Marketing Pilgrim's Reputation Channel

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Bear Stearns a Lesson in Rumor Monitoring



By now, you’ve heard about the phenomenal crash of investment bank Bear Stearns–a multi-billion dollar valuation now worth just $236 million.

What’s interesting is how the rumors of the company’s demise quickly escalated the week before the eventual collapse. I spoke with TheStreet.com’s Elizabeth Blackwell about the importance of companies monitoring the web for the increase in online chatter and rumors.

“The worst thing a company can do is stick its head in the sand and say they’ll release information when they’re ready,” he says. “The market makes that decision for you.”

One of Bears’ key mistakes may have been to ignore the rumors for too long. By the time the CEO appeared on TV, it was too little, too late.

“When companies don’t come clean, it’s guilt by omission,” Beal says. “In the absence of credible information, investors will fill that void with their own best guesses and follow the wisdom of crowds.”

Beal points out that the Web site Technorati, which tracks blog postings and discussions, saw a huge increase in the number of bloggers writing about Bear Stearns in the week before its fall.

“If Bear Stearns had taken the opportunity to measure the conversation and the sentiment behind that conversation, they could have taken measures to make the fallout less severe,” he says.

While monitoring the online conversations surrounding its brand might not have prevented Bear Stearn’s collapse, having an inside understanding of the rumors would have given the company a chance to formulate a strategy and manage the release of news.

Trackbacks

  1. [...] the rumors for too long. By the time the CEO appeared on TV, it was too little, too late,” writes Marketing Pilgrim’s Andy Beal. Permalink | Trackback URL: [...]

  2. [...] There is speculation that the bets against Bear Stearns — and the pulling of credit lines — escalated after Alan Schwartz, CEO, went on television to say the firm’s liquidity position was fine. But the market was churning in the other direction. “One of Bears’ key mistakes may have been to ignore the rumors for too long. By the time the CEO appeared on TV, it was too little, too late,” writes Marketing Pilgrim’s Andy Beal. [...]