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Firms struggle to implement crisis plans

New survey suggests not enough firms ready to communicate with stakeholders during crisis


April 13, 2011
by Canadian Manufacturing Daily Staff

TORONTO—During a corporate or operational crisis, the biggest mistake a company can make is a lack of communication and transparency with stakeholders and employees.

The survey, jointly released by the Canadian Investor Relations Institute (CIRI) and Fleishman-Hillard Inc., polled financial analysts and investor relations officers (IROs) at companies across Canada and the U.S. on operational and corporate crisis preparedness.

While many companies are mindful of the potential damage crises can cause to sales, reputation and operations, few have effective crisis plans in place to deal with those negative scenarios.

“Given the recent widely‑known sector crises — the Japanese earthquake, the 2008 financial meltdown, healthcare product recalls, extreme environmental damages, automotive sector crisis and other headline-grabbing disasters and scandals — companies need to be armed with a plan,” said Tom Enright, CIRI president and CEO. “No sector or company is immune, so having a crisis communications plan in place is simply prudent risk management.

However, half of the respondents say they don’t follow a crisis communications plan at all.

The survey looked at both operational crises, which are issues impacting a company’s day-to-day business, and corporate crises, involving a firm’s executive team or finances.

“The survey reveals that a poorly managed crisis clearly has a negative impact on a company’s valuation, so it is imperative to be prepared,” Enright says. “A crisis communications plan is one of the most important tools a company can have in its arsenal.”

Only 29 per cent of those who did have a plan said they update it once a year, even though it’s a best practice that ensures information evolves and remains relevant in the marketplace.

The survey suggests many firms are confused about the frequency of updating a crisis place:

  • Eighty-five per cent of responding analysts say a corporate crisis — fraud resulting in accounting restatement — has the greatest negative impact on a company’s value.
  • More than half of respondents  say their company builds a plan that prepares them only for an operational crisis.

“While it’s clear transparency and proper disclosure can impact a company’s valuation during a crisis, many are still ill-prepared to demonstrate this through proper communications,” said Anne Lachance, senior vice‑president and global financial services co-chair with Fleishman-Hillard.

The survey found few businesses have a crisis plan that incorporates social media protocols despite knowing the impact of outlets like Twitter, Facebook and YouTube.

Indeed, the survey notes only 17 per cent of responding IROs say their companies use this tools as a channel for crisis communications.

More survey results:

Eighty-five per cent of responding analysts say IROs are a main point of contact for a corporate crisis specifically.

  • Fifty-five per cent said don’t know if the crisis communications plan is updated after a crisis.
  • Half of the respondents don’t know if their company conducts crisis simulations.