Listen in: Firestorm COO, Hart Brown, Discusses Crisis Management in the Banking Sector
Reputational and financial crises can occur simultaneously, especially in the banking sector. Triggers that indicate the duration and severity of a crisis can appear in multiple forms – including initial stock drops. Recently, Eagle Bank responded to allegations of mismanagement by a short seller. The bank’s stock price decreased by 24 percent on December 1, 2017. Following the stock drop, the bank issued a press release refuting the allegations, followed by a second rebuttal days later. Eagle Bank’s Chairman, President and CEO was later interviewed and defended the bank’s lending practices and internal decision-making. He stated the short seller was attempting to manipulate the market.
Hart Brown, Firestorm EVP and COO, recently sat down with the Kafafian Group and discussed crisis management in the banking sector, including the recent Eagle Bank crisis. Listen to the full podcast, This Month in Banking – Crisis Management here.
Hart Brown, Firestorm EVP/COO
This Month In Banking (TMIB): From a crisis management perspective, can you comment on Eagle Bank’s response to recent allegations of mismanagement?
Hart Brown (HB): Many times, a reputational event that mentions or targets executives is coupled with a financial event, creating a larger, singular crisis. This is what occurred with Eagle Bank. If an organization’s stock drops 10 percent in a short period of time, we (Firestorm), identify that a crisis needs to be actively managed in an effort to return an organization to business as usual.
In the aftermath of a crisis, we like to see the stock begin to rebound in the first five to seven days, and normalcy return within thirty days. Ideally, stock would return to or become close to the pre-crisis value. Organizations that can manage the curve of a crisis and return to normalcy in 30 days typically witness stock advances throughout the rest of the year, and many times faster than their peers.
Therefore, successful crisis management can, in fact, create value. If an organization cannot return its stock within thirty days, many times rebound does not occur – whether it be a year or two years later. Communication following an event can help to support the rebound. In the case of Eagle Bank, multiple statements were given, and their stock began to rebound. Their communication efforts created a positive net effect.
(TMIB): Is it more effective to attack an allegation? Or is it more effective to attack the credibility of the entity making the allegations?
(HB): During a crisis, maintaining as much transparency as possible is key. An organization should not appear defensive or place themselves in a situation where they are explaining. If you’re explaining, you’re losing. Without necessarily attacking the statement or the authorship of the statement, an organization should ensure they provide the messaging and narrative. That control provides transparency from an investor and public relations standpoint. Attacking the statement will make the organization appear on the defense.
(TMIB): How can an organization communicate with various audiences or stakeholder groups that have different mindsets?
(HB): When an organization reaches the 10 percent stock drop, lawsuit concerns and internal and external concerns begin to appear. Creating message maps for various constituents must be completed prior to a crisis – in the plan phase of the Firestorm PREDICT.PLAN.PERFORM.® methodology. Firestorm recommends an organization creates message maps addressing all key stakeholders during a crisis. Within the message maps, list stakeholders and the different types of messages that may be used in response to a crisis. When utilizing message maps, communication is pre-planned as much as possible. The important part is that all messages are tied to each other and consistent across all stakeholders.
For instance, a consistent message would indicate to employees, regulators, shareholders or the general public that an organization is concerned, and they are paying equal amount of attention, time and effort into every group. Although the communications may be slightly different to various groups, the theme and the message remains consistent.
(TMIB): If an organization is clustered into a crisis due to mistakes by a competitor, how do you deal with collateral damage?
(HB): During the planning phase, we encourage organizations to discuss similar issues. If a direct competitor does endure a crisis, what is important to your organization and how can you differentiate your organization? It is important that a company has the ability to make a comment or statement to separate themselves from the event. In some cases, however, it is important to understand when and when not to speak. We teach organizations to use OFF, or Outrage, Fault and Fear to determine when to release a statement. During an event, identify if your organization is the target of outrage, fault and fear. If not, it may be beneficial not to engage with the public and create a spotlight. A theme that has persisted over the years is to immediately speak to the public and make a statement to ‘get in front of’ a crisis and be present in the public space. This methodology is not always beneficial. It’s valuable not to engage in some cases.
(TMIB): How can an organization recover and handle a reputational crisis involving multiple press releases and lawsuits?
(HB): From a contingency planning standpoint, we (Firestorm) always anticipate how a situation can worsen. When planning, analyze prior crises that relate to your organization and identify the crises that followed the initial event. It is important in the early stages of planning that an organization has the mindset that the crisis they are planning for could escalate. Design plans that mitigate the impact of a secondary crisis. If a crisis does strike your organization, treat the event with consistent messaging and recognize that you may have to re-engage with audiences for a secondary situation. Do not back your organization into a corner by releasing definitive statements in the early stages of a crisis, creating more damage later.
(TMBI): What crisis management advice would you give to small organizations?
(HB): A small, community organization will be slightly different on how they prepare for crisis situations compared to a large, multinational organization. Regardless of size, however, it is important to prepare. Take the time and effort to think through plans, processes, messages and message maps. Gather teams in a room and conduct test exercises to identify how everyone will react based upon the designed plan. The PREDICT.PLAN.PERFORM.® methodology becomes critical to the resiliency of your organization. Understanding what stock drops and impacts look like from a reputational, internal and external standpoint will help mitigate threats before a crisis strikes.
Value is added to an organization that is prepared, and not just from a defensive standpoint. According to recent research, organizations that utilized a plan, were prepared, and knew how to react to crisis situations saw their stock end 15 percent above where they were before the event. Preparation creates its own value proposition later if an organization can successfully manage and mitigate a crisis.
Hart Brown serves as the Executive Vice President and COO of Firestorm, bringing to the executive team nearly 20 years’ experience in security, crisis management, emergency management and business continuity. As COO, Hart leads the development, acquisition and growth of key practices and people. Learn more about Hart and listen his interview with This Month in Banking via a podcast here.
“What should we do now?” “What should we say?”