Not everything always goes the way we planned. Companies aren’t perfect, and neither are their results. Even when businesses do everything right, losses beyond their control can be incurred. Products may be defective, a major customer might go under, or the cost of raw materials could increase. From time to time, even great companies—public and private—will face the challenge of announcing disappointing financial results. When bad results occur, how can companies communicate effectively and avoid unwanted consequences? Here are three things to keep in mind when communicating with key constituents:
Transparency is essential when communicating bad news. The most valuable asset of a management team is its credibility. Most of the time, investors are betting on the management team’s credibility in taking the company to the next level. The trustworthiness of a management team plays a large part in determining the long-term value of a company, so it’s imperative not to undermine your stakeholders’ confidence with misleading information.
When communicating bad news, it is essential for a company first to acknowledge the problem, accept some responsibility and explain what they learned. It is even more important for the management team to lay out a sound plan to make improvements. Demonstrating that it has a handle on the issue and that it is making clear progression toward a solution, helps build credibility with key constituents and comforts investors.
Analyzing financial reports should go beyond looking at bottom-line numbers. Just because an expense doesn’t produce revenue doesn’t mean it’s not a good investment. In order to draw a true picture of a company’s financial situation, beyond the simple numbers, it should also report the qualitative dimensions of its performance.
This would include reporting things companies do to keep their employees and customers happy, and to improve their brand goodwill. For example, a company might spend money on a customer service training program that does not increase sales, but keeps customers happy and avoids losing sales. Sponsoring a local cause can improve the company’s brand value and create a stronger bond with the community. A company might never be able to calculate an exact dollar return from its morale program spending, but those qualitative actions are significant to a company’s ability to create long-term value and build sustainable competitive advantage. Communicating that value proposition is a key component of explaining lower than anticipated financial results.
Think Before Taking an Action
Before opening a conversation about bad news, management needs to consider the full implications of what transpired and be ready to discuss them. The communications team should work with finance and legal departments to prepare scripts of potential questions and answers for both internal and external audiences, and spend time rehearsing the discussion.
It’s necessary to make sure that all executives with a role in communicating the bad news are aligned on messaging and understand how to customize their talking points to each audience: investors, the board of directors, employees, business partners, reporters and customers. The appropriate delivery medium — email, phone, town hall meeting, in-person meeting, etc. —should be determined in consultation with the management team.
By choosing to think strategically about their communications, companies can help key constituents better understand their business performance and strategy, especially when faced with bad news. While the focus will be on C-level executives in these times, communications professionals are critical in preserving the management team’s credibility and helping pivot to good news ahead.