Preparing for Handling Crisis

Your day begins with the sun shining, good news on your favorite TV channel and dinner plans with good friends. Then unbidden and unannounced comes the bad news. The Managing Partner of your business has had a massive heart attack and died. Or the product your company makes has failed and four people died in the accident it created. Or eight nicely dressed young men and women are in the lobby carrying badges indicating they are from the Federal Bureau of Investigation and they have a search warrant to seize all your computers.

You could never have anticipated the particular problem occurring. The Managing Partner was 56 and in great health, so far as you knew. The product your company has been making for 30 years has never caused an incident. No one has suggested to you that any of your activities even approach, much less cross, the line so as to become criminal.

Unfortunately the situation has nonetheless occurred and like it or not, you are going to have to deal with the aftermath, and you need to deal sooner rather than later.

In each of these scenarios you need to factor in that whatever you say or do will be heard by your different constituents. There are your family members, your business associates, your customers, your banker, the public and future customers. Each is different, but each is vitally important.

The only saving grace is that even though very different, each of these crises, and an entire myriad of crises which have not yet occurred, have commonalities that allow you to plan for them if you chose to do so.

While you would do anything you could to make sure the crisis ends quickly, you need to recognize that matters will not resolve as fast as you want. Indeed, you should think of the incident as putting you into a marathon, not a sprint. You need to respond promptly, but you should remember that there will be the need to respond the next day, the next week or the next month. Make sure that you and your team are prepared for that psychologically.

Preparation consists of how you communicate your response and making sure that you do it in a manner that does not create further problems. Do not set yourself up for repeat stories and remember the way the statement is made and by whom it is made is as important as what is said.

There should be one spokesperson who may or may not be an employee of the company. That is relatively easy if selected in advance. The biggest problem will be making sure the information you put out is accurate. As was observed long ago, the “first casualty of war is truth.” People want to make things look better than they actually are and to avoid pointing a finger at themselves. This is not the time to point fingers. This is the time to understand what happened, why it happened and what the consequence will be.

From the legal standpoint, there should be an analysis of your insurance coverage on a regular basis. New risks develop and new coverages exist. A regular insurance review by the Company’s insurance people and lawyers for the Company is a good idea.

You have to remember that in your public statements you have the potential for liability if you make a false statement. In the desire to make it a one day story, you have to be careful that you do not say something that is not true and upon which someone might rely, someone like a lender or investor.

These days most crises carry with them significant legal risks. The nature of the risks should be assessed quickly and factored into the public statements.

At a minimum the advance planning team ought to consist of identifying key exertions in your business as well as public relations, insurance and legal advisors. You should meet with them in advance to talk about the nature of your business and what your concerns are in the event of certain crises. To be sure, if no crisis happens this is a waste of time and money, but the costs would not be substantial and in the event of a crisis, this advance communication will significantly minimize its negative impact.

Most of the world, including the business world, runs on routine and repetition. We have habits which we use in our personal life. In business we have policies and procedures which enable us to more through the day.

We all do anticipate problems to an extent. That is why we buy insurance. That is why we have procedures in the event there is a fire. Our communities have warning systems for tornados. The weather channel will tell us about oncoming blizzards.

But there is a lot to life, including business, that is unknown and unknowable. Some of these unknowns are good – new customers, an offer to buy the company for more than it is worth, the arrival of a new salesman who doubles your business.

But some are not so good. The bankruptcy of a large customer who owes you money. The discovery that your accountant has been stealing the accounts receivable and that you effectively have no cash. The unexpected death of the president of the company. Or a government investigation brought on by a disgruntled former employee or an angry customer.

When the Federal Bureau of Investigation or the Internal Revenue Service come to search your premises, they give you no advance notice and show up in force, with weapons and jackets emblazoned with the initials of the agency they represent. They will attract attention and there may well be news coverage of the search.

Your initial response is important, particularly in the age of the Internet. A misstatement will exist forever. Recent sound bites of politicians show that what used to be the embarrassment of the moment can continue for years.

Several years ago a man named Taleb wrote the Black Swan. It’s premise was that the truly significant events in life are those that are unseen. The Bernie Madoff scandal pops to mind as a good example. In my town of Toledo, the Bell & Beckwith scandal from the late 70’s was smaller but of similar import. There the managing partner had stolen millions by claiming ownership of stock in a Japanese firm that had share worth well over $1 million per share. It was an outright lie but it worked for years.

There is no way to plan for all the particular disasters that could confront you. But there is a way to plan in general how you will respond to a crisis.

If you say “no comment” when the media calls, the reality is that you have just admitted the truth of the bad news that comes with the crisis. Moreover, you need to understand the modern reporting cycle. It used to be newspapers that were important, but now it is television and to a lesser extent radio. To the extent the print media is still relevant, and I suggest to you it is, remember that the deadline is no longer hours away, but rather just 15 minutes. This is because reporters are directed to prepare blogs and other electronic communications concerning the stories they are handling. These can be available within minutes of when they are created and will be read by the general public which is increasingly taking information from newspapers online. With the pressure to publish, reporters will wait 15 minutes for a callback. If they do not get one, they will run the story without you telling your side of events.

You need to respond promptly and accurately. You want to wait until you have all the facts developed, but the world is not going to permit that. But since you have to be accurate, you have to be careful in what you say. Something along the lines of “the matter is under investigation but based upon information we have assembled to date, it appears that (describe event) occurred. We will be continuing the investigation and furnishing updates as they are available.

You need to consider whether you are the person to speak to the media or whether it should be somebody else. One of the dangers, particularly in a criminal investigation, is that what you say can and will be used against you. Accordingly having someone other than a potential defendant speak is advisable. It is likely more credible to have it be someone who works for the company rather than the outside counsel or a public relations person, but that is a matter for your team to decide.

Should you decide to be interviewed, you need to understand who is going to be doing the interview, why is it being done and what information is being sought. It is entirely appropriate to ask that in advance. Realize that you will not be allowed to edit the story or even see it before it is published. Understand that you saying “this part is off the record” does not make it “off the record.” You have to have the interviewer confirm that indeed she will take this information “off the record”, meaning it will not be used in the story. It may be helpful to tell the interviewer that the reason you want to go off the record is that you are going to be furnishing information which will help in her understanding of what occurred. You should say that before the interview is closed, you will make a statement on the record. Then at the end give them a sound bite- ten seconds setting out your position. Much more than that and you run the risk that nothing will appear.

The goal of all this is to reduce the amount of publicity attendant to this adverse event. You want to make it a one day story. The constant dribble of stories over weeks can be impossible to recover from. You need to assume that all the facts in the case are going to come out at some point and so you might as well get them out sooner rather than later.

There is some expense involved in this process, although it does not have to be substantial. But it is a bit like paying for insurance on your house. You may pay for 30 years and never make a claim, but at some point if you do need to make a claim, it is awfully handy to have it in place.

Recognize that all crises end. That may not occur the way you want or when you want, but it will occur. And then you will have to go back to addressing the problems that bothered you before the crisis. It is just that they will seem a little easier now.