Delivering Bad News? Focus on the Message, not the Medium


A new study in The Accounting Review cautions against the use of online video when delivering bad news, particularly financial restatements.  Published by the American Accounting Association (AAA), the study suggested that “while the newer medium can help shore up investors’ trust, it can also occasion an erosion in trust much more severe than a textual statement is likely to cause.”

Reporting on the study, said bluntly, “Need to Restate Earnings? Don’t Use YouTube.” However, that simple headline overshadows the most important conclusion of the study: “Even when the violator issues an apology, accepting responsibility by making an internal attribution repairs trust to a greater extent than does denying responsibility by making an external attribution.”

In short, what audiences are seeking from a restatement—or any negative corporate event—is an honest acknowledgement of the problem, an ownership of the blame and a promise to restore order.

Interestingly, this AAA study illustrates just how dramatically video can dampen investor sentiment when a CEO attempts to shift blame during a restatement:

“When [survey subjects] learned of the restatement via a video announcement by the CEO, the amount they intended to invest dropped a mere 3% if the chief took responsibility but [dropped] almost 26% if he blamed outside accountants.”

Video may affect perception more dramatically than the printed word in negative cases, but the message is the message, regardless of the medium, and those that take ownership of these situations are rewarded – in this case – financially.

We’ve previously written about the opportunities and risks inherent in new media platforms, and the results of this survey reinforce the need for authentic and trustworthy communication, rather than the notion that a video could soften the blow of bad news.  This is especially true for the 34% of public companies currently using YouTube for investor relations activity.

With that in mind, rather than worrying about the production of a slick YouTube video, focus on communicating truthfully, swiftly and consistently in the selected medium – whatever its form.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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