Communication Choices Played a Major Role in Sinking Silicon Valley Bank

A lot of businesspeople ridicule communication as a low priority, nice-to-have soft skill.  

It’s likely these same people missed how large a role communication played in the recent collapse of Silicon Valley Bank (SVB).  

Indeed, Lulu Cheng Meservey, EVP, corporate affairs and CCO, Activision Blizzard, believes the driving force in SVB’s demise was its communication “collapse.”  

In analyzing PR crises, critics often cite a lack of transparent communication. For some observers, like Cheng Meservey, that was so with SVB. 

On the other hand, other observers believe part of SVB’s problem was that some of its communication was too transparent (details below). 

Either way, there’s little doubt communication was a central part of ­­the SVB episode.  Shame then that SVB, the country’s 16th largest bank, reportedly lacked a communicator in its senior ranks. 

Trust and Reputation 

Like many businesses, banking relies on trust and reputation. When customers lose trust, they remove their deposits and bank elsewhere. In gross terms, that’s what happened at SVB.  

For financial reasons, SVB announced in a press release late March 8 it planned on selling nearly $2bln worth of common stock and depositary shares. In addition, SVB said it completed selling $21bln worth of securities, predicting an after-tax loss of $2bln.

Written stiffly in financial gobbledygook and without a human voice or quote, it’s charitable to call the March 8 communique a press release. The 571-word statement is a chore for those unfamiliar with banking language. Even ChatGPT, with its sometimes-stilted prose, might have done better.

On top of all that, the release never mentions why SVB conducted these sales, Cheng Meservey notes. And there’s no context in it discussing SVB’s financial health, she adds.  

Of course, how many SVB customers read the release? Of them, how many understood it? As a narrative, the release failed.  

Clear Language a Must

Instead, SVB should have issued a more reader-friendly statement, Cheng Meservey argues. Moreover, it should have appeared on social media, where a slew of SVB’s entrepreneur and venture capital clients live. The bank worked with about 50% of the country’s VC-backed tech and life-sciences companies. 

Communicators know when your story is unclear, others will provide their interpretation of things. Initially, the media did.

Under the benign headline “Silicon Valley Bank launches new share sale,” Axios Pro Rata’s Dan Primack wrote SVB was selling shares to bolster its finances. Banks and companies do this regularly, you could argue.

Yet with SVB remaining relatively silent, alternate narratives spread fast the evening of March 8 and into the morning of March 9.

Accelerating the panic were nervous customers’ social posts and messages on private Slack channels, the WSJ reports. Many came from CEOs of startups, whose companies’ accounts and payroll funds were at SVB.

With no officials speaking for the bank, it’s not a surprise that a frenzy among customers grew. SVB shares fell precipitously March 9, ending the day off 60%. Media reports say the lack of communication was even worse overseas, where SVB had operations. 

Seeing the panic, SVB CEO Greg Becker gathered select founders and key venture capitalists late March 9 for a Zoom call.  

The bank’s in good shape, Becker reportedly said on Zoom. We say reportedly because the Zoom call was private.  

“My ask is to stay calm because that’s what is important…the last thing we need you to do is panic,” Becker, again reportedly, said on Zoom.  

Another missed communication opportunity: Becker took no questions. Like the release, the Zoom call failed.  

Panic Worsened 

Instead, Becker’s “stay calm” was reminiscent of Kevin Bacon’s scene at the end of “Animal House.” 

In all, customers requested $42bln from SVB March 9. Not all requests were filled. SVB had a negative cash balance of nearly $1bln at the close of business March 9. Federal authorities seized SVB before it opened March 10.  

Oh, the Ironies 

A pair of communication ironies make this PR crisis one for the books:  

1.    While SVB’s press release reads like a regulatory document, the actual form, an 8-K, also issued March 8, provided context and an assessment of the bank’s health. The very things its press release lacked, Cheng Meservey says. 

2.    A leading academic, Jeff Sonnenfeld, CEO of the Yale School of Management’s Chief Executive Leadership Institute, believes SVB was too transparent. Based on its liquidity, SVB did not need to announce its intent to sell shares, he told CNN in an email. Moreover, SVB mentioning it anticipated a $1.8bln loss from depositary sales also was unnecessary, Sonnenfeld said. In short, SVB was too transparent. 

More Communication Snafus

Forget, for now, the ethics and legality of Becker urging calm in this situation. (Also put aside for the moment that just days before SVB’s collapse, a trust Becker owns unloaded nearly $4 million worth of bank shares.)  

Apparently, Becker wasn’t alone in miscommunicating. Media chronicled examples of other SVB employees allegedly misleading customers. For example, one SVB banker told Varun Badhwar, CEO of Endor Labs, that rival banks were spreading misinformation about the bank. In other words, don’t panic.

Another customer, Jonathan Bensamoun, founder of Fi, which makes a smart collar for dogs, claims an SVB contact told him March 9 the bank was not experiencing large outflows.  

While numerous lessons from the SVB saga will emerge, it seems clear even now that Warren Buffett’s aphorism, heard at numerous PR trade events–“It takes 20 years to build a reputation and 5 minutes to ruin it­”–has more relevance. In SVB’s case, it took 40 years to build a bank and about one day to destroy it. So, go ahead, save budget and leave communication to chance.