Silicon Valley Bank collapsed in March 2023 after a run on deposits doomed its plans to raise fresh capital. Weak communication was a primary factor in the crisis, on two dimensions:
- Failure of communication strategy. SVB underestimated how sensitive depositors would be to the news, in the context of recent financial failures.
- Failure of storytelling. SVB communicated without context and neglected to build a narrative.
SVB was a $200 billion institution and had been the go-to-bank for tech boom startups. They took cash deposits and invested them in securities including U.S. government bonds, a strategy that racked up large losses when interest rates rose. SVB had to sell its investments at a $1.8bln loss and decided to raise $2bln in fresh capital to cover the losses.
Objectively speaking this situation and SVB’s action to resolve it should not have been particularly worrying. However, the way the bank communicated the news on 8 March 2023 caused panic and contributed to a...
On February 13, 2023, three students were killed and five others injured in a mass shooting on the campus of Michigan State University. The gunman, 43-year-old Anthony Dwayne McRae, shot himself dead when he was confronted by police.
In the aftermath of the shootings, Vanderbilt University in Tennessee decided to send a consoling email to students using the following text:
We must recognize that creating a safe and inclusive environment is an ongoing process that requires ongoing effort and commitment. We must continue to engage in conversations about how we can do better, learn from our mistakes, and work together to build a stronger, more inclusive community. One of the key ways to promote a culture of care on our campus is through building strong relationships with one another. This involves actively engaging with people from different backgrounds and perspectives, listening to their stories, and showing empathy and support.
At the bottom of the message, in small print, the email...
A company that chooses its words carefully can escape a crisis with its reputation intact – or even improved.
Statistically all companies can expect a reputationally significant crisis roughly every five years. Cyber hacks, employee misconduct, product recalls, supply chain mishaps and a long list of dramas are all waiting around the corner. The good news is this: if you handle the crisis well, not only will you most likely be forgiven, but you may even gain new respect for showing your true colours.
If you need convincing that a crisis can be an opportunity, look at the share prices of companies hit by bad news. Share price is a proxy for public confidence. Studies show that effective communication in the early stages of a crisis predicts long-term reputational impact. All crisis-hit companies take a hit on the markets initially, but those that don’t explain themselves effectively can take years to recover. Those that communicate well catch up much faster in market...