Silicon Valley Bank failed the test when communications really mattered to stakeholders
The rapid demise of Silicon Valley Bank (SVB) has triggered global bank fears and provides a test case for how not to communicate in a crisis.
As a bank, SVB focussed its efforts on supporting the startup community in Silicon Valley, the epicentre of the venture capital industry worldwide. It provided funding to fledging tech companies with potentially good business ideas, but little or no finance. It lent to founders and investors alike and majored on developing close personal relationships with its clients and a wider circle of connected parties.
SVB styled itself as the financial partner of the innovation economy and all its efforts went into nurturing this perception among newcomers and established players.
However, given the manner of its sudden demise, one must wonder if the bank truly understood whether the reputation it wanted to build was fully aligned with the expectations of stakeholders.
For those startups that it financed with business and personal credit, their founders probably felt that SVB more than lived up to its reputation given that it was one of the few financial institutions to support this high energy, high-risk, fast-paced sector.
But the reputations that mattered most were of those stakeholders that in the end exercised the ultimate power and influence over SVB’s licence to operate.
When push came to shove, shareholders and other investors weren’t prepared to stump up additional capital to shore up SVB’s balance sheet after a precipitous fall in the value of the bank’s bond portfolio brought about by the recent increases in interest rates.
The bank also seems to have underappreciated that in accumulating massive deposits, customers wanted their money to be safe and accessible, requiring the bank to manage those deposits very conservatively, an approach that was probably anathema to the wider Silicon Valley culture.
Ironically, it was depositors, not the financial markets, that delivered the fatal blow by withdrawing their money – prompting a run on the bank.
Ironically, it was depositors, not the financial markets, that delivered the fatal blow
While SVB thought its reputation was strong enough to withstand this terrible blow, the bank failed to understand the mindset of its stakeholders and ultimately failed to demonstrate leadership and drive confidence that it was capable of ‘steadying the ship’.
The nail in its coffin was a press release announcing that it was rushing to raise cash. The communication was meant to shore up its balance sheet but did the exact opposite. It was a hastily drafted statement that confused rather than reassured.
The vacuum of information allowed online hysteria to fill the gap. And when its CEO did speak, the message – “stay calm and don’t panic” – only sent investors into a spiral of fear.
Depositors were encouraged to withdraw their funds by powerful and very successful VC investors whose well-established reputation for taking decisive, unemotional investment decisions was reinforced by their actions. Business is business.
And how much consideration did SVB give to the interests and concerns of its regulators at the US Fed which, in the end, was the stakeholder that ultimately brought the curtain down on the business?
From the aftermath, SVB appears to have failed to appreciate the Fed’s determination to uphold its own reputation as a relentless agent for lower inflation, prepared to take whatever measures it deemed necessary in terms of raising interest rates to achieve that goal.
So what can we learn from the failure of SVB?
Trust and confidence is everything
This is especially true in financial markets. As a former stockbroker, the motto dictum meum pactum, my word is my bond, was the basis for doing business. Lose trust and you lose everything.
All stakeholders are not the same
Understanding stakeholders’ issues and concerns is something that organisations should do – but often don’t. Prioritising stakeholders based on their importance and potential impact is also critical. Some stakeholders are more important than others and knowing who’s who is vital.
Don’t believe your own publicity
Some organisations exist in an echo chamber, believing their reputation is framed only by what they themselves say. Others appreciate that what they say needs to connect with what they do. Great companies ensure both of those align with what their stakeholders say about them.
In a crisis, communication is key
Much has been made of SVB’s public announcement about its funding position. The reality is the communications, hastily put together, raised more questions than it answered and precipitated its downfall. While the announcement was mainly for shareholders, sufficient consideration wasn’t given to how the message would be received by other key stakeholders – such as its depositors. Assessing how information will be received and processed by all stakeholders is a critical tool in a crisis.
Reputation is fragile
Warren Buffet best described this when he said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently”.
Protecting a hard-won reputation requires ongoing consideration, care and attention. Reputation risks are situations that haven’t happened yet but could occur in the future. Reputation issues, like those of SVB, are events that have already happened or are about to happen. Too many firms still spend too much time managing issues instead of risks.
In this new order of stakeholder capitalism and warp speed communication channels, the path forward for financial institutions is increasingly more complex and precarious.
Trust has always been crucially important for the bottom lines and balance sheets of banks, but those business models are even more dependent on that underlying, long-term reputation given the speed at which sentiment, money and markets can now move and change track.
John Keilthy is founding partner of Reputation Inc and a former director of NCB
You can read the original article in the Irish Independent here: https://www.independent.ie/business/world/silicon-valley-bank-failed-the-test-when-communications-really-mattered-to-stakeholders/42406656.html