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Could better PR have helped contain the financial crisis?

The great financial crisis of 2007 was defined by more than just regulatory ineptitude and mass wealth destruction. The institutions at the heart of the crisis became known for the kind of horrendous communications disasters that can permanently stain corporate reputations. Some would argue that the financial industry has still not recovered its reputational standing. But could PR have done anything about the situation?

We spoke to Kate Henley, global head of internal and digital communication at Standard Chartered Bank, to examine how financial PR at the time went wrong, and the role PR could have played to stem the crisis.

Henley worked at RBS and ABN Amro at the height of the crisis. According to Henley, when corporate actions are just not defensible, it’s PR that needs to step in to persuade senior management to change their decisions.

[Henley is speaking at Marketing magazine’s 3rd annual PR Asia conference, happening 26-27 November in Singapore.]

Marketing: Pay packages at the time were perceived to be unjustifiably high. What could a PR person have done to combat this perception?

Henley: Pay packages probably were unjustified – they were not commensurate with performance (or profitability). This is where communication needs to be examined. Is the PR function merely spinning the corporate line? Or, does it have a role in defining the policies and behaviours of corporations (and the associated reputational risk)?

Attempts were made to justify salaries based on ‘the war for talent’, the need to pay bonuses to keep the best traders and rainmakers in place. While institutions may understand this, the general public did not, and this line of reasoning failed. It was seen as rewarding those that helped create the mess.

A good PR person needs to make a call when an issue is defensible.  The bonuses were not defensible, and in those situations there’s no line to take. In such a situation it might have been better to ask those concerned not to take the bonus. This is where a good communication practitioner who has the ear and trust of the CEO and Board can have influence both internally and ultimately on public perception. This is not then an issue of how to spin the story but about a communications expert calling out governance issues and drawing attention to solutions which ultimately change a corporation’s reputation for the better.

PR and Investor Relations could have worked better to explain executive salaries in simpler terms. Better disclosure in annual reports would have helped, and we are seeing more of that now.

PR could also have pushed for better, more transparent and open Annual General Meetings with investors where questions are welcomed, not stonewalled.

Giving ordinary investors and employees an insight into complicated business issues would have helped.

Marketing: What, in your opinion, were the biggest communication failures during the crisis?

Henley: There were many.

Publicly claiming infallibility isn’t ever good. AIG ‘s head of financial products famously said of derivatives tied to mortgages that it’s “hard to see a scenario within any kind of realm of reason that would see us losing a dollar in any of those transactions”. They went on to report a full year loss of  $99 billion USD.

Goldman Sachs’ CEO Lloyd Blankfein did not help his bank’s case when, right before testifying to the US Senate about why his company lost money on derivatives, he complained “what kind of economic system do we have if banks are ‘pounded’ with questions on risk judgment?”  Managing risk is, arguably, the core what a financial institution does.

Some form of contrition was definitely needed to soothe public sentiment, but was clearly lacking. RBS’s Fred Goodwin refused to hand back any of his £16mn pension, despite overseeing a £24bn loss.  He was urged by government ministers to reconsider and when he didn’t his refusal was publicly labelled as “unfortunate and unacceptable”.

Marketing: During the crisis, which institutions in your opinion handled communications well?

Henley: I don’t think there are any great stand outs. A few token efforts were made, but there needed to be more. AIG’s Edward Liddy decided not to not take any bonuses and accept a salary of just $1.  Liddy was somewhat empathetic too, admitting that he shared the public anger and that AIG had “made mistakes on a scale few could have imagined”.

Goldman Sachs pledged $500 million to help small businesses recover from the recession – a year down the track from the October 2007 collapse. This could have been done faster.

Lessons for PR: Apologise. Show contrition. Enact Change. Do it swiftly.

Marketing: How could financial institutions have approached apologising to the public?

Henley: Apologising upfront would have helped. Institutions would still have been under fire for their practices, but wouldn’t have been compounding the arrogance by lacking contrition.

Some business observers argue that apologies should have three ‘what’ elements: Candor, remorse, and a commitment to change. Goldman’s Lloyd Blankfein was publicly criticised as he didn’t say what he was sorry for and did not appear remorseful, nor did he explain how Goldman Sachs would change its behavior.

Most institutions, including Goldman Sachs, then ended up making some from of  ‘proper’ apology later on – too little too late. These late apologies lacked authenticity.

Marketing: Could better communication have contained the stock market meltdown following the collapse of AIG?

Henley: Given the combination of factors and parties involved – regulators, governments, banks, insurers etc. – it’s unlikely that better communication could have contained the meltdown. Having said that, when things did come tumbling down, everyone seemed to duck for cover and avoid taking responsibility. Not a lot was undertaken by way of apology or any kind of restitution, or commitment to do better in the future.

Hear more from Henley at Marketing magazine’s 3rd annual PR Asia 2015 conference, happening 26-27 November in Singapore.

To book your seats for the conference contact Carlo Reston at or +65 6423 0329, +65 9727 0291

For sponsorship opportunities, contact Johnathan Tiang at or +65 6423 0329

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