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Crisis Communications (#371)
Last week, many individuals and businesses in the United States watched tensely as a bank run unfolded at Silicon Valley Bank (SVB), one of the most prominent banks in the venture capital, investment and startup community.
The bank run spiraled quickly—within 48 hours of the run’s start on Wednesday, the government stepped in to shut SVB down and take control. At that point, it was unclear if and when depositors would have access to their funds, especially for deposits above the $250,000 limit for FDIC insurance. As the uncertainty dragged into the weekend, I know I received many panicked texts and calls.
Eventually, the government announced that it would backstop SVB’s depositors over the weekend—all deposits with SVB would be guaranteed, regardless of the bank’s fate.
As I have made some private investments over the years, especially in real estate, I have noticed a wide variety in the frequency and quality of the reporting I receive from the various investment managers and leaders. I have always been most impressed with the firms that overcommunicate and send detailed quarterly reports that include updates about what is going well and what is not. I have also found that these investments tend to perform best, and I have the most confidence in those teams.
When the SVB crisis reached a fever pitch, I started to receive messages from some of these investment managers; they communicated proactively and transparently about their potential exposure, and the exposure of any of the companies in their portfolio. They didn’t sugarcoat anything.
However, other investment managers were notably silent, as were many other company leaders who had significant exposure to SVB. There are many organizations and leaders who remained silent despite the risk of enormous disruptions to their employees, clients, vendors and/or partners had the government not intervened.
Effective communication is crucial for every organization, and every leader. My experience is that great communication is often a proxy for general excellence and strong leadership. My experience with the SVB crisis prompted me to think about best practices for communication that leaders and companies should strive to uphold at all times.
Don’t over-communicate good news and hide bad news. While sharing good news is always easy, communicating bad news, or potential risks, in a transparent and timely manner is arguably more important. Earlier this year, the leader of a company sent me an upbeat update email about their business, with a fundraising ask, that completely ignored significant business challenges that I had learned about elsewhere. The email eroded my trust in that business, and its leader.
Go deep. People appreciate detail, especially when things aren’t going well. As I mentioned above, almost all my best performing investments, and those with very strong leadership, seem to have the most in-depth reporting. How they communicate is representative of how they operate: thoughtfully and effectively.
Don’t be silent in a crisis. In a crisis, especially as it begins to unfold, you’ll rarely have all the answers. However, your constituents want and need to know you’re aware of the problem and are working on a solution. Honesty and transparency build credibility with your audience, as does providing a timeline of when you’ll be able to share more information.
Be proactive. It’s always better to be too early than too late. First impressions matter a lot and you never get a chance to go back when you miss the early window. Waiting for the dust to settle before communicating can place in you in a trust deficit.
The best leaders and companies did all of the above this week. They communicated early and transparently, and they shared both good and bad news with a high level of detail. As mentioned above, I believe many organizations failed to communicate their level of exposure and may have been on a course to blindside many of their constituents before they were saved by government intervention. Had that not happened, they may have caused lasting damage to their reputations.
Hopefully this crisis serves as a good learning moment for the next one.