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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We’ve talked before about crisis prevention in general. With any of the crises we’ve seen this summer, it would be hard to say, “This came completely out of the blue.” That’s because we all have an inkling of what could happen but few of us want to think about the worst case scenario. But without actually identifying potential crises, a company can never prevent it and will, in turn, not be prepared to deal with it effectively.

So CEOs and General Counsels need to think like their security officers and analyze the risk of a crisis by looking at the company’s vulnerability to a specific threat and identifying ways to lower that risk. Every police officer, federal agent and emergency manager knows the equation:

Risk = Threat x Vulnerability

Threats come in all forms. If you are a food processing company, it could come in the form of some health outbreak caused by a system failure or product tampering. There could be a catastrophic accident (such as we’ve seen recently in the Gulf), environmental harm, either from the accident or manufacturing processes, technological breakdowns, rogue employees (some rogue stockbrokers come to mind). The best way to prevent these potential crises is to sit down with senior management to examine the worst case scenarios, in order of likelihood, and assess the reputational, legal and economic damage each could do to the company.

Next, identify what systems are already in place to prevent these threats from occurring.  Where a company can really benefit economically from a crisis audit is by helping the General Counsel see what systems, trainings, and compliance regimes are in place, inadequate, or not properly implemented.  Do a cost/benefit analysis on what else could be done to reduce the threat. Sometimes it just isn’t economically feasible to “harden” every target, but keep in mind the cost of the potential legal liability if your inaction could be found “negligent.”

Third, develop a plan of action in the event that this threat becomes a reality. Make it specific, even down to potential messages that could be used in the first few hours. Identify which managers would be on the “crisis response” team and which law firms you would use to handle that particular type of crisis. 

Finally, but probably most importantly, make sure these crisis audits are done under privilege, through the auspices of the General Counsel. Bring in unit managers and, ultimately, your PR team, but make sure that all communications go through the legal department.

A crisis audit, if done regularly, will also help you establish an “early warning system” and avoid the crisis before it hits.

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General Stanley McCrystal, Virginia Senator George Allen and Carly Fiorina, among others, have learned the hard way that in today’s 24/7 news, blog, twitter and YouTube world, nothing is “off-the-record” and everything, even the most petty remarks, are up for endless debate. Those “off-the-cuff” remarks, whether told to a reporter allegedly under an “off-the-record” ground rule or caught on video or audio can so quickly shift focus from the person’s real message to a debate over inconsequential subtext that can derail careers, candidacies and reputations.

Even actions matter. Take the pictures of Tony Hayward, BP’s battered and buffeted CEO, who had complained that he wanted his “life back” after the oil spill, and moved back to Britain at the orders of the Chairman. The very first days after his arrival he was photographed on a yacht in crystal clear waters, which did not go unnoticed at the White House, with Chief of Staff Rahm Emanuel commenting, “Well, to quote Tony Hayward, he’s got his life back, as he would say.”

Does this mean you should never engage with the media? No. With or without the mainstream media, there are more and more blogs, citizen journalists and just plain “watchers” out there. In fact, the Democratic National Committee is working on replicating that “Macaca Moment” of Senator Allen’s by organizing “The Accountable Project,” by encouraging people to go to Republican events and upload videos to show candidates engaged in gaffes, double-speak and hypocrisy.

Unfortunately, this kind of “gotcha” citizen journalism means no one is ever truly “off” the record. Which is why a company should warn key managers, the public face of the company, to guard against those embarrassing photos, quotes, and quips that can be caught on a camera-phone and uploaded instantly to Facebook, Twitter or a consumer website. Facebook and Linkedin are nice, but having lived and worked in Russia for the last 20-odd years, after the spy scandal broke last week, I immediately checked my friends and “LinkedIn” list for any of the suspects. You never know.

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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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