The impact of bad PR on share price
14th September 2015
The phrase “it’ll be tomorrow’s chip paper” is often used in PR circles and, for the most part, it’s true: a flash of negative coverage is unlikely to have a lasting impact on the future success of a company or its share price – as long as it is handled correctly.
Take Bic, for example, which recently unveiled its Women’s Day campaign, encouraging women to “look like a girl, think like a man.” In response to the online backlash, the firm swiftly said that it would “ensure that something like this will never happen again”. Hmm, is that true, Bic? Those of us with longer memories than your average goldfish will recall that this isn't the first time Bic has been under the spotlight for alleged sexism, having introduced pink “for her” biros in 2012. Nonetheless, the company has issued a full and frank apology, and its share price remains unaffected at the time of writing.
However, a sustained period of adverse coverage can cause lasting damage. In Tesco’s case, a protracted period of damaging stories in the media, including the horse-meat scandal, missed sales targets, profit warnings, profit overstatements and a series of high profile resignations, saw the company's share price hit a 14-year low in 2014.
A business’s performance, and ultimately value, is what should define its share price. However, just as a newly listed firm can experience artificially inflated share prices amid widespread excitement at its coming to market – as happened when Facebook floated earlier this year – when potential share buyers are put off by sustained negative coverage of a firm, the share price inevitably suffers. The media love to kick a company when they're down, and in Tesco's case the seemingly never-ending run of crises were easy pickings for tabloids and broadsheets alike. Still struggling on, the share price remains low at just 204.11 at the time of writing.
So, the question is, how can you tell whether a negative story is destined to become tomorrow’s chip paper, or drastically impact on the future success of a business?
The short answer is, with great difficulty. There are a number of external factors which can make a story run and run – the infamous Nic Hughes scandal at Friends Life, for example, involved a young family being denied a life insurance pay-out, and happened just before Christmas, adding enormously to the emotion around the case, and thus its newsworthiness – but many of the factors affecting the likely longevity of a negative story are specific to the scenario in question.
Once a reputation is in tatters, buyers are turned off, and existing investors can abandon ship in their droves. Enticing them back is no small task. The key is to get in there before people start running for the hills, and handle the increased media attention robustly, but with extreme care.
With such delicate handling required, and with the stakes so high, a board-level understanding of the role of PR in their firm’s success is paramount. Conversely, how many PROs have found that those in other departments totally underestimate the importance of their work until the proverbial hits the fan? While the astute CFO pays a great deal of attention to their firm's reputation and how it's protected in times of crisis, the sad truth is that until the bottom line has already suffered, what goes on in a press office is often of little interest to the finance team.
A skilled crisis comms expert will begin work quietly behind the scenes the moment they get a whiff of a negative story on the horizon; planning strategies, media statements, and briefing key stakeholders, to ensure they’re on the front foot when the phone starts ringing. The most effective way for a PRO to prepare for an onslaught of unwanted media attention, is to consider what the worst possible outcome could be, and work their way backwards. What is the one question you really don’t want to be asked? Don’t shy away from it – prepare a bullet-proof answer. What is the thing that could be most damaging to your share price? What words of comfort could you give your shareholders if that became public?
In times of crisis shareholders need to be looked after. Letting them find out about troubles from somebody other than you, is a sure fire way to scare them off. Communication is key; even if what you say is not your final position, keep the lines of communication open, and let them know that you’re on the case. Getting your shareholders on side when a crisis hits is half the battle, but maintaining them while you weather the storm, is paramount. A calm, honest, and robust approach will vastly increase your chances of having something to wrap tomorrow night’s fish and chips in.
Article written by Emily Dent, PR director at crisis comms agency Rampart PR