A “hard” Brexit. The collapse of the EU. The infection of the financial system by the collapse of a major player. A large-scale cyber-attack. A hard landing for the Chinese economy. What reads like a chamber of financial-market horrors are the most potentially threatening scenario outcomes of a survey Edelman conducted with 20 large, European financial services companies at the end of 2016.
Deemed severely damaging scenarios at the time survey questions were answered, the UK no sooner went ahead and voted to leave the European Union, making the rest of these tail risk scenarios appear more likely than they once did.
Only Somewhat Prepared
Our survey confirms as much: While most companies offered a relatively high likelihood of these risky scenarios occurring (at an average of 3.45, where 1 = “very unlikely” and 5 = “very likely”), the average response score was lower when these companies were asked whether they were prepared for such eventualities. The average result here was just 3.15 (where 1 = “very poorly prepared” and 5 = “very well-prepared”). In short: Many of the companies feel ill-prepared to respond to these tail risk scenarios, as the likelihood of these risks outweighed general preparedness for them.
Concentrate on Core Scenarios
What can companies in the financial services sector do to prepare their communication operations for risks such as these? This was an integral question at an event we held in London with several survey participants. The conclusion here is companies must analyze risks for potential harm to individual enterprises and play through the most relevant, damaging scenarios.
Workshopping through some of the most useful prompts, for example, may entail answering questions such as:
- How does information flow through our organization?
- Who communicates with employees? Who communicates with the general public?
- What is our message and position, given scenarios X, Y and Z? Why?
Pinpointed preparation for all risk scenarios is difficult to conceive, but, given our current state of global affairs, taking the time to map business messages and objectives through the lens of potential risk scenarios and their implications is too critical to ignore .
Financial Services Must Take the First Step
Interacting with affected stakeholders is one of the best ways to prepare not only for tail-risk crises, but all eventualities. A company considered trustworthy by its employees, customers and the public has a key advantage when communicating messages is critical.
This makes the 2017 Edelman Trust Barometer even more important. The survey recently revealed a three-point drop in trust across the institutions of government, business, media and NGOs. Even the financial services sector, which saw a trust uptick of three points this year, is still the least-trusted among sectors the barometer surveys.
In a climate of eroding trust, rising populism, economic concern and rapid innovation and globalization, it’s important for financial services companies to lead by asking tough questions and tailoring messages for risky scenarios, however likely or unlikely they appear to be.
Andrew Wilde is a director, Smithfield Consultants.
Holger Nacken is a managing director, Financial Services sector, EdelmanErgo.