Crisis management as a theme cuts across a number of different issues that are supremely important to today’s general counsel – and in today’s 21st century business landscape, it seems more often than not that it’s a matter of when, not if, that seemingly inevitable crisis hits.
‘One can imagine such technology outsmarting financial markets,
out-inventing human researchers, out-manipulating human leaders,
and developing weapons we cannot even understand.’
Warren Buffet
These were some of the key ideas informing the Lex Mundi General Counsel Summit held in Amsterdam in May, which I was invited to and which was attended by a selection of leading global general counsel and partners from some of Lex Mundi’s member firms.
When crises do arise, they encompass a range of the GC’s skillset and mandate – the role of risk management; interaction with the c-suite; the intersection of legal and compliance. All are essential elements of what it means to be a lawyer in today’s business environment; but they also represent a host of unique challenges for the GC.
But where particular difficulty arises for companies and their lawyers is that predicting a crisis is no longer as simple as sticking to the letter of the law, because today there is a gap between reputation and legality. Today’s companies and their legal departments need a substantial foothold in so much more than legal to weather the storm of public opinion, which is significantly amplified by social media and the immediacy of information sharing.
That means that a loss of reputation is no longer just about a catastrophic event like cheating or mis-selling, but rather an ongoing story of reputation being built and destroyed in a space beyond simple law and regulations. The law can be on your side – but you can still have a reputational crisis where the law is lagging behind what you, as a company, have to do to meet societal expectations.
The pharmaceuticals industry, for example, has grown up with practices that are often now seen as questionable from a societal point of view – even if these are actually legal – such as marketing to doctors. Large corporates in the light of the ‘Panama Papers’ revelations are struggling with the fact that offshore tax structures, which in many cases are perfectly legal, are being viewed with increasing suspicion and distrust by the public, the media and some governments. Executive compensation is another fraught area where corporates feel the heat of public opinion on practices that are completely legal.
BEST PRACTICE TIPS
- The GC and their team operate as much as risk arbiters as lawyers. This demands a proactive assessment of risk in all its forms and can be incredibly pertinent to crisis management.
- To know and measure your risk, you need knowledge and transparency: know your company – not just its legal issues.
- Having a culture where transparency and whistleblowing are encouraged is key. This can be crucial for getting in front of issues before they become crises.
- Knowledge also equals preparedness – knowing key facts and figures, even general ones, can be incredibly helpful in a crisis.
Many global companies respond by proactively trying to be the best they can. However, the risk of an active approach – one going beyond what is just legally required – is that the bar is set high, making walking the walk even more important. A key point made by one general counsel was that it also becomes a matter of annunciating that message – effectively ‘talking the walk’– so that internally and externally a culture of going beyond the letter of the law is effectively communicated. One GC defined this as having a ‘North Star’.
The bottom line is that companies and their legal teams need to take perception seriously. The incredible power, influence and impact of public opinion, which is a function of technology and social media, needs to be monitored but also carefully harnessed by companies.
The role of the general counsel
The GC role in most multinational companies is becoming increasingly defined by its growing focus on strategic risk management. This makes the GC a crucial figure in terms of determining how well a business is prepared for a crisis, bringing that level of preparedness up to standard, as well as leading actions when a crisis hits.
The notion of the GC as independent and being able to bring more than one perspective to bear was a key insight which came up repeatedly at this meeting; someone with the ability to offer a differing or opposing point of view is pivotal.
The role of the GC themselves is fundamental to the question of reputation and risk management, but the conversation cannot be limited only to the GC, but must cascade down through their department. Part of the issue is equipping all lawyers in-house to be more than just lawyers.
Increasingly, the general counsel and their team has to balance the paradox of their proximity to business with having the independence and distance to speak up.
BEST PRACTICE TIPS
- Try to ensure you have ‘a seat at the table’ in regards to crisis preparation.
- Ensure your team can think in ways that are not defined purely by legal advice.
- Be aware of the importance of your independence and objectivity, especially in giving an opposing or challenging point of view.
- Consider the challenges of maintaining a training culture across a large and/or geographically diverse legal team.
Risk management and reputation
Risk, although not solely the purview of the GC and their team, is increasingly an area where in-house counsel have the ability to add value to organisations through thinking strategically and proactively about risk in all of its forms – not merely legal risk �� and imparting that knowledge throughout the organisation.
While there may be risk factors which are above and beyond the law, the proactive GC needs to take note where potential shortfalls occur and monitor how the law evolves in those areas, as today’s fast-changing regulatory environment means that today’s risk may be tomorrow’s regulation.
That knowledge is power is definitely a maxim that holds true in the world of crisis and reputation. Risk management in its broadest sense is predicated on being acutely aware of all variables in an increasingly complex business world. For GCs who have lived through a major crisis – or for some, crises – one of the biggest learnings is to know your facts. In regards to preparation, this becomes fundamental; a good GC should undoubtedly know their business well and be involved in more than just the legal aspects.
A lack of factual knowledge can be devastating. Lack of internal facts means that issues can arise that could cause red flags to be raised but not necessarily acted upon. If these are not brought to the attention of key personnel or if these are ignored, the potential for something much more cataclysmic could happen – whether through regulatory or criminal enforcement, whistleblower or media revelations, or more broadly – a hit to social reputation.
One needs to be aware that internal factors such as employee dissatisfaction and compliance violations, situations which can sometimes be dismissed as benign or isolated incidents, can evolve quickly and exponentially with devastating flow-on effects. In addition, there also needs to be a well-honed awareness for external factors, most obviously changing regulations, but also societal expectations.
Forward preparedness: readying for the (inevitable) hit
It seems that perhaps the one defining characteristic of all crises is that they will strike in ways and at times you least expect – you can never predict where the next one will happen and how its impact will be felt. The other defining issue of most crises is that their risks won’t sit in one place or squarely in legal – instead requiring complex stakeholder co-operation and management of ‘grey areas’.
Simple procedures and manuals should be developed, which can be adapted to a variety of situations and eventualities, and can be used in an agile and time-critical fashion. One GC shared a quote from a PR consultant that ‘legal is my best friend when I have time, but my worst enemy when I have to act now’.
CRISIS MANAGEMENT TOOLBOX
- Create checklists!
- Have a one-page cheat sheet of what steps will be taken when a crisis hits – this can be especially valuable for keeping senior decision makers on track and ensuring the process of fact checking and formulating responses is followed.
- Run crisis exercises so that procedures are ingrained and information is retained.
- Prepare answers to questions that you can predict in each crisis type. A full review of what you’re going to need and when is imperative. Speed makes a huge difference.
- Monitor what’s out on social media in other crises. When you run your crisis scenarios, include social media hits and responses.
- Wait and evaluate: much of what you hear in the first 48 hours of a crisis may not be 100% accurate, so a company should wait to publicise a
message.
- If the crisis is large enough, someone appropriately senior needs to show up at the crisis site to show support. Think: what type of personality, what liabilities and credibility do they bring and what training is needed to
ensure they are suitably equipped?
- It is essential to keep the company board informed proactively, so members don’t react negatively to information they hear through other channels.
- Leverage the board’s external relationships to influence the reputational impact of crisis.
- Be aware of issues pertaining to legal privilege in regards to communications.
The role of legal is to be involved in crisis management, but not in charge of it. The GC should not be at the centre of the crisis, but rather well informed and ready to serve in an advisory role. Having a quick sign-off team within the legal department that isn’t the GC was one pragmatic tip offered, so that the GC stays out of the daily minutiae, but is able to track and be involved at key stages.
Due to the risk of regulatory proceedings, class actions and even potential criminal cases, the protocols of legal privilege need to be rigorously adhered to. This can potentially apply to external communication specialists as well. One piece of very useful practical advice was to have such specialists instructed by outside counsel – not directly by the company – so that legal privilege will apply to all communications.
It is also very helpful to have relationships with an external communications adviser in advance so that the adviser has good knowledge of your company. Ensuring that they are prepared and involved when formulating your crisis preparation protocol in advance can pay dividends in terms of mobilising and executing when the time comes. It’s also worth making sure that such advisers understand the ramifications of legally privileged communication and have a good grounding in the legal frameworks as well as the PR issues.