What not to do in a corporate crisis
Putting out the right information in a crisis is not easy to do. But by being open and direct one can restore some of the lost credibility
One had assumed that corporate communications in India (world’s fastest growing economy) had advanced beyond the pleading and begging of public relations. The latter is when firms try to sell a story to the media, usually about a product or a service. There is no exchange of money involved, at least officially, and so it is necessary to be in the position of a supplicant. Every PR person has had the experience of being kept waiting outside the editor’s office.
The former, corporate communications, is more serious and aimed at creating a favourable view of the organisation in the minds of consumers and investors. The question is: Has it kept up with the pace of the economy and the size of it? I ask because it could be argued such communication is still executed by multi-billion dollar businesses in a crisis as if they were mom and pop shops.
Two examples from recent days will serve nicely to illustrate what is being discussed. On January 29, the investigative website, Cobrapost, published a report accusing Dewan Housing Finance Corporation’s promoters of “siphoning off ~31,000 crore of public money.”
The sums involved are astonishing and to the ordinary person quite incomprehensible. However, our interest here is not on whether or not there was a crime but how the company responded. The allegations were made in a very detailed, extremely long report which one presumed the company would in turn rebut in detail. What it did instead was to issue to Cobrapost a note which was made public. Parts of it read:
“Kind attention: Team Cobrapost,
We received your captioned email at 8.27 am today, with a follow up reminder one hour later, seeking answers on 64 detailed questions containing not only false but also wholly unjustified innuendos and allegations. It is surprising as to why you have even sought explanations, considering that you had already arranged this press conference on Friday, 25th January 2019, with a pre-determined view that you are exposing a ‘financial scam’. You have already planned to defame us with many false and scurrilous allegations and even possibly to disrupt the current financial market equilibrium. Your request for explanations a few hours prior to the press conference only shows that you do not heed to any ethical journalistic practices.
It is also curious that a few weeks ago we were informed of a complaint filed with a Magistrate Court by some unknown person containing similar scurrilous allegations, which is yet pending. Copy of this complaint was sent to us precognizance, for which we immediately filed a criminal complaint. Copies of this complaint have also been circulating in the system. And now your press conference makes similar allegations. Isn’t the timing of the press conference curious? Just half an hour before the stock market closes. What is the real intent here? Expose? Or something else?
Obviously, your intentions do not appear to be in the spirit of investigative journalism. The allegations are mischievous and made with mala fide intent to damage the goodwill and reputation of DHFL, resulting in erosion of shareholder value, and to disrupt the market equilibrium, which is just about stabilising.”
The note is signed by “Nodal Officer” and ends with a paragraph about DHFL’s high rating and what I read as a mild threat to sue. Is this the sort of communication that a company accused of committing “India’s biggest financial scam” ought to have put out? It is not sophisticated and actually quite crude. The markets gave their judgement and the stock has crashed (it lost another 17 per cent on Thursday).
The second crisis communication is from the chairman of the Zee group, Subhash Chandra. His company’s stock lost 30 per cent on January 25 and touched ~230 after a negative report on it. Again, our interest is not the allegation but the response to it. Mr Chandra put out a personal letter of over 800 words. To me, the interesting bits are the following paragraphs: “Dear Friends,
At a very early stage of my life, I have learnt the most important lesson from my grandfather, Shri Jagannath Goenka, which taught me that a direct dialogue with creditors should be maintained, should you find it difficult to repay any sort of loans, and this message is my earnest effort in doing so.
First and foremost, vide this message I would like to express my deepest apologies to our esteemed financial supporters. I have always been the first to accept my faults and we have been consistently accountable of the decisions taken, and I will maintain the same today as well. For the first time in my career of 52 years, I am compelled to apologise to our bankers, NBFCs & Mutual Funds, since I believe that I have not lived up to their expectations, despite the best of my intentions.”
The meandering and loose composition and the errors (“up to” etc) tell us that this is all his own work and no corporate communication boffin was allowed to touch up the words later. He continues:
“I am extremely certain that there is no promoter in India Inc, who has dared to sell the jewel of his crown, to pay off the liabilities… That said, I am not indicating that there are no mistakes done from my end, and as always, I am willing to face the consequences of the same. I assure you, that I am not running away from the core issue and will do my best to repay each and every person. The best time for the same, however, is difficult to be mentioned at this stage. I would also like to state through this message, the key points which have gone wrong:
Essel Infra: As most of the infra companies, even we have made some incorrect bids. In usual cases, Infra companies have raised their hands and have left their lenders with non-performing assets, but in our case, My Obsession of not walking away from the situation, has made me to bleed 4000 Cr. to 5000 Cr. of Rupees.
Acquisition of D2H: My recommendation made to my brother Jawahar Goel to buy D2H from Videocon was one more key error, which costed me and Jawahar both, a fortune.
When our family business separation was implemented, as the eldest member of the family, I had taken the entire burden of the debts. I believe, it was my mistake to have told myself that ‘Subhash you can earn and repay the creditors’. Post which, most of my bets on the new businesses have not worked, which led to the increased debt, due to the added interest levels.”
He ends by asking the debtors not to panic else they and he will both be hurt. There is an attempt at openness and honesty in these words. They were written after the stock crashed, but in the days since they seem to have worked. Zee is today being traded at 380, having risen consistently since the crash, though clearly the group’s debt problem remains exactly where it was on January 25th. Corporate communication in a crisis is not easy to do. The crisis may not go away through communication, but by being open and direct one can buy time and restore some of the lost credibility. It is amazing to me that companies that deal in thousands of crores do not seem to understand this.