What can be learned from Grifols' reputational crisis and how to deal with it?

Signed: Rubén Gálvez

On January 9th, the opportunistic fund Gotham City Research launched an attack on the Catalan firm Grifols. The weapon used was the publication of a report, prepared over the past nine months, stating that the company's financial situation was very different from what had been publicized. Moreover, the report claimed that the company’s stock value was “zero euros.” This had a devastating impact on the company’s shareholders, who saw their investments drop between 30 and 40% in just a few hours.

From the confrontation between Gotham and Grifols, or rather, Gotham’s assault on the latter, just like from other significant crises, many lessons can be drawn. Particularly for the Catalan company, which, after all, was the one that came out of the clash the worst. But this can also be extended to other companies, regardless of the sector, that may face similar crisis situations in the future. It also highlights the importance of having contingency plans for such lightning-fast attacks.

In fact, Grifols did not follow some of the protocols that should govern the handling of a crisis of this magnitude, which, according to 202 Digital Reputation, a reputation management agency, are: recognizing the crisis and doing so as soon as possible, analyzing the situation with all available information, gathering the company together, and acting with the greatest speed possible.

FROM THE GOTHAM ATTACK TO GRIFOLS' LACK OF RESPONSE

The first thing to understand is that opportunistic funds, in this case, Gotham, make money by creating chaos and noise that forces the shareholders of a company to sell their shares without thinking. Obviously, a report developed over nine months provides a solid foundation from which to create agitation, but this doesn't absolve the company from acting correctly given the situation.

The blow was announced at night, around 10:00 PM, and executed early in the morning, around 8:00 AM. This gave the company a certain window to act before the markets opened at 9:00 AM, but nothing was done, at least not towards the markets or minority shareholders. Ultimately, a brief statement was sent to the market regulator, the CNMV, at 11:00 AM, which caused a very valuable few hours to be lost. It was during this time that the biggest hit on the stock market happened, with the fall surpassing 40%.

Furthermore, the note sent to the market regulator was brief and lacking in substance. Firstly, because it did not focus on countering Gotham's information, attempting to unmask the manipulated or outright false details. Secondly, because no mention was made of taking legal action, which weakened the company’s arguments and partially justified the accusations made by the fund. In fact, the following day, Wednesday, January 10th, Grifols issued another statement to the CNMV, this time threatening legal action, which triggered a swift market reaction in their favor.

LESSONS FROM THE RELENTLESS GOTHAM BLOW

Once we’ve reviewed the attack from Gotham, it’s clear that one of the problems Grifols faced was its delayed response. One of the key points in any reputation crisis is “acting with the greatest speed possible,” since “what is done in the first few hours will be critical to reduce or neutralize the consequences of the crisis,” advises 202 Digital Reputation. This becomes even more evident when you’re a listed company, as the processes speed up.

This problem is likely linked to other deficiencies, such as the lack of a crisis plan. “It is important to have a pre-developed crisis plan that outlines the steps to take in the event of a crisis, so that the problem can be resolved more quickly,” says the reputation agency. In the end, prevention is often the differentiating factor between a controlled fire and one that spirals out of control once it spreads.

But in Grifols’ case, there is also an issue with decisiveness once the fire is burning, meaning that the response not only came too late but was also insufficient. At this point, 202 Digital Reputation highlights the importance of:

First: Avoid the mistake of “speaking without preparation.” Grifols sent out a statement that didn’t achieve much, which meant the company had to issue another one the next day. “It’s crucial to be prepared and know what you’re going to say to mitigate the negative effects of the crisis,” warns the agency.

Second: The need for a spokesperson, someone who “generates trust and stability to demonstrate reliability and seriousness in resolving the issue.” However, at Grifols, no representative came forward to reassure shareholders and employees.

THE PROTOCOL TO FOLLOW IN TIMES OF CRISIS

Beyond the importance of having a crisis management plan, primarily to act swiftly and prevent greater damage, 202 Digital Reputation offers a series of tips and actions to avoid having reputation attacks spiral into a full-blown crisis with greater consequences.

1- Recognize the Crisis

One of the keys to managing a reputation crisis in real-time is identifying when it starts. This allows actions to be more effective. In this regard, an online listening process or social listening and monitoring is essential for quickly identifying crisis symptoms.

2- Analyze the Situation

Once the symptoms are identified, it’s important to gather as much information as possible about the situation so that we can act more efficiently.

3- Gather the Company Together

This step is related to something that should be resolved beforehand: forming a crisis committee. Having this committee already in place will make it easier to call upon when necessary. With the gathered information, the committee can perform its functions, thus avoiding any negative impact on employee confidence.

4- Act

When the time comes, you must act as quickly as possible, as the first few hours will be critical to reducing or neutralizing the crisis’s consequences. At this point, it is essential to have a pre-developed crisis plan that outlines the steps to take in the event of a crisis to speed up the resolution process. The plan should include the type of message to be sent in these situations, and once this is determined, it should be acted upon. Finally, a post-crisis analysis should be carried out to assess the current state of the brand, the damage sustained, and the most suitable measures for recovery.