Affected companies have announced billions of dollars of write-downs, top management changes and warnings of possible future losses. But as of press time, Wall Street's blue-chip brands have not put themselves in front of a microphone to fully explain the mess, apologize or detail how they plan to stabilize their businesses. They haven't taken out full-page ads. Nor have their competitors, those seemingly not stung by the imbroglio, mounted overt campaigns to woo investors to their doorways.
Unlike other public relations crises affecting top-tier brands, the complexity of the issue, shareholder lawsuits, regulatory inquiries and leadership changes at Merrill Lynch and Citicorp call for more than a mea culpa, say branding and PR experts. Strong brand equity has bought the sector some time, but it only lasts so long; and prolonged silence leads to speculation that more bad news is ahead, they say.
"The damage, such as it is, seems to be done to the industry first," said Peter Kapcio, director of reputation management services at Eric Mower and Associates. "And to the extent that the industry takes on a less than sterling reputation, all the brands are going to be affected."
The crisis originated when borrowers with shaky credit, who had received subprime mortgages, stopped making payments on them. As a result, banks not only had to grapple with those losses but also their effect on complicated financial instruments called collateralized debt obligations, which combine different kinds of debt. The massive losses have since roiled not just a growing number of securities firms but the financial markets as well. In the absence of comment from firms, speculation is running rampant on the nation's financial pages.
"They should have responded quicker," said Ron Culp, senior VP-managing director at Ketchum Midwest. "There's sometimes operational paralysis on the communications front. In this kind of thing, you're required to have a public hanging. The question is how long do you leave the body hanging?"
PR experts recommended a number of steps that firms affected by the crisis should take. Most important, they said, is to develop an internal communication program, both to help with executive retention efforts as well as to boost the confidence of front-line employees who can reiterate the continued strength of the company and its brand to customers.
Graham Hales, chief communications officer at Interbrand, said that rather than take out full-page ads in business publications like The Wall Street Journal, firms should reach out to journalists to help frame their stories and be ready to answer the difficult questions that will arise. Continued communications through PR can be more effective and quicker than an advertising campaign, and the message has the added benefit of coming from a third party, he said.
"They should do something as quickly as they can," Hales said, but added, "this is not going to dilute those brands to a significant degree. The point about being a strong brand is it gives you protection when these issues occur."
The best way to restore a brand's integrity is to focus on the business, not the angst, said Sallie Gaines, a senior VP at Hill & Knowlton. "It is a rare company that never experiences some sort of business crisis," she said. "If you protect the business, you are protecting the brand."
Branding consultant Lynn Upshaw doesn't fault the companies for not moving into damage-control mode because the headlines continue to report more bad news. "You have to be sure all the bleeding is done and all the messages are out there," he said. "Ads in the Journal aren't going to do it until you've got a firm grip on things."
It's critical that securities firms update their metrics to better gauge customer impressions of the sector and of their own companies, Upshaw said. "They need to be able to quantify the degree of attitude erosion and dissatisfaction in the marketplace, otherwise they'll be flying blind when they do marketing communications," he said.
While installing an experienced leader familiar with crisis management, such as Citigroup's new chairman, Robert E. Rubin, can help stabilize a company's image, experts also warn that sophisticated investors and customers will expect more from him and others than the simple platitudes and apologies that b-to-c companies often rely on in crises. So far, executives have remained mum.
"The larger the organization, the slower they move; and the larger the organization, the harder it is to find stand-up guys," said Eric Mower's Kapcio. "Fundamentally, human beings do not like to be around bad news; fundamentally, human beings will run away from it. Unless the pressure gets more unbearable, they might just simply say this is the way it is."
Experts also caution other firms in the sector to tread carefully before launching efforts to separate themselves from their troubled competitors in an effort to win business.
"If I were the PR firm for one of them, absolutely I'd be telling them to do that; but you better be right," said Hill & Knowlton's Gaines. "It's smarter to say nothing than gloat that you're OK, and then two weeks later say, 'Oops.' "