Investor Relations Series – Part Two

How a company manages a crisis can make a major difference between the long term destruction of shareholder value and just a temporary decline in share price. If information is not disclosed at the first hint of trouble, shareholders will sell first and ask questions later.

Whereas it was common to curtail communications in a time of crisis, we now know that saying “no comment” can seriously damage a company’s reputation for years to come. People tend to read more into a situation if they don’t have enough information. Even if all the details are not available, there is value in communicating the information that is to hand. A simple statement about the issue and saying the company will make an announcement when there is more news is better than saying nothing at all.

In a time of crisis it is essential that a company communicate with the media and investors in an open and honest manner. The crisis will not disappear, nor get better with time, so it is best to make an announcement immediately to curb any potentially harmful rumours.

In order to act competently in a time of crisis, it is essential to have a crisis plan in place. This ensures that all key players are aware of each other’s responsibilities as they move into action. For example, the managing director or CEO should be readily available to speak to the market and the media. If they don’t, it will seem that they are avoiding the whole situation or have something to hide.

By communicating directly and openly in a time of crisis, a company can minimise any negative effect on its share price.