The Importance of Corporate Communications during Financial Crisis

Zainol Abidin Ahmad, USIM

Corporate communications have evolved over years and so have their

potential and objective. The primary goal remains the same - communicating

information to their employees, stockholders, media and customers. Nowadays it

is used as a public relations tool to project positive corporate image, to form

strong relationship with stockholders, to inform the public about new products

and achievements and to handle crisis in a responsible manner. Communication

is getting easier day-by-day, with web portals, blogs, e-mails, RSS feeds, and

podcasts, in addition to old-fashioned company publications and press releases

becoming the order of the day.

Orrell (2009) suggest that in the scenario of so many choices for corporate

communication, choosing the appropriate medium or mediums for the occasion

requires a good understanding of the people and circumstances involved. This

choice is very critical during a crisis situation. Handling a crisis in an organization

involves elaborate planning and a good team. A team comprising of the top

executives and the concerned managers is essential for a managing the crisis

confidently and skillfully (Koegel, 2009).

Any crisis in an organization is difficult to handle and financial crisis being

the worst. The reason being that financial worries have the ability to leave a mark

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on all aspects of life of the affected person. Each person associated with the

company will be anxious for information and reassurance. For the senior

executives of the company, this is acid test, as they have to control the crisis

without panicking, as well as inform the public, uphold the company image and

gain back the lost goodwill. The media will be ready with the usual barrage of

questions - how, when, why did it happen and how is it being resolved.

Definition of Corporate Communication

Corporate communications are defined as the products of

communications, by memos, letters, reports, Web sites, e-mails, speeches, or

news releases. It is also the processes as company uses to communicate all its

messages to key constituencies – a combination of meetings, interviews,

speeches, reports, image advertising, and online communications (Argenti &

Forman, 2002).

Richard R. Dolphin (2003) remarked, that corporate communication is

concerned with the process of identifying, establishing and maintaining long-term

relations with those audiences perceived by an organization or being that help to

produce successful outcome for corporate strategy. While John M.T Balmer &

Edmund R.Gray (2000), suggests a much broader view that looks at corporate

communications as a three part systems process - primary, secondary and

tertiary communication.

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 In the context of primary communication, a strong reputation should be

staged so as to present a positive image of the company while secondary

communication should be designed to support and reinforce primary

communication. Finally, the tertiary communication has to be positive, resulting in

a superior reputation if the other two stages of corporate communication are

properly conceived. It is clearly agreed that senior managers who implement this

process can invest their organization with a competitive advantage.

Corporation’s voice and the images it projects of itself on a world stage

populated by various audiences. Include in this field are areas such as corporate

reputation, corporate advertising and advocacy, employee communications,

investor relations, government relations, media management, and crisis

management.

Crisis communications is generally considered a sub-specialty of the

corporate communications that is designed to protect and defend an individual,

company, or organization facing a public challenge to its reputation. These

challenges may come in the form of an investigation from a government agency,

a criminal allegation, a media inquiry, a shareholders lawsuit, a violation of

environmental regulations, or any of a number of other scenarios involving the

legal, ethical, or financial standing of the entity (Argenti, 2005).

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A Good Example

A good example of the successfully used of corporate communication

during financial crisis was the incident involved savings banks from Iceland. One

of the financial institutions in Iceland who needed to be saved and was

purchased by a government was the Icesave bank.

Icesave is currently attracting customers with the idea of completely safe

and protected saving accounts due to government ownership. Within two days of

the nationalization of Icesave, they advertised a saving account with a high-

interest rate, where the word certainty was prominently placed. The

nationalization of this bank certainly offers the opportunity to attract new

customers; a necessary requirement to keep the banks operating and prevent

them from bankruptcy.

Within Britain and The Netherlands, these became very popular within a

few months, attracting dozens of individual investors, as well as the corporate

and municipal, by providing high-interest rates. By the collapse of the Icelandic

banks in October 2008, they had already attracted approximately 300,000 British

customers, and at least 160,000 customers in The Netherlands alone (case study

by Elving, 2009).

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 Clearly this is a great marketing achievement, although almost certainly

based on false assumptions. Besides, the ethics clearly involved in these kinds of

marketing, an interesting point for corporate communication is also the

introduction of new brands, and winning stakeholder confidence, which seems to

be achieved faster than was thought possible in the past.

Function of Corporate Communications during Financial Crisis

During a financial crisis, the most affected are the employees and

stockholders. Employees are concerned about their job safety and their

perquisites. If not assured on time, it can develop into low morale, high attrition

and less productivity. Argenti (1998) stated that communications within

employees is vital when facing a crisis. With timely communication, these same

employees have the potential to become the strength of the organization, by

standing by the company and spreading positive message among the public.

Equally damaging can be the reaction of stockholders, due to lack of

reassurance through proper communication. They can sell off their stock and if

done in large numbers can affect the future of the company.

Communication channels must be kept open with government to ensure

their support to survive the crisis. Especially in case of economic crisis,

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government, to pacify the public and media, may impose strict laws curbing the

facilities enjoyed by the organization.

Last, but not least is the media. They have the sway to topple the most

powerful. Keeping them informed about the crisis and disaster control, will send a

positive signal to the public about the company's transparency and adeptness at

handling difficult situations.

Anticipating the uproar and acting accordingly, is the key to managing a

financial crisis well. With a proper crisis management framework in place, it will

be easier for an organization to respond to the media queries in a positive

manner and be ready with press releases (D'Aprix, 2008). By doing this, an

organization can turn the crisis into an advantage. The public will be impressed

by the way the crisis was handled and this will go a long way in overcoming

future crises.

Butterbaugh (2009) mention that Mode of communication is just as

important as the need for communication itself. To employees and stockholders,

personal methods like face-to-face interaction and mails are the best. Instead of

the company spokesperson reading out a statement to the media, if the CEO of

the company addresses them explaining the position, it will definitely make a

better impression on all concerned.

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 Personnel commitments are also an important factor in determining a

company's success or failure in achieving its communication objectives.

Typically, too few people are assigned to a communication task, and all too often

those people are inexperienced or unqualified. Finally, time, like human

resources and money, is a critical factor influencing the communication strategy.

The allocation of time, like the allocation of all resources, should be

determined by careful attention to what it will actually take to achieve the

company's communication objective. In some cases, that may mean accepting a

longer time line than the organization would like. But almost always, the

organization is much better off understanding realistic time requirements in

advance.

Correcting mistakes in corporate communication can be very costly in

terms of people, time, and money. Understanding this initially is the only way to

frame the resource commitment tradeoffs effectively.

In addition to setting objectives for a communication and deciding what

resources are necessary to accomplish those objectives, the organization must

also determine the underlying credibility it has with the constituencies in question.

An organization's image credibility is based on many factors.

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 Credibility is often based on the constituency's perception of the

organization rather than the reality of the organization. The degree of image

credibility the organization has is a critical factor in setting a coherent

communication strategy. For simple tasks, this is not problematic. But in complex

tasks, the credibility, or lack of it, can make a huge difference in the success or

failure an organization has in achieving its communication objectives.

We all know that crises are normal part of our lives and the same is true

for organizations. Most organizations understand that today’s economic

conditions call for intensified communication programs. As business closings and

layoffs dominate the headlines, business leaders are increasing communication

to keep workers engaged and productive, and to shore up trust. They are doing

well at keeping all stakeholders informed about company performance and

solvency, and not as well at addressing concerns about job security.

Another area for improvement is the measurement of communication

effectiveness. With budgets being scrutinized now more than ever, such

measurement is crucial.

Schmidt (2008) stated that organizations with the most effective

communication programs use frontline managers to reinforce key corporate

messages. Effective change management requires communication consistency

at all levels. Managers play a critical role, but they need clarity in performance

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expectations as well as supporting tools and training. Knowing whether their

programs are having the impact desired is what sets the truly effective apart, and

that takes clarity in success measures and monitoring of progress.

Some organizations give least importance to communication during a

financial crisis, with more efforts going into managing the crisis. They fail to

appreciate that communication is an integral part of crisis management. The

reason for this is rooted in the fact that many companies don't have experts

managing public relations. When there is a gap of communication between the

top brass and public relations department of a company, the result is poor show

during a crisis.

With the economic slowdown and recession looming large over the

corporate world, it is high time organizations wake up to the importance of

communication and act fast to successfully handle the crisis if it strikes them.

Conclusion

Corporate communication departments have had a large and increasing

number of tasks and responsibilities and it seems that the current crisis will

further extend the number of tasks expected of them. The big question is what

will come next. Possibly there will be a lot of companies who will face difficulty in

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getting new projects financed and who will need to lay-off employees or

temporarily have to stop production.

The essential and key question for the corporate communication

community is whether the financial crisis will impact on the size of communication

departments as well, or whether corporate communication has made its’

existence within corporation permanent and crisis proof. Does the need to attract

new investors, create a sustainable reputation, deal with the crisis, deal with

media outlets, the need for a competitive workforce will lead to a bigger role of

corporate communication departments? These are interesting times, whatsoever.

Bonini (2009) studies revealed that in Western Europe, the USA and elsewhere

that corporate communication is growing, in size, tasks and responsibilities. And,

the financial crisis will certainly lead to greater transparency.

The distrust in corporations, already present before the financial crisis but

now probably greater than ever, needs to be changed into a new situation of

trust, conviction and confidence. According to Gounaris and Prout (2009), trust

can be regained and re-established through trustworthy communication, and by

being transparent, open and honest about the operations of a company. An

important question will be whether the efforts of organizations on Corporate

Social Responsibility (CSR) will be increased, as a way to re-establish trust, or

whether CSR efforts will be reduced and decreased due to the financial crisis.

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