Silicon Valley Bank: Was PR to Blame?

Our Senior Vice President for Corporate Reputation and resident crisis expert Amanda Duckworth breaks down the blame game unfolding around the collapse of Silicon Valley Bank. If you’d like to learn more about how Outcast’s crisis and reputation practice can help you plan for and ultimately avoid future pitfalls, let’s talk.

Post-mortems need the benefit of time for history to have an accurate sense of events. The facts must emerge before a true picture can take shape of what went wrong and a rush to judgment risks learning the wrong lessons. That’s what happened with SVB. In the immediate aftermath of the bank’s collapse, many were quick to blame how communication was handled and argued poor PR triggered a run on the bank. At the time, it was hard to dispute those assertions but as the facts have emerged this week it has become hard to blame communications entirely for the demise of SVB. As with most crises, the root cause of the issue at SVB had more to do with leadership failures and flawed strategy than botched PR. Still it’s worth looking at what the bank did and what it might have done differently.

Keystone Cops

What characterized SVB’s communications was an ineptitude that bordered on negligence… a clear indication that no-one understood the gravity of what the bank was facing. Exhibit A: was it a good idea for former SVB CEO, Greg Becker, to tell people not to panic? Resoundingly, no. As one venture capitalist commented to Term Sheet, “once you say, ‘please don’t panic,’ you’ve lost the plot.”?

It was also delusional to pin hopes of riding through the threat of collapse solely on the back of a press release. Even with legal disclosure requirements and quiet period restrictions, more could and should have been done to avoid having a press release attempt to control the narrative. As Dan Primack of Axios Pro Rata observed “SVB put its devotion to the quiet period [above dealing straight with stakeholders] preferring to risk collapse than a future fine by securities regulators.” What about directly engaging with customers and venture partners to accompany that release with more contextual information about plans to weather the storm? If key stakeholders had better understood the bank’s plans to buttress capital reserves and maintain the health of the institution, might the rumor mill that fueled mass withdrawals have been prevented? Would there have been more support from VCs and less encouragement of startups to withdraw funds? I would like to think the answer to those questions would have been yes.

We need to look no further than the posture and strategy of another bank affected by the contagion, First Republic, to find an example of how to communicate effectively. Executive Chairman, Jim Herbert, took swift control of the situation and engaged in repeated, transparent dialogue with key stakeholders to provide the facts about a diversified deposit base, the bank’s liquidity and capital positions and new arrangements to provide additional liquidity should it be needed. He went on CNBC to give an interview to quell public concern and led a well-orchestrated customer outreach effort. These efforts did much to break the fever and contain withdrawals although it is also true that First Republic remains far from out of the woods.

But a crisis is rarely just a PR issue

It has become clear as the facts have emerged over the last week that SVB’s failure went beyond bad PR. What has been revealed is a leadership team that underestimated the impact of rising interest rates on its bond portfolio — even operating on the assumption rates would go down — and failed to put in place prudent mitigation measures. Such was leadership’s confidence in the bank’s low risk exposure that it failed to replace a chief risk officer who left SVB in April 2022 and maintain an interest rate hedge program. This posture forced SVB’s last minute reaction to the significant loss of value in its bond portfolio from the Fed’s rate hikes in 2022. Rather than a measured response executed over time to course correct, SVB rushed a capital raise on the eve of a debt downgrade (following a $1.8 billion trading loss on the sale of bonds) and spooked the market.

The bank had also been criticized for a growth-at-all-costs approach and excessive optimism about the tech sector with a marked increase in short activity in 2022. Its stock price drop should also have been a signal the market saw problems with its approach to business. Last year, the bank’s shares fell 66%.

In existential moments, one factor might tip an event into a full-fledged crisis but when the dust settles it becomes clear that several issues were at play. An ill-conceived communications strategy certainly contributed to the collapse of SVB. But that was a side show in comparison to the real cause of the bank’s demise …the failure of its leadership to recognize the serious plight of the business and act responsibly to save SVB well before the events of March 8th.