Online Communications And The Financial Crisis - Executive Summary

Executive Summary Corporate online communications during the global financial crisis Introduction The financial crisis has created an exceptional circumstance in which to evaluate the quality of corporate online communications. As companies have been affected across the board, this has presented an opportunity to make a comparison between their online communication methods. We took the occasion to survey 51 of the world’s largest financial institutions and evaluate their online responses in October 2008 as significant events were unfolding. This research has highlighted the growing gap between the demand and supply of corporate information. While users are increasingly turning to online resources, companies are failing to use their own websites to tell their stories. This poses a serious problem as the window of opportunity to respond to and generate news is shorter and more immediate, necessitating faster corporate action in the face of breaking news. An opportunity is presented by the web in that it allows companies to answer immediately and to the widest audience possible. Moreover, unlike third-party sources, the website is an effective tool for complete control over corporate messages. Information posted on the website can be used as a primary basis for reporting picked up by sources without direct access to management. By using the web as an integrated part of corporate communication strategy companies can meet this demand in a more time-efficient and cost-effective manner. These processes should be happening on a dayto-day basis and the sooner they are addressed the more coordinated the reaction in times of uncertainty. Our research shows that companies failed to satisfy and anticipate the need for greater transparency through their corporate websites. This poorly managed response demonstrated a worrying lack of concern for the re-establishment of credibility among their internal and external audiences.

The Research Throughout October 2008 we evaluated the quality of the English language versions of the corporate websites of 51 of the world’s largest banks. In order to underpin the importance of our evaluation we firstly took various measurements in order to quantify the demand for information online. We analysed this demand by surveying the number of Google searches, Wikipedia hits and blog entries for key words such as ‘financial crisis’, ‘stock market’ and ‘core capital’, as well as names of companies such as Merrill Lynch and Lehman Brothers. Our selection of company websites includes the largest commercial banks in the leading economies of Europe, the US and Japan. We analysed their websites as the crisis reached a peak in the wake of the bankruptcy of Lehman Brothers, paying particular attention to companies that needed state intervention in France, Iceland, the UK and Switzerland.

Results Demand for information Heavy traffic increases were recorded on top investment/finance and business websites such as Yahoo and Google Finance. Blind searches for key terms such as ‘financial crisis’, ‘stock market’ and ‘core capital’ rose up to five times the average traffic of the year preceding October. Another interesting feature was that the demand was short-lived, peaking on the day negative news was announced and then tailing off to previous levels within a space of about 2 weeks.

Graphic 1: Google searches for crisis-related terms from June-November 2008 Financial Crisis

Stock Market

Core Capital

6 5 4 3 2

Nov 2 2008

Oct 26 2008

Oct 19 2008

Oct 12 2008

Oct 5 2008

Sep 28 2008

Sep 21 2008

Sep 14 2008

Sep 7 2008

Aug 31 2008

Aug 24 2008

Aug 17 2008

Aug 10 2008

Aug 3 2008

Jul 27 2008

Jul 20 2008

Jul 13 2008

Jul 6 2008

Jun 29 2008

Jun 22 2008

Jun 15 2008

Jun 8 2008

0

Jun 1 2008

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Source: www.google.com/trends * Numbers on the Y axis represent multiples of traffic increase over the period surveyed. The number 1 represents an average of the number of searches from November 2, 2007 to November 2, 2008

Internet users were also tapping into social media for crisis-related information as demonstrated by the demand placed on sites such as Wikipedia and blogs. Hits on the days that news was announced such as the collapse of Lehman Brothers produced hundreds of thousands of searches. To examine how the financial crisis was affecting the blogosphere, we surveyed data from Technorati, the blog analytics website, which showed similar sharp upward spikes in the number of blog entries mentioning corporation names or topics related to the financial crisis.

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Corporate responsiveness online The world’s largest banks failed to provide adequate disclosure online at a time when companies needed to communicate even more with the market in order to confront the climate of confusion which characterised the financial crisis. Overall the online communications of financial institutions gave the impression of ‘business as usual’ despite the exceptional nature of the circumstances. Companies failed to respond quickly to news online and did not seek to engage stakeholders. The survey revealed eight online communication methods as well as five kinds of information available on corporate websites. These criteria were used to determine the effectiveness and level of disclosure provided. Graphic 2: Research parameters

Forms of communication

Types of communication

Press releases Dedicated web pages to the crisis Webcast Management statement External links to third party sources Corporate newsletter Q&A section Links or dedicated areas on the homepage

Direct reference to the financial crisis Background to the financial crisis Statements on financial stability Economic analysis Information about government actions

Seven companies provided no crisis-related communication whatsoever on their websites. Thirty nine companies (76%) provided at least one press release mentioning the crisis or negative events, adhering to standard disclosure requirements. Still it is revealing that a quarter of the companies most severely affected by the financial crisis failed to do even this much. Besides the standard practice of issuing press releases, communication levels online with regards to the crisis drop drastically. Few websites put their top management forward with only 30% producing a management statement. Few companies sought to explain the crisis and how it affected them at all: 64% avoided direct reference to events on their website or did not mention it all. Only 12% produced background information. Less than half provided any sort of statement regarding their financial stability. Twenty seven percent created web pages specifically focusing on issues related to the crisis and 25% produced a Q&A addressing stakeholders’ most frequently asked questions. Another solution, providing links to external authoritative third-party websites, was only used in 16% of companies surveyed. The following table illustrates our overall results for all criteria:

Table 1: Overall results for crisis-related information provided on corporate websites Type of Information

Press releases Dedicated webpage Webcast Management statement

Percentage of companies providing information 76% 27% 29% 31%

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External links

16%

Corporate newsletter

24%

Q&A

25%

Home page Direct reference to the financial crisis

73%

Background to the economic crisis Statements on financial stability Economic analysis Information about government action

14%

35%

47% 25% 24%

On a country level there was no significant difference between the level of website reporting within Western Europe the U.S. or Japan. Size was also not necessarily an indication of how well or poorly companies responded. Companies that sought to raise capital privately performed rather better than companies bailed out by the government or those that failed entirely. The best companies confronted the crisis head-on and were proactive online: they published comprehensive information, explaining how they were affected (or not affected) by the crisis, and gave their views on the extraordinary market conditions. They responded quickly and provided helpful links, making the information easy to find. They made use of interactivity and their messages were tailored in a way that spoke to as large an audience as possible. Companies in our survey that successfully did this included New York Life, Danske Bank, BNP Paribas and Swedbank.

Lessons Learned Corporate websites are uniquely placed to speak to the widest audience possible as well as the usual targeted investors and journalists. Through the web companies can speak to depositors and the general public, who are worried about the possible failure of banks, the consequences for the general economy and their liabilities as taxpayers. Thus corporate disclosure can have a great effect on commercial operations. Companies have failed across the board as these extraordinary events have revealed that they are not internally prepared to address this wider audience, especially at times of negative news-flow. The first step to improving is thus to recognise and understand the sources of failure. Secondly the story should be told quickly and honestly, using all available channels. Implementing successful online communications requires this cultural shift. Management must buy into online communications – emphasizing its use as an integrated channel for telling the company story. Online disclosure should be part of an integrated investor, press and related media response. Developing internal policies of disclosing regularly, transparently and in a timely manner on the web ensures a faster and more effective response in times of crisis. The best corporate online communications during the crisis came from companies that already had such corporate policies. When information needed to be added to the website quickly there was already a structure in place ready to produce and manage content. One obstacle may be that it takes too long to disclose information formally or decide what can and cannot be published online. A way to address this time lag and inefficiency is to give high priority to the people who are responsible for web content. Give them a greater understanding of the company's response as events unfold so that they can propose content for approval and start planning a package for the web (special pages, videos, Q&A sections, etc.). Although sensitive information is off limits, they need established internal processes for crafting as complete a story as possible for a diverse audience with efficient approval mechanisms. A crisis is not the time to start thinking about how best to use the website. To be effective online communications must be an integrated part of a company’s strategic communications in order to react quickly to any eventuality. 4

Ways forward It is important that management recognises the risks of a failure to communicate online. Especially in cases where companies did not communicate at all giving rise to speculation and further uncertainty. Communicating via press releases on the corporate website is standard practice, but going beyond this channel makes a strong statement of reassurance and transparency. An opportunity has also been presented for companies to differentiate themselves by making good use of the web. As the level of dialogue is quite dismal this presents a way for companies to do ‘less poorly’ than their peers merely by keeping a minimum yet consistent dialogue with web users. In order to effectively communicate online the following principles should be kept in mind: • • • • • • • •

Honesty – demonstrate awareness of the situation as the first step to regaining confidence Clarity of language – talk to a wider audience by making the information easily understandable such as an investor Q&A or a well written management statement Completeness – provide background to the story by explaining the context of the corporate information that is being released Link to other resources – provide links to reliable third party sources of information if sensitive disclosure is involved Authoritativeness – the presence and opinions of company management should be felt Easy to find – make the information users want to find highly evident. Communicate up front using the homepage to make a clear statement about adverse circumstances or results. Provide clear links to further information Coherence - the online channel should be integrated with traditional media channels in the way the corporate story is told Interactivity – evolved responses based on stakeholder questions and concerns with use of technologies such as video, Q&A and dedicated contacts

Online communications is an essential and integral part of communications strategy as it is an increasingly important public face of a company and a primary source of authoritative information. As major corporations will most likely face recurring moments of negative news this channel should be strategically placed to demonstrate how the company values responsiveness and transparency. In this way trust and reputation can be regained from all company stakeholders.

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Appendix 1: List of companies surveyed Aegon Hypo Real Estate Banco Popolare ING Group Bank of America Intesa Sanpaolo Banque Populaire Kaupthing Bank Barclays KBC BBVA Landsbanki BNP Paribas Lehman Brothers BPM Lloyds Tsb Bradford and Bingley Mediobanca Caisse d'Epargne Mediolanum Candian Imperial Bank of Commerce Merrill Lynch Citigroup Mitsubishi UFG Commerzbank Mizuho Crédit Agricole Monte dei Paschi di Siena Bank Crédit Mutuel New York Life Crédit Suisse Royal Bank of Scotland Danske Bank Royal Bank of Canada Deutsche Bank Grupo Santander Dexia Société Générale Fannie Mae Swedbank Fortis UBI Banca Freddie Mac UBS Glitnir UniCredit Group Goldman Sachs Wachovia HBOS Washington Mutual Wells Fargo

*This research has been conducted by Lundquist Srl, a corporate communications consultancy based in Milan, Italy.

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