January 29th, 2012 by MAGNUS
Ian Pope, Director of MAGNUS Investor Relations + Corporate Communication, recently contributed the following feature article to Risk Management Magazine.
As evidenced by the Costa Concordia cruise ship tragedy, social media outlets offer real-time updates on breaking stories, and businesses must adapt their crisis communication and reputational risk strategies to stay ahead of the game
Without question, companies are not taking appropriate steps to prepare themselves for effective communication during times of a crisis. In the digital age, where social media platforms are quickly replacing traditional media as sources of information, the communication landscape has changed for all companies across all industry sectors.
The biggest change brought about by the online world is speed. The time to react has shrunk enormously. The generally accepted rule for communications used to be that in times of a crisis, boards, executive teams and issues managers may have had an hour, sometimes two, to react to a breaking issue. This time would be used to release media holding statements, contact key stakeholders, investors, employees and so forth.
Today, this window is now around fifteen minutes. As a result, traditional business continuity planning practices, whilst broadly adequate, need to embrace and focus far more comprehensively on better communication strategies that are geared to this changing landscape.
We only have to look at the recent tragedy off the coast of Italy, where the Costa Concordia capsized, to understand this issue of speed and the power of social media.
Following the grounding of the ship on the evening of 13 January 2012, onshore witnesses and passengers who had managed to evacuate immediately began uploading images through a range of sites including Facebook and Twitter. By the time Europe woke later in the morning, amplification on social media had reached saturation to the point where traditional news outlets were uploading online images and video, and the ship’s corporate website, failing to cope with the level of online traffic, collapsed.
For a three-to-four hour period during the day, social media represented the sole direct interface with the ship’s company. Over the course of the next few days the incident led to over 35,000 tweets, 10,000 blog mentions, 34,000 news mentions online and 4,500 YouTube video mentions – all of which were in different languages and time zones.
Another good example is the emergency landing of US Airways flight 1549 into New York’s Hudson River in 2009. The plane landed in the Hudson at 3:40pm, and within ten minutes the first image of the plane floating in the river appeared on Flickr. By 4:00pm traditional media had begun feeding reports online, and by 4:10pm a video of the plane with passengers in the water had been posted on YouTube.
By 4.25pm mass media coverage had exploded throughout the United States, and at 4.30pm the airline’s website was crashing intermittently. The airlines’ first statement appeared on its website at 4.40pm, followed by a press conference with the CEO at 5.10pm. By this time, online coverage of the incident was global, with thousands of articles – including personal stories from passengers, tweets and blog mentions.
While a maritime disaster or aviation story may not immediately appear relevant to most companies, the issues of speed and amplification of news online present real risk management issues for all companies.
The hallmarks of effective crisis management are largely the same as they have always been. Prepare, identify potential scenarios, develop holding statements and have in place an issues management team with clearly understood response protocols. However, it is now imperative that companies across all industries understand the speed at which a crisis can break and where it can break.
This can require a large amount of preparation and research. Companies need to understand where their customers or partners may be active online. It is also critical to review all crisis scenarios and align these with online media, and identify the areas where it could potentially develop. In short, preparation must be more thorough and comprehensive than it has ever been.
In our opinion, companies are still not taking the necessary steps to prepare and protect themselves properly. This is of particular concern during a time when many market commentators and experts are predicting stronger economic headwinds ahead.
Recent global research released by Penn Schoen Berland in the US shows that 60 per cent of business decision makers have experienced a crisis in their current or previous company. In addition, those working in manufacturing are more likely to experience a crisis and – of the various types of issues encountered – controversial company developments such as staff lay-offs, logistical difficulties (including supply chain problems) and product issues are the most common.
More significantly, 79 per cent of business decision makers believe they are only 12 months away from a potential crisis. Therefore, the threat of an issue is very real and, given the widely accepted impact of a crisis on brand and share price, there needs to be a renewed focus on preparing more rigorously for breaking issues.
Taking action
To understand if a company is adequately prepared, risk managers should first ask a range of questions. Ask what the likelihood is over the next twelve months that the organisation will experience:
- a controversial company development;
- logistical difficulties;
- regulatory scrutiny;
- a technical accident;
- or critical and negative media coverage.
Depending on the likelihood of one or more of these scenarios unfolding, it is essential to address the crisis plan and the organisation’s level of preparedness.
One area in which most companies can make immediate improvements is in the area of listening tools – i.e. social media monitoring. These analytical instruments can provide critical information regarding your prospects, customers, and how other stakeholders are reacting to – and talking about – your company. It’s important to monitor the tone and content, and to understand how and on which platform you may be able to respond to, and deal with, a problem. This is simply no longer an area where a firm should be passive or apathetic.
If we were to look for an extreme example of where online coverage and tone is being monitored, then the recent launch in Europe of the first social media-based hedge fund is an interesting development. The hedge fund is using Twitter for investment direction, following a widely publicised academic study that established the connection between emotion-related words appearing on Twitter posts and subsequent movements in the Dow Jones Industrial Average. In August 2011 the fund posted positive returns following its first month of trading.
The digital age has changed the arena of risk management. If preparation is the foundation for successful crisis management, companies need to do more. Every organisation is vulnerable to a crisis and stakeholders are not easily forgiving. Crisis communication has changed and every firm needs to ask itself how prepared it is to properly answer the digital question during a crisis.
To view this article on the Risk Management Magazine website, please click here.
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MAGNUS Investor Relations + Corporate Communication continues to strengthen its expanding Perth office with the appointment of Rob Newton, as Associate Director.
MAGNUS Investor Relations + Corporate Communication is extremely pleased to announce the appointment of Rupert Dearden as part of its ongoing expansion program and drive to increase its capital markets expertise. Rupert joins the MAGNUS Perth office as Associate Director having previously spent more than 15 years working in London in Institutional Sales and Corporate Broking, predominantly in the Small & Mid Cap market. Previous firms include Singer Capital Markets, Charles Stanley Securities and RW Baird & Co where he was instrumental in leading multiple IPOs, Rights Issues and Secondary Placements, as well as the ongoing day to day promotion of client companies.
