns' CEO James Cayne was away at a bridge tournament when one of the firm's leading hedge funds blew up. Forgivable once, but in March of this year, as
Bear Stearns was on the verge of bankruptcy, Cayne was at another bridge tournament in Detroit. By May 2008, Bear Stearns was owned by JPMorgan. For better or worse, permanent
crisis now requires permanent crisis communications.
2. Engage, but don't overreact. When Dick Fuld, the CEO of Lehman Bros., joined the company's penultimate investor conference call having been notoriously absent in the past,
his presence contributed to the rumors that something was seriously wrong at the firm and did more harm than good.
Sadly, this illustrates how there is really no substitute for having robust communications practices in place from before a crisis. Once in the eye of the storm every action
falls under a new level of scrutiny. However, if you change the communications strategy in response to the current market, at least ensure that the change doesn't create more
problems than it solves.
3. Stop panicking. It sounds trite, but it's incredibly difficult to do when the Dow takes an 800-point dive in a single afternoon. Everyone is shaken up, and the air of
uncertainty that permeates the broader market is twice as bad within the actual financial institutions themselves. If financial communicators wish to be the ones to deliver
strategic solutions, then they have to be the first to take their eyes off the Bloomberg terminal.
4. Have a story to tell. Performance is no longer the differentiator it was two years ago, and those firms whose narrative has amounted to no more than "we deliver XX% return"
are going to be among the first to suffer, and suffer very badly. This is especially true for the hedge funds which have, almost without exception, relied exclusively on their
uncorrelated performance to distinguish themselves. It is not surprising then that recent research suggests the hedge fund industry could contract by more than 50%. Many financial
firms now urgently need to reframe the debate to play to their strengths--be that sector expertise, farsightedness or superior management.
5. Become a resource. As part of this effort, firms need to actively support their new positioning with credible substance. If expertise is the message, demonstrate expertise.
White papers, original research, articles, Q&As and seminars will not only help reinforce a firm's positioning but, to the earlier point, will meet a pressing current need for
actionable market intelligence.
Investors and consumers expect poor performance and have moved on from using this as a decision criterion. They are now making their selections based on whom they feel they can
trust. Those organizations able to win that trust through effective communications will be the better positioned once the inevitable upturn begins. PRN
CONTACT:
Dan Simon heads up Cognito Americas, a communications agency focused on the financial industry. Simon can be reached at [email protected].