Corporate communication in the new era: confronting the financial crisis

Citation

Elving, W.J.L. (2009), "Corporate communication in the new era: confronting the financial crisis", Corporate Communications: An International Journal, Vol. 14 No. 1. https://doi.org/10.1108/ccij.2009.16814aaa.001

Corporate communication in the new era: confronting the financial crisis

Article Type: Editorial From: Corporate Communications: An International Journal, Volume 14, Issue 1

At the end of 2008, the world is facing a financial crisis that will affect businesses worldwide. From a corporate communications viewpoint, these are interesting times. Although the crisis is universal, the various forms of (mis-)communication make these times very dynamic. While there is the possibility of negative consequences for communication professionals, there is also the potential for new opportunities in our field. The stock markets appear to be influenced by rumors, and some of these rumors probably spread in order to profit from falling stock prizes. This has already led to regulations, for instance the ban on short selling, and various voices are claiming that there should be a European or even a global council to regulate the financial market. Trust, or a lack of trust, seems to be the key word, and without doubt, financial institutions have a precarious hold on the confidence of the general public and convincing them that they remain in control of the current situation.

In Western Europe, one of the most interesting recent cases was the acquisition of one of the largest Dutch banking firms by a consortium lead by Fortis, Royal Bank of Scotland (RBS) and Santander. ABN AMRO has always been a successful Dutch bank, but some of the activist shareholders (who, according to some media held only 1 per cent of the shares) wanted more shareholder value and forced the bank to take action. Although ABN AMRO first talked to the UK’s Barclay’s bank concerning a merger, a consortium lead by Fortis acquired the bank for far more than Barclay’s offered. This led to a division of ABN AMRO in 2007, where the main section (Dutch banking customers) would go to Fortis, and some international and business departments would go to Santander and RBS. All of this seems to be a normal acquisition. But Fortis had difficulty finding the money for the acquisition of ABN AMRO even prior to the financial crisis. And, with the financial crisis at full outbreak after the summer of 2008, Fortis itself need to be saved. In October, when it became clear that Fortis did in fact have large financial problems due to the financial crisis, the entire deal came to a deadlock. Initially, the governments of Luxemburg, Belgium and The Netherlands provided large sums of money to help Fortis survive. But within one week the Dutch Government announced that the Dutch sections of Fortis were to be taken over by themselves, and that this was to include the remaining part of ABN AMRO. Other parts of Fortis were sold by the Belgium Government to BNP Paribas, leaving shareholders of Fortis with only a small portion of the company. Shareholders announced legal action in an attempt to save what, only a few months previously, had been considered public stock and shares, and which had attracted many investors, primarily from Belgium and people saving money for their pension.

The interesting aspects during this crisis, from a corporate communication viewpoint, are not only the crisis and the (mis-)communication of the various participants. Investor relations is already an important subject within our field, and throughout this crisis attracting investors in order to sustain development of businesses will even be a larger achievement. Some communications, for example by the CEO of Fortis, led immediately to a further fall in the share price of Fortis. First of all, one of the main tasks of corporate communication is to increase the communication competency of CEO’s and board members. Secondly, although media relations and the monitoring of media outlets has been the subject of intense scrutiny within our field, the crisis shows that responses to the crisis and the subsequent actions taken have a tremendous impact on a global level. A problem in the USA makes Western European organizations vulnerable and in need of support, and could lead to the bankruptcy of complete nations; and all this occurs within the time span of a few weeks. The pace of information available to the general public has become so high, that the monitoring of media outlets, and the ability to respond as and when necessary, has changed considerably over the last few years, and will need to be worked on and further improved in the future.

The employees of ABN AMRO were left in a position of uncertainty concerning their own and the banks future at the take over in 2007. The initial proposed merger with Barclay’s and the eventual hostile take over were, of course, hot news. Every newspaper and major television talk show scrutinized the topic. The employees of ABN AMRO who did have had a long experience in organizational change, just as probably every organization seems to face a constant change program, as we saw in our recent special issue on communicating change (Corporate Communications: An International Journal (CCIJ), 13 (3)). It is interesting to study internal communications during the various phases of the entire situation, from the first phase, being the proposed take over bid by Barclays; the second phase in which the consortium did make an offer; to the third, being the integration of certain divisions with the three banks from the consortium; and more recently, in 2008, the termination of integration with Fortis, and finally, the functioning of a now nationalized a bank in the hands of the Dutch Government. The questions must be asked of how it is possible for internal communication to be structured and organized when the acting department does not know who the owner will be in the near future, or in what direction the company itself will head? How is it possible to motivate staff during these periods and prevent them from leaving? Now that the Dutch Government has taken over ABN AMRO, employees are more assured of their future, or does ownership not matter?

From a marketing perspective, the crisis has thrown up some interesting developments. For instance, one of the first financial institutions who needed to be saved and was purchased by a government was the British bank Northern Rock. Northern Rock is currently attracting customers with the idea of completely safe and protected saving accounts due to government ownership. Within two days of the nationalization of ABN AMRO, they advertised a saving account with a high-interest rate, where the word certainty was prominently placed. The nationalization of these banks certainly offers the opportunity to attract new customers; a necessary requirement to keep the banks operating and prevent them from bankruptcy.

Another interesting point is that these deals are made during the times that the stock markets are closed. The negotiators need time, so they need to work at the weekend to make the deal. However, media coverage is a 24/7 operation, and the internet provides excellent opportunities for communication. But it must also be observed that during the crisis CEO’s and others are often jostling for media attention and coverage. For example, when negotiations between Fortis and the Dutch and Belgium Governments was underway, a photo of Filip Dierckx the CEO of Fortis became available in which he had a pile of documents under his arm. Strategically placed so as to be visible was a document which was photographed and published on various news sites. The document showed a concept of the deal with the Dutch, Belgian and Luxembourgian Governments which needed to be negotiated further. It seems that this Filip Dierckx intentionally showed the document, possibly with the aim of informing stock market traders that the saving of Fortis was underway.

Another prominent incident involved savings banks from Iceland. Within Britain and The Netherlands, these became very popular within a few months, attracting dozens of individual investors, as well as the corporate and municipal, by providing high-interest rates. The Icesave bank started their campaign in The Netherlands in the beginning of May 2008. By the collapse of the Icelandic banks in October 2008, they had already attracted approximately 300,000 British customers, and at least 160,000 customers in The Netherlands alone. Clearly this is a great marketing achievement, although almost certainly based on false assumptions. Besides, the ethics clearly involved in these kinds of marketing, an interesting point for corporate communication is also the introduction of new brands, and winning stakeholder confidence, which seems to be achieved faster than was thought possible in the past.

Executive compensation and annual bonuses are already one of the ongoing debates within society, and both the media and politicians act as if outraged at compensation that has been paid in the past. The financial crisis will probably lead to more controversy on executive compensation. Michael Goodman (2008) from his US benchmark studies on corporate communication already emphasized that “executive compensation issues have increased the need to clearly articulate ‘pay for performance’ criteria, to educate constituent groups about retaining top talent, and to educate executives about the need for open, factual, non-defensive discussion about their compensation”. Media and public awareness of the issue demands a greater concern for transparency, employee dissatisfaction, and stakeholder backlash. Goodman advises corporations to embrace accountability and transparency in circumstances of executive compensation.

Corporate communication departments have had a large and increasing number of tasks and responsibilities and it seems that the current crisis will further extend the number of tasks expected of them. The big question is what will come next. Possibly there will be a lot of companies who will face difficulty in getting new projects financed and who will need to lay-off employees or temporarily have to stop production. The essential and key question for the corporate communication community is whether the financial crisis will impact on the size of communication departments as well, or whether corporate communication has made its’ existence within corporations permanent and crisis proof. Does the need to attract new investors, create a sustainable reputation, deal with the crisis, deal with media outlets, the need for a competitive workforce will lead to a bigger role of corporate communication departments? These are interesting times, whatsoever. We have already learned from studies on communication management and corporate communication in Western Europe, the USA and elsewhere (Goodman, 2008; Elving et al., 2008; Meckel, 2007), that corporate communication is growing, in size, tasks and responsibilities. And, the financial crisis will certainly lead to greater transparency. The distrust in corporations, already present before the financial crisis but now probably greater than ever, needs to be changed into a new situation of trust, conviction and confidence. But, as the saying goes, trust arrives on foot and leaves on a horse. However, trust can be regained and re-established through trustworthy communication, and by being transparent, open and honest about the operations of a company. An important question will be whether the efforts of organizations on Corporate Social Responsibility (CSR) will be increased, as a way to re-establish trust, or whether CSR efforts will be reduced and decreased due to the financial crisis.

The financial crisis may affect some of the professionals working within corporate communications, but it will also provide excellent opportunities for the study of corporate communication. Not only the crisis itself and the communication of various participants, but also the effects of rumors, executive compensation, changes in communication, and globalization are subjects which need to be studied further so as to develop new theories, conduct empirical research, and so on.

Corporate Communications: An International Journal is the leading journal investigating and studying these developments. CCIJ is, and always has been, a journal in which practitioners, as well as academics present articles that fulfill the need for knowledge about corporate communication. We will strive to continue to do so in future, with dedication and with even higher quality than in past issues.

It is a pleasure to present the first issue of Volume 14. In this issue you will find top papers on issues within corporate communication from all over the world. From Malaysia there is a very interesting paper on Leader Member exchange, which remains the centre of internal employee communication. There is an article from Australia, which studies a social disclosure rating of the CSR activities of companies. Another paper from Australia digs deeper into the possibilities that new media or web 2.0 applications might have for businesses. From Canada there is a very interesting paper on strategic ambiguity and the Triple Bottom Line in CSR; and from Florida (USA) we have a paper on international PR projects, in which national and organizational cultures are included as antecedents of success. The sixth paper in this issue, also from the USA, is about crisis communication, and deals with prescribing versus describing in crisis communication strategies. Furthermore, we have a book review of the second edition of Joep Cornelissen’s “Corporate Communication”.

Finally, we have a new Call for Papers on Corporate Apologies. The financial crisis we are facing at the end of 2008 certainly should lead to other corporate apologies. And, given the current situation, the time is appropriate for an exploration, examination and assessment of the subject.

Following this editorial is a list of all the ad hoc reviewers on which CCIJ relies and upon whose contributions we depend. We thank them for their work and their continued contribution to the corporate communications community.

Wim J.L. Elving