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Crisis Communications: What We Can Learn from the SVB Collapse

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 — April 10th, 2023

Crisis Communications: What We Can Learn from the SVB Collapse
The collapse of Silicon Valley Bank (SVB) didn’t just spark a global financial crisis; it was also a perfect example of how poor or downright bad communication can turn concern to chaos.

Now there’s some distance between SVP’s sudden demise last month, it’s useful to look at the lessons that can be learned to better prepare your crisis communications strategy.

Here’s what happened and the mistakes made:

On March 8, 2023, SVB issued a press release saying it intended to raise $500 million while unloading shares at a loss of $1.8billion. Crucially, the bank did not have a communication executive on its leadership team and bungled messaging to key stakeholders, including investors, customers, and employees, who were left with many concerns and few answers.

While the bank was privately insisting that there was nothing to worry about, the markets were spooked because of the lack of detail in the comms and the fact that another bank, Silvergate, had collapsed days earlier.

Compounding the matter, and adding to the nervous jitters, was that the messaging from SVP “everything’s fine, nothing to worry about” was uncannily like what Lehman Brothers said days before its collapse in 2008, triggering the biggest global financial crisis in modern times. This was still way too fresh in people’s memories when SVB issued their flawed press release on March 8.

As the CCO of gaming company Activision Blizzard, Lulu Meservey, said, “It’s tragic that Silicon Valley Bank could lose 80%+ of its value in a single day. But what’s crazy is that the financial collapse was largely driven by a communication collapse. Their storyline unraveled and their messaging went off the rails, in 4 big ways.”

“SVB made the responsible decision to strengthen its financial position with a cap raise. It made sense,” said Meservey. “Where things went terribly wrong was the communication, specifically:

  1. WHAT they said
  2. WHO the audience was
  3. WHEN they did it
  4. HOW they framed it.

“It had a lot of dense detail on the financial instruments and underwriters used. But it had a huge omission. It was all narrative, no numbers,” she said. While the release was tailored for the SEC, it missed critical audiences due to lack of detail and narrative: customers and VC investors, spooking both cohorts.

The communications disaster poured oil on a raging bonfire of rumor and online speculation, leading to its inevitable collapse.

SVB’s communication failure serves as a reminder of the importance of effective crisis communication. Companies must be proactive, transparent, and timely in their communication efforts to minimize the impact of a crisis. Failure to do so can lead to significant reputation damage and loss of trust among stakeholders.

Lesson Learned from SVB Crisis

It Might be a Cliché, But Fail to Prepare, Prepare to Fail

A key lesson for SVB’s communication failure is the importance of preparation. Companies must have well-constructed and thoroughly considered crisis communication plans that are constantly updated for when a crisis might happen.

The ideal crisis communication plan has a clear chain of command, roles, responsibilities, and a list of potential scenarios and responses.

There’s no room for assumptions when mitigating a crisis. Your response should paint a clear picture and tell the whole story. Don’t leave any room for rumors and speculation or the void will be filled like wildfire on social media.

Crisis Management: 3 Key Lessons for Internal Communication and HR Leaders

Simply put, SVB lacked anything like a robust crisis mitigation plan. While the bank had a chance to tell the whole story, it did the opposite. It released a cryptic press release that was all numbers and targeted underwriters, not key influencers such as customers and investors. More significantly, it lacked a plausible story and explanation, undermining credibility.

The unstated but unmissable key takeaway from the press release was that SVB was in trouble. Hot on the heels of the Silvergate Bank collapse, the timing couldn’t have been any worse. People naturally linked the SVB disclosure to Silvergate, assumed the worst, and panicked.

If SVB had a proper crisis communication plan, its team would have had a better chance of controlling the narrative. It would have crafted communication to reassure all stakeholders, customers, shareholders, investors, employees—and avoided the bank run.

Make Sure Key Audiences Are Told What They Will Want to Know

SVB’s press release failed to tell a credible story, and as a result cranked up the rumor mill. It didn’t mention why they needed to raise money or provide further context to help people understand what was happening. Worse, the bank failed to reassure its otherwise savvy and edgy clientele about its financial position and strength.

Alongside the release, SVB filed a form thorough 8-K with the SEC, accounting for the bank’s liquidity strategy and fundraising rationale and explaining its strong financial position. This information would have been highly valuable to SVB’s customers, but the bank didn’t make any effort to communicate it to its customer base. Instead, SVB’s customers were left to gather information from the digital watercoolers, with disastrous consequences.

SVB could have prevented the crisis by demystifying its current position and explaining the circumstances surrounding any difficulties it was having—it was poor communications that led its core customers to conclude that the bank was in trouble.

Target the Right Audience

While a shares price drop can hurt a bank, it’s nothing compared to losing customer confidence. SVB’s crisis response failed to address its stakeholders, and the bank paid the ultimate price.

By overlooking the need to reassure its customers, it was counting on its stellar 4-decade old history to curry favor with depositors. Unfortunately, that approach doesn’t work in a panic situation. SVB should have crafted a dedicated, jargon-free message for its customers, with a clear narrative explaining the situation.

A robust crisis communications plan would have meant SVP would have worked with key influencers and industry reporters to give the bank’s backstory a framework, it could have reassured its customer base and quelled the rising fears.

The Three Phases of a Crisis Comms Plan

Any crisis communications plan falls into three distinct phases that are interlinked to work together as one:

Before: A crisis plan outlines your company’s strategy that is ready to kick in in the event of an internal crisis or an unexpected external crisis that will impact your organization. It covers everything from team members to press release formats, internal alert mechanisms, legal counsel, and everything in between. As the SVB example highlighted so well, the narrative is everything. SVB communicated but had no narrative—and so lost not only the plot but the entire bank.

During: A carefully designed and well-rehearsed crisis response plan allows you and your team to remain calm and act with deliberateness when responding to a crisis. It allows you to simplify and prioritize your communications and response which gives you a better chance of keeping ahead as events evolve.

After: The last phase of dealing with a crisis entails coming to terms with what happened, learning lessons from what happened, picking up the pieces, and moving on. Lessons learned should further refine your response strategy going forward.

Be Careful and Refine Your Messaging

SVB used poorly crafted messages to drop big news likely to cause fear and panic among its customers and investors. Its letters to consumers and investors left them with more questions than answers. They failed to explain the root cause of the bank’s current predicament and reassure customers that all was well.

The use of complex language didn’t help matters. It encouraged people to form ill-informed opinions about the bank’s financial status. People latched on to the unclear messaging, started decoding what the company supposedly meant, and shared their opinions online. They latched onto the key takeaway that the bank was in trouble and their money wasn’t safe there. Coming in the wake of the collapse of Silvergate, it didn’t take much for the fear to spiral, leading to a bank run.

Overshare Crucial Information

The former CEO may have reacted to such ill-formed opinions when asking customers to calm down. The CEO came from a position of knowledge—he was fully aware of the bank’s financial position. He knew the bank was financially stable but didn’t share this information.

The poor choice of words and messaging only served as fodder for online chatter. People misconstrued that to mean the company had lost control, and it triggered people to withdraw their deposits.

If SVB had an effective crisis response plan, the bank would have delivered transparent communications, openly explaining the situation to relevant stakeholders, and guiding the bank on what to say to investors and customers.

Careful messaging targeting the right audience would have reassured its customer base. It would have informed them that everything was under control and that the bank wasn’t at risk of bankruptcy or collapse.

Timing Matters

SVB’s presser was released late Wednesday, only hours after Silvergate, the largest crypto bank, announced its liquidation. The bank couldn’t have picked a worse time—the entire financial was on edge, and the bank dropped a cryptic message that screamed to the world, "we’re in trouble."

Announcing such a hefty loss without proper context and explanation allowed the world to speculate. The poor timing and lack of explanation shook the confidence of Silicon Valley influencer Peter Theil. He advised the portfolio companies under his Founders Fund to withdraw funds from SVB. The advisory reached other venture capitalists, and the bank run spiraled out of control.

Improve Your Crisis-Readiness

While the SVB collapse may have been inevitable from the offset, it’s clear that poor communications sealed the deal. With a more informed communications plan and the right preparations in place, it’s possible that they could have avoided the collapse. And that requires a communications platform that allows you to respond instantly on all necessary channels and measure the reach of your comms.

If you’re interested in learning more about how Poppulo can help your organization with its crisis comms planning, we’d be delighted to talk to you.

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