Transcript Putnam Investments Case Solutions

Managing a Crisis in Financial Services:
Putnam Investments 2003-2004
Classroom Slide Presentation
Crisis Management in Financial Services
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
•
Postscript
“When written in Chinese the word crisis is
composed of two characters. One represents
danger and the other represents opportunity.”
-- John F. Kennedy
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
Putnam Investments Case Problems
•
SEC offers no clear definition of market timing
•
Poor investment performance and image problems prior to
crisis
•
Failure to address crisis proactively
•
Commodity business where very few distinguish themselves
on performance alone – reputation is key
•
Assets movement is herd-like and heavily influenced by
scandal
•
Putnam senior management failed to appreciate urgency of
crisis
•
Putnam became poster child for reform in mutual fund industry
Putnam Investments Case Questions
•
What are the key short and long-term problems Haldeman
faces?
•
What should Putnam’s communication strategy be going
forward?
•
Identify Putnam’s key constituents. Should the communications
strategy and message be different for each constituent base?
•
What internal strategic initiatives should Haldeman undertake to
enhance Putnam’s competitive position in the future?
•
How could Putnam have avoided this crisis and what could they
have done to be better prepared to handle it?
•
How should Haldeman prioritize his communications and
strategic initiatives? What specifically should Haldeman do in his
first few days as CEO?
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
Common Crisis Characteristics
•
Element of surprise: Haldeman shocked to learn
mutual fund managers market timing own funds
•
Insufficient information: Market timing not well defined
and scope of questionable activity unclear
•
Quick pace of events: Less than 6-weeks after learning
of scandal, story breaks in The Boston Globe
•
Intense scrutiny: Media attention grabs institutional
and individual investors creating negative disposition
toward Putnam
Source: Ray O’Rourke, presentation to Corporate Reputation Conference, New York University, January 1997
Reputational Capital in Financial Services
•
Very few funds consistently “beat” the market. Reptuational capital,
therefore, is the critical determinant of success.
-
Upside example: Strong constituent relationships and positive
public image result in asset gathering and retention, even during
periods of weak investment performance
-
Constituency groups are Customers, Regulators, Partners,
Employees, Investors and Media
-
Downside example: Loss of reputational capital comes from these
same 8 constituency groups; threats include rogue behavior by
employees, defection by partners, and the threat of legal action by
regulators
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
•
Postscript
How to Prepare for Crises
• Assess organizational risk
• Set communication objectives for potential
crises
• Analyze channel choice
• Assign different teams to each crisis
• Plan to centralize
• Create a formal plan
Source: Concealed for Page Case Competition
Importance of Reputation in Financial Services
•
The fluctuating value of the company’s reputation has been termed
reputational capital and calculated as the market value of the
company in excess of its liquidation value and its intellectual capital.
It constitutes the residual value of the company’s intangible assets
over and above its stock of patents and know how.
•
“Reputational risk is defined as the range of possible gains and
losses in reputational capital for a given firm.
•
Difficult to quantify these gains but they exist.
•
“Image is the biggest asset in the money management business.”
-Don Phillips, Managing Director, Morningstar
Source: The Reputation Institute
Reputational Risk (RR) in Financial Services
•
Commercial Bank Examination Manual says
reputational risk “is the potential that negative
publicity regarding an institution’s business
practices, whether true or not, will cause a decline
in the customer base, costly litigation, or revenue
reductions…can also cause liquidity constraints
and significant depreciation in market
capitalization.”
•
Companies need to manage reputation risks in the
same way as operational or financial risks are
assessed, audited, and managed.
Reputational Risk Management Cycle
Opportunity
Platform
Reputational
Capital
Corporate
Performance
Safety
Net
Managing the Upside of Reputational Risk
Managing the Downside of Reputational Risk
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
Communicating During a Crisis
•
Define the problem
•
Centralize communications
•
Communicate early and often
•
Get inside the media’s head
•
Communicate directly with affected constituencies
Source: Concealed for Page Case Competition
Crisis Communication
•
Putnam Investments case problems
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
•
Postscript
Corporate Communication Strategy
Framework
Messages
Constituencies
Corporation
Constituent’s
Response
Source: Concealed for Page Case Competition
Corporate Communication
Strategy Framework
Messages
 What is the best
communication channel?
Corporation
 How should the organization
structure the message?
Constituencies
 What does the organization
want each constituency to do?
 Who are the organization’s
constituents?
 What resources are available?
– Money
– Human resources
– Time
 What their attitude about the
organization?
 What is their attitude about the
topic?
 What is the organization’s
reputation?
Constituent’s Response
 Did each constituency respond
in the way the organization
wished?
Source: Concealed for Page Case Competition
 Should the organization revise
the message in light of the
constituency responses?
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
•
Postscript
Putnam Investments Case Solutions
•
Proactively communicate with key constituents
•
Work toward immediate settlement with regulators
•
Put Putnam at forefront of movement toward ethical
irreproachability
•
Re-establish corporate culture with emphasis on ethical
behavior and client service
•
Launch corporate communications campaign to create
differentiated, personal bond with key constituents
•
Install safety net to protect against future crises
•
Recognize scandal as opportunity rather than threat
Key Takeaways
•
Handle issues of ethicality decisively and hold your company to the
highest standards
•
Strategic communication is critical to success, particularly during
crises
•
Reputation is single most important determinant of success in
financial services
•
Constantly re-evaluate corporate culture and value system
•
Never justify behavior as industry norm or “acceptable” according to
letter of law
•
Quickest way to rebuild trust with constituents is to admit wrongdoing
and take necessary steps to ensure against future problems
“The easiest period in a crisis situation is
actually the battle itself. The most difficult is
the period of indecision - whether to fight or
run away. And the most dangerous period is
the aftermath. It is then, with all his resources
spent and his guard down, that an individual
must watch out.”
-- Richard Nixon
Crisis Communication
•
Putnam Investments case problems and questions
•
Common crisis characteristics
•
How to prepare for a crisis
•
Communication during a crisis
•
Using communication strategy following a crisis
•
Putnam Investments case solutions
•
Postscript
Postscript: Putnam Television Campaign
Commercial 1
Commercial 2
Commercial 3
Play Commercial*
Play Commercial*
Play Commercial*
*Note: Embedded multi-media in digital file
Postscript: Crisis Averted in 2006
Source: Boston Globe, January 4, 2006
“ PFTC’s [Putnam’s] cooperation consisted of prompt self-reporting, an independent internal investigation,
sharing the results of that investigation with the government (including not asserting any applicable
privileges and protections with respect to written materials furnished to the Commission staff), terminating
and otherwise disciplining responsible wrongdoers, providing full restitution to its defrauded clients, paying
for the attorneys’ and consultants’ fees of its defrauded clients, and implementing new controls designed to
prevent the recurrence of fraudulent conduct.”
Source: SEC Settlement Document, January 3, 2006