Image management is essential to corporations and other organizations, particularly in crisis situations. The financial crisis in the United States, which led to the failure of a large number of banking firms, has made firm reputation management extremely important. More stakeholders exist in bank governance than in non-financial types of businesses due to banks' role in promoting the stability of the economy and the liquidity function. Therefore, loss of confidence in the banking system can cause serious, systemic economic problems. The bailout for the financial industry and the financial rescue packages offered to select large U.S. banking firms as part of the Troubled Asset Relief Program (TARP) and the TARP Capital Purchase Program served to appease some concerns of bank customers and stockholders. However, the economic crisis and its aftermath continue to cause much concern for all stakeholders of banking firms.
The first purpose of this paper is to discuss the importance of corporate reputation management when crisis situations threaten the company's image. The second purpose is to illustrate the use of communication theory to analyze corporate responses to crises. Finally, we use two crisis response frameworks, Coombs' (2007) Situational Crisis Communication Theory (SCCT) and Benoit's (1995) Image Restoration Typology, to analyze Citigroup (Citi) responses to the company's 2008 financial crisis. We also evaluate the effectiveness of Citi's responses using Coombs' SCCT and Benoit and Czerwinski's (1997) framework.
In late November of 2008, Citi's CEO, Vikram Pandit called the company's universal banking model "the right model" and said that its strategy was to be "the world's truly global universal bank" (Read & Lepro, 2009). Days later, the government stepped in with millions of dollars of bailout money to prevent the bank from failing. Citi was criticized for not having a credible management team or a credible board (Dash, 2008). In fact, William Smith of Smith Asset Management said that "the problem with Citi is the model, the execution, the management" (Read & Lepro, 2009). Throughout its financial crisis, Citi faced several situations that threatened its image and necessitated a response.
An analysis of Citi's responses to events precipitated by the U.S. financial crisis using two theoretical frameworks (Coombs, 2007; Benoit, 1995) provides useful information to bank managers, communication professionals, and investors concerning the types of responses firms may offer in response to crisis events and the effectiveness of these responses in maintaining or restoring the firm's reputation following a crisis. Results of the analysis indicate that Citi used bolstering strategies most often to respond to events that threatened its image. When firms use bolstering strategies, they attempt to build their images by telling stakeholders about past and current good works (Coombs, 2007) and they use other forms of puffery to reduce the offensiveness of the crisis (Benoit, 1995). Citi also used corrective action strategies in its responses when the company tried to make amends for the wrong that was committed and took steps to prevent recurrence of the crisis (Coombs, 2007; Benoit, 1995). Stakeholders are most concerned by how the crisis affects them. By using corrective action strategies the company communicates what actions it plans to take to protect stakeholders from future harm. We also find that Citi used effective communication strategies in five of the ten excerpts we analyzed according to Coombs (2007) and Benoit & Czerwinski (1997) frameworks.
CORPORATE CRISIS AND REPUTATION MANAGEMENT
Corporate crisis is defined as an unexpected, nonroutine event that creates uncertainty and threatens an organization's legitimacy (Seeger, et al., 1998). Crises can harm stakeholders (community members, employees, customers, and stockholders) both psychologically and financially (Coombs, 2007).
Crisis situations usually result in negative publicity, which threatens the corporation's image or reputation. A company's reputation develops through the information stakeholders receive about the organization, most of which is derived from the media and from the Internet. Therefore, media coverage is an important feature of reputation management. Corporate reputation is widely recognized as a valuable, intangible asset which can "attract customers, generate investment interest, improve financial performance, attract top employee talent, increase the return on assets, create a competitive advantage, and garner positive comments from financial analysts" (Coombs, 2007, p. 164).
Corporate communication can be defined as "the process through which stakeholders perceive that the organization's identity, image, and reputation are formed" (Balmer & Gray, 2003). Corporate communication during a crisis reflects the firm's strategic management of the situation and is critical in determining how much, if any, damage is done to the firm's image. Because stakeholders attribute some responsibility to the organization or industry in which the crisis exists, communications must explain the facts of the crisis and provide the feeling that steps are being taken to ensure that the crisis won't happen again (Fortunato, 2008). By strategically managing the crisis situation through reliable, credible, and transparent communication, a corporation addresses stakeholders' anxieties, manages its corporate image, and restores its reputation (Geppert & Lawrence, 2008).
CRISIS IN THE BANKING INDUSTRY
The crisis in the banking industry greatly diminished the industry's reputation and the reputations of the firms experiencing serious financial problems and/or facing failure. Because of the banking industry's role in maintaining financial and economic stability, it is critical that confidence is maintained through effective response strategies to crises. Also, according to Flyvholm & Isaksson (2008), it is particularly important for firms that specialize in intangible products or services (such as banks) to maintain a positive reputation. Bank customers buy products and services that are associated with financial risk and want to be reassured that the company can be trusted. Michael Sheehan, president of Sheehan Associates, a crisis communications firm in Washington, D.C. observes, "The stakes are higher and lot more personal in banking. Banks have cultivated their customers' trust and customers expect banks to be responsible entities" (Valentine 2007, p. 39). The strategies banking firms use to communicate their responses to crisis situations are critical to maintaining their reputations.
U.S. Banking Crisis: The Case of Citigroup
Citigroup, one of the largest financial services companies in the United States, suffered huge losses during the financial crisis of 2007 and 2008. From early in the decade until 2007, Citi invested heavily in mortgage-related assets, and by September of 2007, the company owned approximately $43 billion of these assets. In mid-November of 2007, the market value of Citigroup's stock was $180 billion; one year later, on November 21, 2008, its market capitalization was approximately $20 billion, a loss of nearly 90%. In all, the bank reported about $20 billion in losses in 2008 (Morcroft, 2008). Citi experienced financial difficulties because of the credit crunch and the write-downs of bad investments and other assets. The company's problems were also attributed to a poor economy and lax regulatory oversight, along with the company's lack of an appropriate risk management structure. Citi was criticized for being a large business without a cohesive management strategy. In October of 2008, Citi received $25 billion as part of a government investment in banks to bolster their balance sheets (Morcroft, 2008). However, this did little to alleviate concerns about the risks remaining on the firm's books. The value of Citi's shares fell 60% during the week of November 17, 2008 (Morcroft, 2008). Because of this, the government decided to try another approach to avoid Citi's collapse and a further loss of confidence in the U.S. financial system.
On November 24, 2008, Citigroup announced in a press release that the company had reached an agreement with the U.S. Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) on a series of steps to "strengthen Citi's capital ratios, reduce risk, and increase liquidity" (Citigroup, Press Release, November 24, 2008). The crisis faced by Citigroup in late 2007 and 2008 presented the company's management team with the challenge of maintaining the company's reputation and creating a positive image.
COMMUNICATION THEORY AND CRISIS RESPONSE STRATEGIES
Researchers have developed several image restoration strategies based on social legitimacy theory, which argues that an organization's continued existence is contingent on its ability to receive support or approval from stakeholder audiences. The typologies used in this paper to analyze corporate responses to crisis are Coombs' Situational Crisis Communication Theory (Coombs, 2007) and Benoit's Image Restoration Typology (1995). Kim, et al. (2009, p. 446) state that these two models have "... provided dominant paradigms for crisis communication research." Coombs (2007, p. 163) states "research using SCCT relies on experimental methods rather than case studies." Coombs describes Benoit's typology as "a descriptive system used to analyze crisis cases" and writes that Benoit's model "... offers no conceptual links between the crisis response strategies and elements of the crisis situation" (Coombs, 2007, p. 171). However, Caldiero (2005, p. 4) writes: "Benoit frames his theory in terms of communication and, more specifically, goal achievement. If those goals include not only image repair, but also relationship repair, then Benoit's work can be helpful when assessing public response campaigns." The objectives...