A lack of communication and transparency with stakeholders and employees have been found to be the biggest mistake companies make during a corporate or operational crisis, according to a survey jointly released today by the Canadian Investor Relations Institute (CIRI) and Fleishman-Hillard Inc.

The survey, which polled financial analysts and investor relations officers (IROs) across Canada and the United States on crisis preparedness, noted that many companies are mindful of the potential damage crises can cause to their sales, reputation and share value. And yet most have either outdated or no crisis management plan in place to deal with crisis.

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

Half of responding IROs from the financial services and healthcare industries claim 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, issues 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 share valuation, so it is imperative for IROs to be prepared,” said Enright. “A crisis communications plan is one of the most important tools a company can have in its arsenal.”

The survey found that although as a rule it is best practice to update a crisis plan at least once a year, only 29% do so. Further, not only is there confusion around the frequency of updating a crisis communications plan, companies also struggle with its focus. Eighty-five percent of responding analysts say a corporate crisis — fraud resulting in accounting restatement — has the greatest negative impact on a company’s value. But over 50% of respondents say their company’s plan prepares them only for an operational crisis.

“While it’s clear IROs understand how trust, 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 value of having IR as an integral part of any company’s communications crisis plan can’t be underestimated; having a clear, thought-out plan in place at the end of the day allows for quicker reaction and faster recovery to a potential crisis. Displaying a strong effort to communicate frequently with investors and shareholders throughout a crisis goes a long way to preserve and maintain a company’s reputation and stock price.”

When focusing on digital communications, the survey found that while many analysts and IROs recognize the potential impact that social media outlets—Twitter, Facebook and YouTube—can have on their companies, few have a crisis plan in place that incorporates social media protocols.

The study found over 50% participating analysts turn to the corporate blog for information during a crisis, but only 17% of responding IROs say their companies use this tool as a channel for crisis communications.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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