Large or small, even the best managed businesses may be hit by an unexpected public relations crisis. These can be recalls of dangerous or contaminated products, a civil product liability law suit, or some other unforeseen disaster that may hurt sales, the bottom line, and reflect badly on a company's image.
When a public relations crisis strikes, a CEO's initial reaction may be to stonewall the press and refuse to comment. Public relations experts who have successfully handled numerous crises which threatened to destroy a company's sales and public image say this is the wrong way to handle the problem. In fact, they urge the opposite: an immediate and full public disclosure. This is the proven method to successfully defuse such crises and resolve them favorably. An honest and vigorous public relations initiative which includes damage control, and an opportunity to rebuild the public perception of your company, is the preferred approach. (To learn more, check out Public Relations: Offering Businesses A Competitive Advantage.)

Meet the Crisis Head-On
Although every crisis will have unique aspects, there are general principles which apply to most of them. Whatever the crisis, the media, the public and, most importantly, your customers and prospects want to know what happened, why, how can it be fixed and how can customers be compensated for any damages or inconveniences they might have suffered, if any.

The guiding principle for handling such crises is: Tell the truth, the whole truth and nothing but the truth - and tell it immediately. State publicly only what is known, just the facts. Do not make statements that assume, guess or speculate on any aspect of the crisis. Make certain that legal counsel examines all statements before release. Concealing facts regarding the crisis will in most cases backfire, because the media will eventually uncover them, report them widely and more damage will be done to an already damaged company.

Addressing the Media
In most instances where a public relations crisis affects a company, the media will contact either the firm's CEO, the company spokesperson or public relations or media relations department (if there is one) or some member of senior management. Reporters will ask for explanations and quotable statements. Designate a crisis management team or individual, and direct all requests for information to an appropriate member of the group or the appointed spokesperson. Authorize no one else in the company to speak to the media. Internal information about the crisis should only be given to members of the crisis management team and or spokesperson to insure that the company speaks with a single, consistent voice. If there are technical aspects to be disclosed relating to the crisis, an authority in that specialty should be designated to interact with the media.

The public statement should also include how people might be affected by the problem. This would include informing customers who might have bought a recalled, flawed or contaminated product. In these cases, the company should provide a refund or equal-priced replacement for the product. In some cases, a contaminated product should be disposed of, and customers who have purchased such a product should be properly informed.

When addressing the public and or media, present a calm, sympathetic face. Denying responsibility or accountability for the situation creates more customer and public hostility. Keep in mind, this approach is different than admitting liability, a legal issue determined in a court: but again, clear public statements with legal counsel. (For more, see Financial Media 4-1-1 For Investors.)

The CEO, and or technical spokesperson might also offer the media a real time or taped interview in which all questions are answered. A live TV or radio news broadcast with call-in questions is another effective means of handling the crisis. It may also be necessary to hire a public relations firm or expert consultant in crisis management techniques. Even if press coverage is extensive, it might also be advisable to buy advertising in print, broadcast and internet media, to address the crisis. A prepared press release, either created in-house, or by an outside public relations or media relations firm, can also address the crisis, at greater length and in more detail than a public statement. The press release might also contain a question and answer exchange, anticipating what the public would want to know about the crisis. The Q&A format provides general information in short paragraphs of sometimes just a sentence or two, and is easy to read and understand.

Legal issues should, of course, be discussed with counsel. Attorneys may urge an all-inclusive "no comment" to media, until the legal aspects of the crisis are fully understood and addressed. There may also be insurance issues to be considered, and applicable policies should be examined by attorneys. The downside in the "no comment" approach, however, is often increased media investigation, and an unfavorable public image. If and when the crisis eventuates in civil lawsuits, or even criminal prosecutions, the refusal to comment by the company being sued will have a negative impact on the jury. (For more, see Build A Wall Around Your Assets.)

What to Expect
Even after a public statement or statements have been made by the company experiencing the crisis, the media may continue to ask questions about matters both addressed in the statements, and about those not addressed. This may continue for days or weeks after the initial crisis is reported. The affected company should also expect customers to be angry and disappointed. These are natural reactions, and if the company acts in a responsible manner, these emotions should eventually wane and can be replaced by a renewed loyalty to the brand. Customers may appear at retail outlets, for example, demanding refunds for recalled or faulty goods, or for affected services. The company should initiate an immediate full refund or replacement policy to restore goodwill among customers. An additional bonus to affected customers in the form of a gift card or discount coupons will also help rebuild customer favor.

Public relations experts urge the company to be patient, and to continue its co-operation with the media and answering their questions completely. The same approach is also urged in response to customer complaints. Drafting a new, more comprehensive guarantee of products and or services should inspire consumer confidence, and may even spur more vigorous sales in the wake of the crisis.

Once the crisis seems to be diminishing, if the company can afford it, a brief advertising campaign in print and or broadcast media can further disseminate and reinforce your message. If the firm also has a website, the PR-advertising message should be posted there as well.

Points to emphasize in the advertising should include:

  • The company's policy of full refunds or replacements of the affected product
  • Steps taken to prevent a recurrence of the problem
  • New guarantees
  • New incentives (bonus gift cards, discounts, etc.) to recapture lost business
  • An apology for any inconvenience caused by the crisis

The Bottom Line
A quick, honest, full disclosure response to a crisis is the best way of controlling damage, maintaining the trust of your customer base and minimizing loss of sales, which in most cases is inevitable. Eventually, however, if the principles of crisis management are implemented, sales should be recovered, along with credibility, consumer trust and a lustrous public image. (Not sure if one of your holdings is handling a crisis well? Check out 8 Signs Of A Doomed Stock.)

Related Articles
  1. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  2. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  3. Professionals

    Small RIAs: How to Level the Playing Field

    In order to compete with larger firms, small RIAs have to get a little creative. Here are a few ways to kickstart growth.
  4. Entrepreneurship

    Top 5 Startups That Emerged in Denver

    Learn why Denver is one of the hottest markets in America for startups, and identify five of the top startups that are emerging from the Denver market.
  5. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  6. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  7. Entrepreneurship

    Top 5 Startups That Emerged in Detroit

    Learn how startups are changing the face of Detroit, a city long dominated by large corporations, and identify the specific Detroit startups leading the trend.
  8. Entrepreneurship

    Top 5 Startups That Emerged in Boston

    Learn why Boston is a hot market for startups, and familiarize yourself with a few of the top startups that have emerged from the city.
  9. Entrepreneurship

    Top 7 Startups That Emerged in Mexico City

    Learn why Mexico City has the potential to emerge as a major player in the startup scene, and identify several companies leading the way.
  10. Entrepreneurship

    Elon Musk Success Story: Net Worth, Education & Top Quotes

    Read more about Elon Musk, the South African immigrant turned technology and engineering entrepreneur and inventor worth $13.6 billion.
RELATED TERMS
  1. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  2. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  3. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  4. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  5. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  6. Revenue-based Financing

    Revenue-based financing, also known as royalty based financing, ...
RELATED FAQS
  1. How are joint ventures regulated in the United States?

    Joint ventures are a very specific type of business arrangement. They can be organized in several different legal structures, ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  4. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  5. How do a corporation's shareholders influence its Board of Directors?

    The 21st century has seen a rapid increase in shareholder activism, such as the general awareness, involvement and influence ... Read Full Answer >>
  6. What protections are in place for a whistleblower?

    Whistleblowers can play a critical role in ensuring the compliance, safety, honesty and legal fairness of governments and ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!