Perspective and viewpoint

---

Crisis management is a particularly acute problem for investor relations given the probable impact on stock price and many stockholders’ personal wealth, including the management team and the Board.

I led IR and all other communications through dozens of crisis events over 30 years at 6 public companies (see below for specifics). Having learned, myself, mostly the hard way, let me share some practical advice for the C-suite and Investor Relations.

Advance Planning – Being Able to Assemble the Team is Priority 1

My experience with the most acute crises we faced is that the crisis you get is never the one you planned for. You can develop binders full of scenario plans, but I never found any to be of much practical use when an actual crisis hit.

Time is your biggest enemy, and the first fail point in most crisis situations is getting all the people you need involved, both inside and outside the company. Crises rarely happen during business hours. So, when tracking everyone down takes hours, you really start out behind and it’s even harder to catch up.

Get Your Hotlist together

The hotlist is a simple spreadsheet or database of every key person in the company, including down to the plant and facility level, as well as every key outside advisor and key supplier you have. It sounds like a pain in the ass – and it is, but it’s the single most powerful tool you can have for responding to a crisis well, and quickly. After all, the stock market waits for no man.

Being able to reach and assemble everyone you need to start to understand and address the crisis quickly – as in the first hour – is key. So, you want this database to have phone numbers, emails, social community contacts (e.g. WhatsApp), and even home addresses.

Someone inside the company needs to own this function to assemble and more importantly, maintain it. Since I ran all communications, the CEO’s AA and I owned and maintained it jointly. We used to do an annual update around Christmas week when everything was slowing down.

Preparation with the Communications Team

Next, you should systematize your communications team machinery.

 Whatever you’re going to say to investors needs to dovetail with what other communications functions say to their audiences. So, you’re going to want to create a communications working group that includes investor relations, public relations, employee communications, customer communications, government affairs and partner/supplier communications. And, you’re going to want Legal to be an integral part of this group.

Who leads depends on the crisis. If, for example, the crisis involves little immediate risk to stock price, someone other than IR might lead. On the other hand, let’s say you had a sudden appearance of a short seller or activist investor attack, IR is going to lead.

I advocate developing your working communications group and having an annual working session to talk about group process, new tools available to the team (e.g. video and social media) and if any particular risks are rising in importance.

IR-Predominant Crisis Events

Missed quarterly numbers

Your number one most likely crisis event is missed quarterly numbers. You’ve probably dealt with one of these already. What did you do to lessen or shorten the impact? Can those ideas be applied to your new crisis event?

If you haven’t, the usual procedure is to re-set guidance, explain what happened, and bring any additional information or speakers to bear. That last part is very important. For example, I was hired at one company after they had missed two quarters in a row and the stock had been hammered. One of the ways we began to restore confidence was to have the head of sales explain his new sales pipeline management process on a non-earnings fireside chat. We also provided more information to demonstrate our value proposition to customers, including a site visit sponsored by one of the sell-side analysts. These activities significantly helped to rebuild some comfort and confidence in our guidance processes.

Shorts and Activist Investors

Dealing with shorts, and to a lesser extent activists, can be really dirty. In the shorts’ case, you have to accept the fact that you are fighting with an enemy who has no regard for truth, and you cannot refute every wild claim they make. For example, I’ve been in several situations where shorts tried to smear several of the most ethical and conscientious CEOs and CFOs I ever worked with.

Evidence vs. Heat

With that in mind, one of the constructive ways to think about this is like a court case – present compelling evidence.

First like a good court case, ignore the heat and stick to the facts. Take the high road in your communications; provide factual data. Your lawyers will be happy, too, especially if you also continue to practice good Reg FD disclosure.

 Second, enlist your friends as witnesses. Your sell side analysts have been watching your company closely, sometimes for years. Enlist them to speak up for you. While they don’t want to go out on a limb, they can certainly report on what they know. If you have to, lean on the bankers a bit to get the analysts to help, do so.

What else can you do to defend against an attack?

Can you update or boost guidance?

Can you lay out a new, or updated strategic plan?

Can you remind people of how the votes went on items at the last one or two annual meetings? 

Can you point people to your Glass-Lewis and ISS governance ratings and reports?

Increase your visibility.  Video is a great tool for providing information in a very warm way, because it lets investors “see your eyes” and hear your voice.

Can you leverage some customer highlights from the last year – numbers, nameplates, new product acceptance? Can you enlist any customers to speak up for you? How about business partners?

What can your Board members do to help? What outside firms or investments do they represent?

Can you accelerate any strategic partnerships or M&A that you have been planning?

Increase your dialog with the street – do more fireside chats about key aspects of the business.

Would meeting with the other side help you change the narrative? I did this with the arbs in a takeover fight and it completely flipped the story and control over the narrative.

Can you change the game by finding a different partner. At one company, we proactively brought in a different activist investor to take a big block of shares, effectively blocking the other activist.

Don’t forget to leverage the social investor channels, such as StockTwits and SeekingAlpha, as well as broader social media including X and YouTube.

Most of all, think about being bold, creative and doing the unexpected to throw off your attacker.

These are just a handful of ideas. You need to think about what pieces of evidence and friends you may be able to leverage.

Sudden C-Level Changes

Sudden C-level departures are common, and depending upon circumstances, can cause significant disruption of stock price and confidence in the company with the Street. They can also serve as triggers for opportunistic short sellers looking to make a quick buck.

 CFO departures can be especially risky for triggering short seller interest, as financial misdeeds or mistakes are one of shorts’ favorite charges, which can be difficult to disprove, or for which the timing relative to your next quarterly results announcement can be inconvenient.

For a CFO departure, anything you can do to reassure trust in your forecast or reliability of your reported numbers is the first order of business. Assurances that “everything is OK” don’t carry any weight, especially in the face of fantastic tales of financial malfeasance by shorts. Institutional investors are especially keen to limit their downside risk, and you oftentimes cannot prevent their significant selling down of significant positions in the short term.

I have found that having your controller point out how clean your audit reports have been is helpful, along with letting them answer any specific financial and accounting process questions. Unfortunately, the audit firms don’t like going out on a limb with a specific endorsement.

Also, having your FP&A lead talk about sales funnel and how revenue numbers are rolled up can provide some additional confidence in your processes. In other words, you are letting the former CFO’s lieutenants speak for them. At a later date, having the new CFO speak is helpful, but the timing is not.

Generally, CEO sudden departures are the next most significant crisis events, but in my experience, are generally of less immediate impact compared to the immediacy of fear about what a former CFO did or may have done to the numbers.

CEO changes spark longer-term concerns about direction, strategy and longer-term results, so you have more time to assuage investors’ concerns.

Timing – Don’t Rush

Let’s close this out with some final suggestions about timing of your crisis responses.

When you are under attack, you feel rushed to respond – the stock is dropping, the media is calling, customers and employees are looking for a positive update.

I have found that most often you are better off to focus on getting the right message developed and supported, rather than trying to rush an answer. That’s like being on the witness stand and rushing into a bad answer. You’ve hurt yourself and missed the opportunity to help yourself.

Now, I admit, that’s easier to say than do when the CEO is breathing down your neck. But, this is the time to remember that you are in a long siege, and being long-term smart is better than being fast. A better-evidenced, stronger argument will help stop or trip-up the attacking message.

Legal can be your best friend on strong and correct vs. fast.

Finally, take a breath and get some perspective. The shorts want you to panic. The media wants you to wave your arms and give them hot quotes.

 Think about timing opportunities to flip the leverage onto your opponent. What would happen if you suddenly raised guidance at an unexpected time, or announced a new strategic partnership or product off of your normal cycle?

Finally, remember, that in time, the truth will win out and this will pass. Public company investors are generally a forgiving lot, as long as you have a reasonable explanation. Your investors, sell side analysts, employees and customers want to believe you. They liked you enough to be on the team before this happened.

My crisis management and communications credits:

• A gruesome accidental employee death in one of our manufacturing plants

• Multiple C-suite sudden or forced departures (4 CFOs, 2 CEOs, 2 CROs, 1 President)

• Three short-seller and activist attacks

• Key customers being investigated for fraud (WorldCom, Enron)

• False allegations of C-suite financial misdeeds and mismanagement

• A surprise hostile takeover attempt that lasted two years through two proxy cycles, and that became the definitive Delaware Chancery Court case law for Just Say No hostile takeover defenses

• 10 earnings misses

• A dozen pending potential acquisitions, divestitures and mergers

• Pending legislative actions (e.g. Affordable Care Act, HIPAA)