Learnings for Communicators from the Housing Bubble Crisis (Part 1)

 

When the housing bubble burst

Image source: Ad Investor Group (Aaron Garza -Planting one of the many seeds of the housing bubble – Feb 2013)

Five years have passed since the US housing bubble (sub-prime mortgage crisis) exploded, crippling the US economy and world nations dependent on American stability and prosperity. The unpleasant effects are still being felt today. Can you think of another instance where crisis management was more significantly needed than during this event? Pfizer and CCI (Corporate Communications institute) hosted a panel of experts from various sectors of the financial industry to consider if we’re back from the brink and the crisis management lessons we can and should learn in this two part post.

CRISIS MANAGEMENT LEARNINGS FROM THE HOUSING BUBBLE COLLAPSE

Lesson 1: Businesses must consider the impact of our corporate behavior on the wider society, not just on stakeholders.

Image Source: Money Marketplace - Feb 2013  America Underwater - the mortgage crisis in data by Matt Berger

Image Source: Money Marketplace – Feb 2013 America Underwater – the mortgage crisis in data by Matt Berger

Lesson 2: It does matter if we act ethically and are accountable for our actions.

• Do big business, and powerful individuals have accountability for actions which precipitated this event? The Occupy Wall Street movement was based on this question. The major players in the housing bubble crisis walked away scot free and in many cases, wealthier than ever. Unlike Enron, people who sustained losses did not have the satisfaction of “perp walks”.
• Frustration leads to hopelessness and resentment, which is negative for an economy.

Image Source: Occupy Wall Street Movement

Image Source: Occupy Wall Street Movement

Lesson 3 : Having the right forecast is great but the timing is important.

Kathy Bostjancic: Image Source: The Conference Board

Kathy Bostjancic, Director of Macroeconomic Analysis, The Conference Board: Image Source: The Conference Board

Kathy Bostjancic – DIrector, Macroeconomics Analysis, The Conference Board was working at Merrill Lynch during the meltdown and in 2006 Merrill Lynch was pessimistic about housing.
• Unfortunately it was too early to make the call. Prices went up before they fell catastrophically.

Alan Greenspan - Past Chairman of the US Federal Reserve - Image Source : Wikipedia

Alan Greenspan – Past Chairman of the US Federal Reserve – Image Source : Wikipedia

Alan Greenspan Chairman of the Federal Reserve said in 2005, “Without calling the overall national issue a bubble, it’s pretty clear that it’s an unsustainable underlying pattern. What we see are a number of forces, which are, as far as I can judge, not infinitely projectable.” All too early instead of too late.

Lesson 4: Communicators must be prepared to swim against the tide as people may refuse to acknowledge reality or consequences. Clamor to be heard if needed.

• Discussion was hostile as no one wanted to hear housing prices will go down according to Ms Bostjancic. Because it wasn’t the predominant view and people just weren’t listening. Here are more people who allegedly predicted the crisis. 

Lesson 5: Even the experts miss cues or misinterpret them. Here are some more crises which caught the experts off guard.

Past Federal Reserve Chairperson Ben Bernanke - Image Source Wikipedia

Past Federal Reserve Chairperson Ben Bernanke – Image Source Wikipedia

Federal Reserve Chairman, Ben Bernanke missed it at first but recovered and reacted to correct the problem.
• Even if a problem is acknowledged late, act to correct it. Ms Bostjancic called Bernake’s actions heroic and said they prevented a much worse outcome.

6 HOUSING BUBBLE CRISIS LESSONS FOR INVESTOR RELATIONS

Image Source: CME Group

Image Source: CME Group

Shellie Roth – President, Investor Relations Partners presented the challenges faced by corporations from an investor relations perspective.

1. Unless you’ve put in the work beforehand, don’t expect to be trusted or have credibility in a crisis.

Shellie Roth, the President of Investor Relations Partners stated that the during the crisis the number one victim was mutual trust – Panic set in, big and small firms were gone overnight. Advisors and analysts were both caught up in scandal. Digging the well before you’re thirsty was also the recommendation from this crisis communications professional.

2. Your traditional supporters may abandon a listing ship if you’re not engaging and connecting with them.

  • Ms. Roth said that trust broke down – Traditional long term holders were not likely to be there in long term.
  • Listening also broke down during the crisis. Who were the shareholders and what do they want? This is still a problem according to Ms Roth. Business Insider called it a “trust bubble” in this article

3. The importance of Investor Relations is earned, not assumed.

  • Investor Relations became the focus in the crisis.
  • Increase in activism post crisis is greater but the objectives are different.
  • Goal was to get Board seats not push out management.
  • Activists target strong companies not weak Looking to drive change – operations
  • Activist funds and their collaborators have many informal collaborations or have to report to SEC. Relationships are hard to identify so Investor Relations needs to talk to people to find out the links.

Here are some more reasons investor relations is important.

4. In a crisis, the head of the organization should be prepared to step up front and center and lead.

  • Analysts wanted to hear from the CEOs and CFOs only. Ensure they are well trained and media ready. Harvard Business Review offers this case study analysis as to why CEOS need to lead in crisis.

5. The rules may change without notice so ensure you know the new normal which may not be the same as pre-crisis.

  • During the housing bubble collapse, the definition of risk changed. Debt and EBITA were no longer respected. Cash management became more important.

6. Boards want companies to be prepared for public ownership pressure

7 WAYS TO AVOID ANOTHER BUBBLE CRISIS

M s. Roth offered the following solutions which echo the basic tenets of public relations and communications.

1. Investor Relations is relationship building. The practice of which is tougher but more important than ever. Face to face interactions are the foundation of good relationships.
2. Corporations must build on progress – but will also have to address faults.
3. A company must have and hold true to core values – Integrity, honesty and reliability.
4. Transparency is critical as a company must be available, accountable and responsible.
5. Listen to and respect your shareholders opinions.
6. Know who is working with whom.
7. Look out for the danger signs – be alert to red flags.
Post continued in LEARNINGS FOR COMMUNICATORS FROM THE HOUSING BUBBLE CRISIS (PART 2)

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