A new wave of negative news about banks is beginning to hit the public. Following stories on subprime lending, regulatory agreements, bank failures and takeovers, we now are seeing the emergence of articles on lawsuits against bank management and boards.  They are easy to find.

The Wall Street Journal reported recently on the FDIC conducting approximately 50 criminal investigations of former executives, directors and employees at U.S. banks that have failed since the start of the financial crisis.

Another wire story detailed the guilty verdict against executives at BankAtlantic Bancorp who were found liable for damages for misrepresenting the value of real-estate loans. You can also read about investors in RockBridge Commercial Bank who filed suit alleging the failure of two former executives to timely disclose information about its poor financial condition before regulators shut the bank down, while investors in the failed Georgian Bank and Alpha Bank & Trust filed a similar lawsuit.

These are just a few of the cases that, in addition to the rise in class action lawsuits alleging foreclosure fraud and the expiration of statute of limitations, likely will spur more legal action against banks that lost money during the market meltdown. And the news stories will follow, adding insult to an already battered industry image.

Similar to when the media was focused on subprime lending, all banks will get tainted in one way or another by the broad brush of negative news stories on lawsuits. (Not to mention the fact that the OCC estimates that customer complaints about banks will hit the highest level in 15 years this year.)

What are executives and board members to do, both from an image and potential legal liability standpoint?  The same thing they should have been doing for the past several years – communicating with their stakeholders.

In 2002, there was a great deal of hand wringing by public companies over the new laws regarding disclosure when Congress passed the Sarbanes-Oxley Act. However, for those companies that were following best practices of investor relations, it mostly was a nonevent. Sarbanes-Oxley simply codified what they already were doing.

It is no different for the banking industry today. By following best practices of continually communicating with all stakeholders, leaving a paper trail of transparency into the bank’s mission, strategy and performance, bank leadership can create a buffer against negative media articles and limit the environment in which lawsuits can occur. 

Knowledge and understanding bring comfort. Uncertainty and lack of knowledge breed suspicion and distrust.

It’s a new era for the banking industry. Banks of all sizes now have to work harder than ever to engender and maintain trust with their constituents. It begins with making sure stakeholders clearly understand the bank’s challenges and the strategies the bank is employing to meet those challenges.

Give your audiences a baseline from which they can track the bank’s progress. Create breathing room by explaining that the uneven economic recovery likely will mean future periods of ups and downs in the bank’s results.

If stakeholders believe that they are well-informed about the bank’s problematic issues (and that management is being truthful) as well as its plan for dealing with these obstacles, there is a good chance they will view the bank in its own light, and not the broad negative image perpetuated by news of lawsuits and failures.

Then, on an ongoing basis, update stakeholders on the progress of the bank’s actions in this context. Talk about milestones reached along the way. Communicate even if there has been little, no or negative progress. Leave no room for doubt as to what is going on at the bank.

Look for ways to institutionalize your communications. Go beyond quarterly earnings communications and annual reports. Start a monthly or quarterly newsletter for investors, customers and employees that updates the bank’s condition and progress, and provides useful information on bank products and services. (To reduce costs, produce the newsletters as .pdf documents and email them to your stakeholders and print color copies to have available in the bank branches.)

However you choose to talk to your constituents, leave an unmistakable trail of communications that demonstrates management’s committed effort to inform and educate the public.

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