Chapter 10: Crisis Communication

A crisis can happen to anyone at anytime, including businesses and corporations. Crisis situation can occur for various reasons. Some that come to mind our natural disasters, changes in government regulation, changes in consumer behavior, company negligence, or employee negligence. Much of the crisis that occurs today is the technology based. Many individuals steal data and information from computers. To say the least, a crisis can arise from a variety of situations. Certain crisis that were national stories include the Exxon Valdez situations in the late 80s, Hurricane Katrina which affected various corporations and businesses, Enron scandal, 9/11, the Tylenol recall of 1982, Pepsi-Cola syringe crisis on 93, Y2K, etc…

The textbook defines a crisis as, “A major catastrophe that may occur either naturally or as a result of human error, intervention, or even malicious intent.” Companies need to prepare for such events. Managers must assess the risk of the company, such as determining aspects that affect the company, which may cause a crisis. The communication department should focus on understanding their environment. Those managers will then be better able to determine possible crisis that could occur. Next, they must understand how the crisis affects their environment, and the company’s constituencies. Organizations must be prepared for the worst, and plan accordingly so they are not out in the cold when something happens.

A crisis that just occurred to a company this weekend is Goldman Sachs, which is being charged by the SEC with Fraud. This crisis event could seriously affect their business. Many customers may not be willing to stay with this company since they have been charged with defrauding investors on a sale of securities. I will be sure to monitor this situation to see how managers and communication officers handle the crisis.

Crisis Management

Talking about crisis management the first example that comes to my mind is Toyota motor’s recall. One of the biggest recall’s in the history of automotive industry. Numbers of cars recalled were 7 million cars in 5 different countries. But as the Topic has been discussed numerous times I would like to talk about ‘The Indian Hotels Company’ the mother company of Taj Hotel which was one of the targets of Terrorist attack in Mumbai 26th Nov., 2008. This was a Major Crisis situation for a luxurious hotel which coupled with economic slowdown. As being the characteristics of ‘Crisis’ it was a ‘surprise’ for a Business to be a target for an attack. The Indian Hotels Company business of TATA groups was also caught unprepared. According to a Poll(mentioned in the book pg.226) in 2004 revealed that only 22 percent of Fortune 1000 companies say they are completely prepared to face a natural or manmade disaster.

Managing the crisis after it is occurred is equally important to being prepared for it. The steps that company took were recommendable. Taj Hotel determined their major affected constituents as employees and the customers. The hotel was reopened in span of 25 days with a grand reception for its customers which gave the exhibits of the new security systems installed, explained the training process which employees went through to better manage the crisis like this in future. The member customers of the Taj hotel were offered free three day stay after the reopening around 500 customers took advantage of that and were more than satisfied with improved security and service of the hotel which raised the value of the company. Employee the most important constituent as determined by the business played an important role in aftermath. Company set up a Trust Fund, the fund is being funded from companies profit and outside funders. Until now fund has helped 104 affected families with a payments/commitments of Rs 1.63 crores. The help provided to the staff ranged from Employee counsel sessions with personal counselors to taking care of dependents of deceased until they are self reliant, company has paid Rs. 6.7 crores in annuities to Life Insurance corporation of India. The settlement for every deceased member ranged from Rs. 36 to 85 lakhs. As discussed in the chapter management took the problem seriously chairman of Tata Group Mr. Ratan Tata personally met all the injured employees and also attended funerals of the deceased.

Talking about this kind of crisis compared to Toyota crisis, company did not have any kind of negative publicity but did gain the sympathy of all as was affected by the attack. The major blow to the company could have been its mishandling of its employees remuneration to the affected staff members but company did manage it well. Today the Taj Hotel is back to normal business.

Chapter 9 Government Relations: The Silent Monster

Turning to page 229, chapter 9, the initial sentence burst right out, "Government and business in the United States tend to have an adversarial relationship as business attempts to minimize government involvement in the private sector and Washington attempts to manage the needs of all citizens by exerting its power over the corporate realm." This phrase set in context of reality is much more intricate.

Today, a backlash exists towards big government and government spending. Conditions that have surfaced within the past several years have made this a suitable accusation. Additionally, there is criticism towards deregulation, an enormous component that caused the market to crash. By creating more and more agencies, our government is becoming extremely large; hence paying for these different agencies and services becomes more difficult. Consequently, this has led to a tremendous debt crisis the country now faces. Those who are against this trend have an extremely legitimate point. Yet, I do believe that certain industries must not have the main ambition be: “maximizing shareholder value.” In my opinion, the sole purpose of the government is to establish and help the middle class thrive; for many industries, the government is better able to serve this endeavor.

An issue that was mentioned above is a matter that needs to be addressed in the United States. The objective of many corporations when it comes to government relations is to eliminate as many restrictions as possible imposed by the government. This is a huge concern, particularly in certain industries; such as the Financial Companies, Food Companies, Energy Companies, etc… These Industries are crucial for the strength of the country. If the government eliminates rules and regulations, which it has for many of these organizations, it will cause problems, like we just experienced. The financial industry has been deregulated for the last 30 or 40 years. We now see the drawbacks that are produced when rules are purged. It is reported that the banking industry has never had more lobbyist, in Washington, than it has today. Therefore, we have witnessed virtually no regulation toward these financial institutions since the recession/depression.

This is where the paradox begins, given that large corporations fund most of the political campaigns, those politicians essentially have an obligation to repay them in some way. Also, in many instances, there is a blurred line between government and corporations. For instance, at one moment there is an individual working as the CEO of a big construction corporations, and at another moment, he is the vice president of the United States. This cozy relationship between Government and Corporation is common for both political parties, they move back and forward, from private to public, and their agenda’s may be different than what the American voter believes.

In retrospect, I sense that all these issues, regarding Corporate Government Relations, has created massive trouble. Corporations should not exert so much influence on the Government, and the Government needs to focus on serving the middle-class. Many people are unaware of these problems, and are unable to make accurate decisions when voting, or questioning the people in charge. This feeds the silent monster, and perpetuates the supremacy these individuals have at the top of the spectrum, while silently destroy the middle class.

Investor Relations - BTST 670 - Chapter 8

When I went through the whole chapter on investor relations, I realised that communication of the company’s performance through intermediaries is the key to having a sound investor relationship whether through the media, agencies, or the analysts. It seems that the media play a key role in investor relations with companies and therefore most companies would go to great lengths in having a good relationship with media houses in order for its image to remain reputable.

Its also interesting to see how the internet phenomenon has influenced the way companies announces their annual performance reports. It’s evident that the internet continues to play a key role in the way companies release their financial results. One question that really bothered me when I went through the whole chapter is why most companies (over 80%) still release the print version of their performance reports. I think, its more expensive to make a print version of it than to have the online version which can be viewed by millions of people across the globe. From my understanding, the printed document is sent to a limited number of investors who mostly are the shareholders and not everybody in the public domain, whereas on the other hand, online financial reports can be viewed by many millions of people who browse the internet everyday. Thus, from this perspective I would think that, most potential investors are more likely to view the online version of the financial reports.

Another interesting thing that I noted from the chapter is about individual and institutional investors. I must appreciate that as a matter of fact most companies focus more on institutional investors because they invest on long term other than short term and this therefore would make the prices of the company’s stocks become volatile. I think its for this reason that institutional investors hold more stocks in the US than individual companies.

One case scenario is back in my country where I come from where the stock market is relatively not developed, there happened to be this company that offered stocks to the public, and due to intense media coverage, there were massive oversubscription of the stocks whereby in addition to institutional investors many individual investors applied for the stocks. These individual investors main reason was to sell the shares when the prices goes up, so immediately the initial public offer was over they started selling the shares and the stocks prices went down. For the next couple of months the company’s stock prices were trading below the initial offer price. More over, the company was faced with an uphill task of organizing an annual general meeting because of the large number of individual stock holders. The venue and other logistics for the annual general meeting became a nightmare for the company because of the large number of individual investors. This posed a great challenge to the company in terms of costs of holding such an annual general meeting. Its for this reason, therefore, I think many companies would rather wish to have institutional investors than individual investors…