What would happen if another financial crash similar to what happened at the end of 2008 happened tomorrow?
Does your organization have a financial crisis PR plan that is sitting on the shelf ready to be put into action if needed? Think that is just an academic question? Think the idea is far-fetched? Well maybe you should read this Bloomberg article of December 10, 2015: “Third Avenue Blocks Redemptions From Credit Fund Amid Losses.” Then, think again.
The article is scary for two reasons. First of all, it is a very real canary in the mine warning that the global financial system is at more than a modest risk of a crash. Secondly, just as in autumn of 2008, even though the warning signs are clearly there to be seen, investors seem to be turning their attention from them. It wouldn’t be the first time warning signals were ignored.
But those who are going to have to assume the development and execution of a financial crisis PR plan can’t afford to be unprepared. In this post, I’m going to outline what you need to do to get started with the plan, but first, let’s take a look at what’s happening and why your attention is merited.
Note Well: I may be stupid but I’m not dumb. I may be an expert in PR but not in the investment business. Accordingly, read this not as a prediction of something that will happen, but as a warning of what could happen. What you have to consider NOW (!) is whether the possibilities are high enough that it becomes rational for you to start getting ready. Just remember this:
A financial crisis PR plan is just like a toilet plunger; you make sure it is available when the risk is there that you may need it, and not after the need becomes obvious.
So what has me so concerned?
- The Third Avenue Focused Credit Fund, a mutual fund with $3.5 billion in assets as recently as July of last year but now with $789 million in assets, announced that it is blocking clients from pulling their money out of the fund. They are taking the action to allow for the orderly liquidation of all its holdings, after which the fund will be no more. The Third Avenue fund had nearly half its assets in below “B” rated debt (junk bonds). As the Bloomberg article notes: “The step is unusual for a mutual fund, which typically offers daily liquidity to investors, and comes after regulators raised concerns that some mutual funds are investing in assets that could be hard to sell in a market rout. David Barse, Third Avenue’s chief executive officer, said blocking redemptions was necessary to avoid fire sales.” Remember how the geniuses promoting and selling and making hundreds of millions off of “sub-prime” mortgages were telling anyone who would listen how those underlying mortgages assured safety? Well, it wasn’t too long ago when the Third Avenue fund was telling investors that concerns about illiquidity in their market were a “myth.”
- Jeff Tjornehoj, an analyst with Lipper, was quoted by Bloomberg as saying, “It is highly unusual to see a liquidation of a fund of this scale. Normally it happens to funds with $10 or $20 million.”
- And Jeffrey Gundlach, a highly regarded and followed investor who is founder, CEO and Chief Investment Officer of DoubleLine Capital, was quoted: “We’re looking at real carnage in the junk bond market.”
- For every junk-bond issuer that had its rating boosted this year, two have been downgraded, a ratio not seen since 2009, according to data compiled by Bloomberg.
- Companies are increasingly defaulting on their debt. Swift Energy Co.’s failure to make an $8.9 million interest payment last week raised the global tally of defaults to 102 issuers, a figure last exceeded in 2009, according to Standard & Poor’s.
- Highly respected investor Wilbur Ross wrote in a recent email that “all trading desks are deploying less capital than ever before and this is creating tremendous illiquidity and volatility. There will likely be other [Third Avenues].”
Add to this trouble in the junk bond market all the global political volatility, the prospect of more terrorist attacks, the fragility of the three largest economies in South America, the national divisiveness of the presidential election, refugees, urban racial tensions, the prospect of a serious cyber attack, et al, and ask yourself again whether it’s worth your time putting a financial crisis PR plan in place.
You build a financial crisis PR plan by asking 5 questions.
After you ask and answer these questions, the plan should just about write itself.
1. In the face of a financial crisis, what would your organization’s main goals be? Is it most important to you to maintain market share, profitability, operating capacity, an acquisition program? Those questions can only be answered at the C-suite, including the organization’s senior PR person.
2. Who are your priority stakeholders? Are investors more important to you than your employees? If so, you’re going to cut payroll in an effort to placate your investors. How important are your suppliers? Your distributors? Industry analysts? If there is a real crisis along the lines of 2008, you might well need to have a clear sense of which audience is more important than others.
3. What sort of tone do you feel comfortable adopting? Do you want to always be optimistic and upbeat, even when times get tough? Do you want to be perceived as very sober and risk averse? Or, do you believe that hard times are best to be opportunistic for growth? Want to be confident that your organization will emerge intact, or caution that your organization may have to cut back, rethink its strategy, incur some balance sheet hits?
4. Do you have clear messaging? What are your key messages? Are you prepared to adopt just one key message? For example, when NVR announced Chapter 11 15 years or so ago when it was the nation’s largest homebuilder, there was a single message: “Taking care of our customers made us the nation’s number one homebuilder, and taking care of our customers will see us through this financial situation.” There was no need for any other statement. Sometimes less is more. Can you anticipate your messaging philosophy if there were to be a financial crisis?
5. Do you have the infrastructure in place to announce critical financial news? One of the best lessons I’ve learned in the course of my career has been that middle managers are the best distribution channel for news at the time of a crisis. They are the closest to (and have the most credibility with) the people who work closest to the customers and other critical relationships. If middle managers understand what is going on, just about every critical group of stakeholders will understand it as well. Are you prepared to get your middle managers to be a news distribution channel for you? Will you need a separate web site and blog? How about your social network capabilities – are they in place? Will you need a special phone bank?
The questions and considerations are more extensive than those cited above. But the questions that need the attention of the C-suite will generally fall in those five buckets. If a crisis actually did happen, these questions will demand the attention of the senior execs just at the same time when they will be needed on many fronts. So, start developing the financial crisis PR plan now, especially by asking the five questions above. If and when the crisis hits, you’ll at least be armed with the answers to these critical issues.
To corporate execs and PR pros: I’d be glad to chat casually about the ideas expressed here. Just contact me if interested; professional courtesy extended.
About Doug Poretz: After a four+ decade long career crafting public relations and communications strategies at the C-suite level, I now work with a limited number of clients, helping them rethink and improve their approach to how they communicate. For more about me, click here. For how I work with clients, click here. And for my numerous previous blog posts, click here. You can sign up for alerts about forthcoming posts by completing an easy form at my blog.