Legal Crisis Strategies : Crisis Communications Lawyer & Attorney : McDermott Will & Emery Law Firm : Risk Mitigation, Mass Litigation

There was a lot of buzz recently about a study conducted by the Stanford Graduate School of Business titled, “Detecting Deceptive Discussions in Conference Calls.” The study’s authors analyzed transcripts of nearly 30,000 conference calls by American CEOs and CFOs between 2003 and 2007.  The researchers studied the linguistic features of narratives, and found that  CEOs at companies that subsequently announced a significant restatement of earnings used significantly fewer self-references, more third person plural and impersonal pronouns, more extreme positive emotions, fewer extreme negative emotions, and fewer certainty and hesitation words.  Furthermore, the “deceptive” CEOs and CFOs used more references to general knowledge, fewer non-extreme positive emotion words, fewer references to shareholder value and value creation.  In sum, there was a relationship between non-specific, non-factual language, and descriptive emotion words like “fantastic” and “great,” and a lack of credibility in the substance of the presentation. 

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No matter what your crisis is, and no matter what your media strategy may be, the best way to manage a crisis is to respond to reporters and to do so in a timely manner. It may sound obvious, but too many companies fail to do this, whether because executives have stuck their heads in the sand, don’t feel prepared to talk with the media, or simply don’t make media inquiries a priority. But ignoring the media is a huge mistake that can be easily avoided.

No “no comment,” please!

When a crisis situation breaks, it is imperative to put together, at a minimum, a statement—no matter how short—that will serve as your response to media inquiries until you are prepared to provide further information. Even if it is something as generic as, “we are taking this situation seriously and conducting a full investigation.” Anything is better than a “no comment,” which can leave the public with the impression that you or your company has something to hide. 

Proactive Media Strategy

Depending on the circumstances, adopting a proactive media strategy can be the most effective way to manage a crisis situation. This requires some fact-finding ahead of time so that you can work closely with one or several reporters as events unfold. Even if there is some uncertainty surrounding the situation, building a rapport with reporters and providing them with the facts is the best way to get accurate, balanced coverage of an issue. News outlets can report the best facts you have on your side only if your provide those facts to them. Stated differently, take every opportunity to balance a bad story with all of your best facts—including the story of what you are doing to take accountability for what went wrong. This last step is the key to protecting your reputation and repairing trust among your stakeholders and customers in the aftermath of a crisis.

Rapid Response

Being prepared for the onslaught of media inquiries is a critical part of managing a crisis. We often work with our clients to set up rapid response operations, which is simply a small group of individuals tasked with receiving, organizing, and responding to media inquiries. Those in charge of responding to reporters should be one or two people who are very familiar with all of the relevant facts, statements, and/or messages (depending on your particular strategy) which should be vetted by executives and attorneys. These individuals should have experience working with the media, and should be prepared and available to return phone calls well within reporters’ deadlines.

When you are unprepared for a rush of media coverage, your side of the story becomes, “Company X was not immediately available for comment.” This is not as bad as a “no comment,” but it is a wasted opportunity to balance the story with good facts, and perhaps more importantly, a wasted opportunity to handle the negative facts. Obtaining balanced coverage requires ensuring that reporters have facts to report—whether positive or negative.

Conclusion

It is a worthwhile exercise to conduct a “fire drill” scenario to plan ahead for a negative event. Identify ahead of time who will comprise your team of inside employees and outside advisors that you will call when a crisis breaks. Make sure you plan for good communication and organization, especially when it comes to handling the media. Urge your executives to view each media inquiry as an opportunity rather than an annoyance, and you will see what the power of communication can do to shape public opinion.

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Whenever I have been faced with counseling a CEO going before the press or Congress to answer for the worst judgments by persons in the CEO’s organization, the tension between reliance upon the regime of legal rights and the decision to accept a broader responsibility is inevitably on the agenda. This is a difficult position to navigate when simultaneously juggling legal liability, duties to shareholders, and long-term reputation concerns. 

In 1974, Soviet dissident Alexander Solzhyenitsyn delivered an address at Harvard University in which he critiqued Western (read “U.S.”) society for its over-reliance on law compared with doing what is “right.” A piece of that address is well worth considering in the wake of so many recent corporate crises: 

Western society has given itself the organization best suited to its purposes, based, I would say, on the letter of the law. The limits of human rights and righteousness are determined by a system of laws; such limits are very broad.

People in the West have acquired considerable skill in using, interpreting and manipulating law, even though laws tend to be too complicated for an average person to understand without the help of an expert. Any conflict is solved according to the letter of the law and this is considered to be the supreme solution. If one is right from a legal point of view, nothing more is required, nobody may mention that one could still not be entirely right, and urge self-restraint, a willingness to renounce such legal rights, sacrifice and selfless risk: it would sound simply absurd.

One almost never sees voluntary self-restraint. Everybody operates at the extreme limit of those legal frames. An oil company is legally blameless when it purchases an invention of a new type of energy in order to prevent its use. A food product manufacturer is legally blameless when he poisons his produce to make it last longer; after all, people are free not to buy it.

I have spent all my life under a communist regime and I will tell you that a society without any objective legal scale is a terrible one indeed. But a society with no other scale but the legal one is not quite worthy of man either. A society which is based on the letter of the law and never reaches any higher is taking very scarce advantage of the high level of human possibilities. The letter of the law is too cold and formal to have a beneficial influence on society. Whenever the tissue of life is woven of legalistic relations, there is an atmosphere of moral mediocrity, paralyzing man’s noblest impulses.

(Emphasis added.) 

It is absolutely clear that any divergence between a company’s assertion of its legal rights, even in the most polite and appropriate way, and the public’s perception of what is ethical behavior poses the ultimate serious issue for crisis management. For example, a company that cause a crisis in which people or property are injured may take responsibility by saying that it will pay “all legitimate claims.” Immediately, the media and public will ask whether that company is relying on a litigation strategy to determine what a legitimate claim will be—certainly a legal right—or whether the company is promising to accept responsibility for damage to others from its conduct that might even be the result of its business partners’ actions and decisions? Will legitimate or even peripheral claims be paid outside of litigation? 

In a legal-political-business and environmental catastrophe, can a company, as a representative of the corporate business community, claim that it can comply with ethical and moral values and set aside legal principles? A company facing a complex crisis is in the most difficult position possible to parse such distinctions. The irony such companies face is that, in order to maintain their long-term reputation in the marketplace, they must act ethically and ‘do the right thing.’ However, ‘doing the right thing,’ in some cases, may mean taking financial responsibility to the point where a company cannot survive in the long-term. Even with the best intentions, drawing the line between a legal floor and an ethical ceiling can be difficult and risky. For this reason, a company must have a clear understanding of its constituents, its risks, and must surround itself with a proven and trustworthy set of advisors. More thoughts on this next week…

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In the face of a recall, a disaster, or a crisis, too many attorneys counsel their clients to avoid apologizing and to avoid taking responsibility in order to minimize their legal exposure.  These lawyers would likely have their clients believe that doing so would “open the floodgates of litigation,” or “provide evidence of wrongdoing that would strengthen claims.”

The truth is that if your company was involved in a large-scale crisis, it will likely face some litigation or at a minimum, a government investigation.  And, there are many ways to take responsibility without stating that your company was at fault.  In short, focus on solutions and leave the finger-pointing for the courtroom. 

If there are a number of people and companies involved in the crisis at hand—there usually are—you may not be solely at fault, or you may not be at fault at all.  Nevertheless, it’s important to let the public, your customers, and your employees know that you are stepping up to the plate.  By stating that your company is, for example, “doing everything possible to rectify the situation,” or “working closely with authorities and partner companies to bring about a solution,”  and “paying the costs of remediation,” you are neither accepting fault or pointing fingers.  But, importantly, you are working on repairing the trust of the public, lawmakers, and your regulators.

In particular, if your company is involved in a crisis in which people are injured, it is imperative to express some regret about the events that occurred.  And, it is possible to craft an apology that does not expose you to additional liability.  It’s not easy, but it’s possible.  (For more on apologies, see our post, The Art of the Apology).

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The tragic and deplorable terrorist attacks in the Moscow subway should remind everyone that crisis management begins at home. Press reports quoted many panicked Muscovites lamenting that they could not locate loved ones and had little information as to whether they were dead or alive. Cell phone towers were unable to keep up with demand, as millions tried to check in with their family and friends who were among the 500,000 people traveling on the subway at that time.

            Things could have been far worse if the attacks had continued, or the government had decided to order an evacuation of parts of the city. So how does one prepare for the unthinkable? You think about it by identifying the most likely terrorist or criminal threats and natural disasters and planning for them. You should also know and understand the plans of your workplace and community. You talk to family members about what to do in the event of an emergency by picking meeting locations, with one near home and one removed from home, in the event that your home is in the “hot zone.” You also develop a crisis communications plan for staying in touch if you are separated when the crisis occurs or afterward.

            The potential liability already exists for companies that do not properly plan for natural or man-made disasters. For example, after 9/11, several lawsuits were filed against companies, accusing employers of negligence for not having adequate evacuation plans or informing their employees about those plans. Some suits alleged the foreseeable risk of such an attack because the World Trade Center (WTC) was at risk for fires and had been the target of terrorist attacks in the past, specifically, in 1993. The court allowed cases to go forward against the WTC defendants because it agreed with plaintiffs that these risks were reasonably foreseeable. In re September 11 Litigation, 280 F. Supp. 2d 279, 301 (SDNY 2003).

            To mitigate the risk of liability from accusations of negligence, companies too must have plans, educate their employees about those plans and, most importantly, exercise those plans. The federal government has an excellent website with tools and information that can help you or your workplace formulate a plan.

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In time of crisis it is important for companies to establish a pro-active media strategy that includes working with a reporter to get a “predicate story” written. The predicate story tells the whole story—good, bad and ugly—in one place, and serves as a base line story for all subsequent media coverage.

Why is this a good idea? First and foremost, with many issues, and especially in a crisis or litigation, you want to get out ahead of a story. You want to get the facts in the press so that someone else does not get to the public first with distorted facts. The predicate story is the most effective way to do this for several reasons. 

Specifically, in a crisis, you want to get the story in and out of the media cycle as quickly and accurately as possible. A predicate story can help do this by being the definitive story on the issue. But, it can only be effective if the story covers all the facts—both good and bad. 

A predicate story also allows the subject an opportunity to get messages and on-the-record comments into the story. This will ensure that the coverage of the issue is balanced with your facts.

You may also be able to negotiate an embargo with a reporter writing a predicate story. In this agreement, a reporter will agree to not publish the story until a certain date. For example, if you are about to file a complaint against a defendant, you may negotiate an exclusive story to a reporter who agrees to wait to publish the story until the date the complaint is filed. This will give the facts in the complaint maximum effect in the court of public opinion, and generally bring attention to your case.

Start by finding the right reporter to write the story. It is always good to work with a reporter that you know and trust, but any reporter who has been balanced and thoughtful in the past is a good one to approach. Be sure to provide the reporter the resources he/she needs to do his/her job, such as access to key documents and people knowledgeable about the facts. Finally, remember that a predicate story will take some time to write; therefore, you want to start early to give the reporter an opportunity to investigate the facts and to get comments from others. If a predicate story is to do its job, it will take time. 

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We’ve heard a lot about recalls in recent weeks. The most famous recall of all happened 27 years ago. In September 1982, seven people died from taking cyanide-laced Extra-Strength Tylenol, Johnson and Johnson’s best-selling product. J&J didn’t dither and immediately recalled 31 million bottles from store shelves, offering replacement products in a safer tablet form, free of charge. Two months later, the company reinstated the product with tamper-proof packaging, and a year later, it had 30 percent of the $1.2 billion analgesic market, down only 7 percent from its share before the poisoning—that market had represented 17 percent of the company’s income in 1981. (For more information, see Judith Rehak’s article “Tylenol made a hero out of Johnson and Johnson: The recall that started them all,” published in the New York Times on March 23, 2002.) And while the stock stumbled, only two months after the recall it recovered its 52-week high. 

It was unprecedented. A voluntary recall? J&J was feted in the press as a hero and as “Exhibit A” on doing it right in every crisis management, product liability and PR class anyone has taken since.  

It wasn’t the fact of the recall itself, but the timing. J&J acted immediately upon the first reports. And it did something proactive to prevent the same event from occurring again, even though it wasn’t the company’s fault in the first place. 

This follows two major rules of crisis management that are particularly important to mitigate the risk of future lawsuits and damages.

First, telling all the bad news yourself. The drip, drip, drip of bad facts is never good. Getting out all the facts as soon as you know them is critical and adds to the company’s trustworthiness. It can also mitigate any future negligent claims because getting out the bad news means you are trying to forewarn people of the risks.

Second, creating good facts can counteract the bad. In the Tylenol case, the company quickly created “tamper-proof” packaging to prevent such incidents in the future. The fact that the company cared so much about product safety that it went the extra mile to create new safeguards also had a “halo” effect. Customers perceived this fact to mean that if the company was this serious about safety in this area, then it must have strict controls in others.

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One of the first rules of crisis management, whether in politics or in the private sector, is to close the gap to zero between public perception and the facts.

In the corporate arena, we frequently are retained by clients who have already been the victims of misleading negative headlines and stories that are biased or tilted in the direction of critics. This is frequently the case in litigation.  Plaintiffs attorneys know they must be skilled at getting into the media first, because most people perceive pure allegations in a filed complaint as “fact” if a newspaper reports them—and certainly that impression will grow if the response to the allegations in the newspaper stories is, “no comment, we are in litigation” or some vanilla comment such as “this is a baseless claim and we will prevail in the litigation” without any factual rebuttals. 

Thus the gap grows between the allegations (which are not fact, but just someone’s allegations of fact) and the reality of what actually happened and why. And corporations receiving bad advice, namely just the legal perspective of “no comment, we will litigate this in court,” will find themselves with depressed share values and a potentially poisoned jury pool—in other words, little option but to “settle” the case, usually for large dollars commensurate with the number of times the lawyers convinced the client that “no comment” or vanilla rhetoric instead of facts was the better strategy.

Now let’s apply these lessons of the need to get the facts out early and often to the current Obama administration difficulties in getting comprehensive health care passed. Most people, and certainly most of the Republican Party and the media, have portrayed public opinion as being overwhelmingly against the Obama health care plan. 

But the facts as demonstrated by respected public opinion polls do not support that general public perception.  The latest Washington Post –ABC News poll, conducted February 4 to 8, 2010, shows the public essentially split on President Obama’s and the Democratic Congress’s proposal—46 percent for, 49 percent against—essentially a dead heat, since that is within the margin of error of the poll (+/- 3 percent).  Even more fascinating are public responses when the three specific aspects of the proposal are spelled out concretely:

·        Require businesses to offer insurance – 72 percent to 27 percent in favor

·        Require all Americans to purchase insurance (the individual mandate) – 56 percent to 43 percent

·        Require insurance companies to sell to all Americans regardless of pre-existing conditions – 80 percent to 19 percent

Note:  These results prove that the American people overwhelmingly support a federal government mandate—to employers, to individuals, to insurance companies—to insure virtually all Americans.  This is contrary to what most opponents of President Obama and most of the media have written and believe.     

So how is it possible the Obama White House has allowed such a gap between public perception (and conventional wisdom) that the Obama health care program is so unpopular and the reality that American public opinion strongly supports the three specific and most important components of the actual program? 

The answer is a failure to communicate the facts effectively to the American people by the Obama White House and the Democratic Congress.  This is why the overall general question draws a virtual dead heat—whether people support the “proposed changes” of President Obama and the Democratic Congress—is so different from the results when concrete, specific, factual proposals are communicated, i.e., a federal mandate to private employers, individuals and insurance companies leading to near universal coverage. 

Crisis management Rule 101: get a simple (I like the number “three”) three-point message out as to what the proposal actually is, repeat it over and over again, and set up a war room/rapid response room to challenge every distortion that appears anywhere—on cable TV, on broadcast TV, on talk radio, on the internet, every day, everywhere.

If you don’t get your message out first and repeat it over and over again—containing facts, facts, facts, and not vanilla rhetoric—then the other side will, and in crisis management, you never get a second chance to make a first impression, and unfortunately, first impressions count a lot.

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You are the General Counsel of a major corporation about to go to your son’s soccer game. It’s five to five and the phone rings: The New York Times is about to go with a story about your secret merger negotiations, that also involve sensitive talks with the U.S. Federal Trade Commission (FTC). Your stomach clenches. It’s a full blown crisis….and it’s bad…or is it? 

Most people think a crisis is when something bad happens. But by definition it’s when something bad might happen depending on how you handle the moment. 

According to Merriam Webster, the definition of crisis is a “decisive moment,” or an,

"Unstable or crucial time or state of affairs in which a decisive change is impending, especially one with a distinct possibility of a highly undesirable outcome."

So it’s not what is happening but what you do at those decisive moments that determine whether the outcome of this state of affairs will be good or bad and not necessarily the crisis itself. 

And since, by definition, a crisis is a “state of affairs,” it is multidimensional. Most crisis involve the risk of financial damage, legal liability and reputational harm. Because the only way to stabilize a situation is to determine the underlying facts or factors that are causing the “unstable” moment, it is often legal training that best conducts the fact-finding process, under privilege. 

For example:

• Is there a misperception of the facts that is leading to false accusations?
• Is that misperception politically motivated or coming from a competitor or someone with competing interests, such as another bidder for the same company? 
• Was something done that was not legal or not according to policy or best practices? 
• What can you do in this crucial moment to make the outcome one that enhances your reputation rather than harms it? 

There can be lots of reasons that you or your company are under attack, which is why we believe three disciplines are called for in managing a crisis and ultimately achieving a positive outcome: 

1. Legal
2. Political
3. Public relations experience

Many times all three disciplines are necessary. We call it fighting by land, sea and air….on all fronts at all times. You can do this quietly or not. In the example above, no comment is not an option. Is there a press strategy that can prevent the reporter from printing now, by offering an exclusive later? Are there facts in support of the merger than can be given without endangering the negotiations with the company and the FTC? 

The solution here will certainly be driven by legal, political and public relations expertise.

Handling that decisive moment strategically can be the difference between having the reputation of a company that has done wrong to a company that cares about doing things right. It’s critical to ensure that policies are in place that are designed to prevent the most likely crisis from occurring and, in turn, will limit legal and reputational risk. The scenario of a possible leak must be planned for, with pre-approved statements available to deal with any eventuality and with a clear strategy for informing key stakeholders of the likely reporting. 

Any company can plan for a crisis. 

These decisive moments or state of affairs are not entirely unpredictable. For example, a global retailer that manufactures some of its own lines can either worry about being accused of unfair labor practices in areas of the world that are difficult to police or partner with a non-profit or advocacy group to work out a solution that involves these same groups advising the company on best practices and conducting “surprise” visits to ensure those policies are being carried out. This again calls for lawyers, business, political and PR experts who can view issues through multiple dimensions

So with the pre-approved messages from your antitrust lawyers, and the communications strategy you worked out with the GR and PR experts at your fingertips and ready to activate once you hang up, you take a deep breath. You can answer the questions, making this decisive moment a winner for the company by using the reporter’s query as an opportunity to get the facts out about just why this match makes sense from a legal, political and consumer viewpoint. And, you can still make the soccer game.

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