16th Sep 2007
Between a Northern Rock and a hard place
The future of Northern Rock and its brand hangs in the balance this morning following a 30% loss of value and a run on the bank triggered by the Bank of England’s decision to act in it’s capacity as ‘lender of last resort’ following the bank’s concerns about its trading position.
Looking at it from a reputation management and public relations perspective this is a classic crisis communications scenario which brought me right back to a symposium which CIPR in Northern Ireland held with Michael Register, a partner at the boutique London based crisis agency Register Larkin, last month. Michael is a great trainer and connects immediately with practitioners not matter how inexperienced with his charm and anecdotes. His approach to crisis management is the traditional one; be honest, be proactive and do what you say you are going to do. I remember when as special adviser to the Minister for Agriculture and Rural Development in Northern Ireland during the 2001 Foot and Mouth outbreak we recommended the same approach. It took a little while for the system (the civil service) to agree, as they had spent a very long time during direct rule working on a need to know basis only, but once we set up a series of communications channels to reach the major audiences and activated them with the right messages things began to shift in our favour. In a crisis you make your own luck and I was reminded of this by the impressive Mr Register.
Northern Rock had it hard this week. When the story broke on Thursday focus immediately was on the Bank on England bailout. Northern Rock’s share of voice was minimal and what messages they were communicating were reactive and focused on circumstances surrounding the bail out. Once trading opened on Friday the bank’s shares dropped 30% and it issued a profits warning. Next, customers, fearing for their savings, started to withdraw their money forming queues outside branches across the country. The media was in overdrive. This was a business story that had become a city story and was now their very favourite thing, a human interest story. Sooner of later the political correspondents would be in on the action. This came on Friday evening when the Chancellor began to comment. You would need an army of PROs (which I am sure they do not have) just to mange this media and customer questions but that wasn’t their only problem. At the end of the day there is no point having loads people in place if a; the systems to manage them are not good, and b; if the messages they are communicating are not robust and consistent. From this remove I would have worries about a and b.
Staff do need reassured at times like this and the young Northern Rock Chief Executive did move on Friday to reassure them their jobs were safe. The Financial Services Authority also put its reputation on the line to reassure customers it believed this was a well run bank. Great, the bank was moving to reassure the markets, government and its staff. All very important audiences, but what about the poor old customer?. In a crisis you want people to back you up but at the end of the day the proof of the pudding is in the eating and when I went this morning to the bank’s website looking for some more info all I could find was a statement. This is a little worrying.
I do hope they are getting some help in and quick. PLCs understandibly look to the market and put all their efforts into managing that relationship sometimes at the expense of the customer and a times of crisis this shows through. Reviewing the press coverage, Northern Rock’s own statements and the response of customers, this appears to have been the case on this occasion. The next few days will be an opportunity for the bank, if it survives, to begin rebuilding customer confidence and communications will play a big part in that.
Unfortunately people have kept on queuing. The trouble is that a business that depends on funds from people’s personal savings relies more heavily on confidence than perhaps any other business. You’re right I think the NR’s ability to get a grip on the PR wasn’t up to it, but they were always going to have an exceptionally difficult task. When the trio of the Financial services, BoE gov, and Chancellor weighed in, NR should have seen to it that they were visible in tandem with these heavy-weights.
As an aside, I was interested to read that chancellor A. Darling “agreed with B of E on the bailout”. Was his agreement necessary? Labour made such a big deal of their freeing the B of E from political interference when they were elected first in 1997. I can see how the gov desparately wants NR not fail, but is the independence now to be read as “yes, but if anything big happens, the gov will get involved”.
It will be very hard for NR to pick up the pieces. None of those customers who pulled their accounts will come back. And how many potential customers out there have now ruled out NR for the future. Probably the bank will not survive as an independent entity. Perhaps that is good. If their business model (far more heavily relient on money markets than savers deposits for loans than other mortgage lenders) is so vulnerable to credit crunches then perhaps this is a useful lesson.
I don’t understand banking well enough to say how much the other big players in the mortgage or commercial loan game are also vulnerable under the present circumstances. If they are, then surely if this crises deepens, central banks cannot bail everyone out!
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