Severn Trent: Making the best of bad news

A highly unusual and accomplished response to seriously bad news.

The Site

Severn Trent, one of the UK’s regional water utilities, became the subject this week of a criminal investigation by the government’s Serious Fraud Office into allegations of accounting discrepancies. Since the announcement of the inquiry was made on Monday the top item in the Links panel on Severn Trent’s home page has been the heading “31st October 2005 – Serious Fraud Office. View Announcement”.

The link leads to the company’s announcement of the news: a five-paragraph summary of the issue and Severn Trent’s co-operation with investigations to date. A contact telephone number for the company’s named director of corporate affairs is also included. The announcement is carried separately in the site’s media and investor centres.

The Takeaway

Severn Trent’s ‘upfront’ management of what is seriously bad news (its share price was down 19 pence to 941p by the following day) is a highly unusual response as well as being unusually accomplished. Although as a quoted company it cannot simply ignore the issue, Severn Trent has clearly taken the view that sweeping such news ‘under the carpet’ – generally achieved by a discreet statement in the investor section – is no longer in its best interests.

The story has made headlines outside the business pages of newspapers and the company knows this will drive readers to its website to see how it is responding. The answer is openly – visitors cannot fail to spot the link on the home page – and with confidence. Giving the phone number of a senior executive both reinforces this and channels likely enquiries from journalists and stock market analysts to a single source.

While still rare, we detect a trend toward this kind of approach to bad-news management that is only likely to grow as companies like Severn Trent reap the benefits. By mid-day today (3 November) its share price was up to 963p, higher than at the start of the week.

First published on 03 November, 2005