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Published: 2012-09-24

Maintaining the Corporation's Credibility in a Crisis



During the course of a corporate crisis, especially in its early stages, the company can be sure that all of its key constituencies--its employees, customers, shareholders, creditors, business partners, industry analysts, trade press, and in some cases the mainstream media and community at large--will be watching the company closely, eager to know what's going on and to know how the crisis will affect them personally. Moreover, corporate crises often draw the scrutiny of industry regulators and other law enforcement authorities. Many eyes will be upon you. Consequently, it's critical that you prepare and respond in a way that addresses the varied needs of the company's constituencies while maintaining its credibility.

Timely Response from the Appropriate Source

No two corporate crises are exactly alike, but there are enough similarities among them to permit you and the management team to develop a response plan ahead of time that will minimize the potential damage caused by widespread publicity of crisis events. The goals of your response plan are to be able to provide relevant and reliable information to the company's key constituencies in a timely manner, and to have that information issued from an appropriate source that is aware of the company's overarching disclosure concerns and goals, so that you inspire confidence in the company and its efforts. You want to avoid the confusion and insecurity that will arise if communications are inadequate.

Speak with One Voice

During a crisis, you'll be getting demands for information from many sources. It's important that the company's response efforts be centralized and coordinated with its reporting and disclosure obligations. Accordingly, in commenting on the crisis, the company should do its best to "speak with one voice" and avoid situations in which company representatives might make off-the-cuff remarks that could prove incorrect or may unnecessarily volunteer information. (A great example of this in the political context can be found in the Oscar--nominated script for the 2009 film In the Loop.) If the company has a senior press relations officer, that person can speak on behalf of the company in most situations. A more senior officer, perhaps even the chief executive, might need to step up when the crisis is severe enough that the company must demonstrate the concern and responsiveness of its key personnel. In these situations, you might consider hiring a public relations firm to advise and prepare management in its communications efforts.

Your Role as Corporate Counsel

In reviewing and commenting on proposed communications during a crisis, counsel must bear in mind that the communications must demonstrate to each of the company's key constituencies that the company shares their concerns and has their particular interests in mind. You want to emphasize stability. Customers are going to be concerned about the continued ability to the company to stay in business to service their needs. No one wants to feel like he or she has bought a product or service from a failing company. Business partners also do not want to feel like they've partnered with a loser, and will want to know how long it will take for your company to recover its reputation. Your company's losses may cause their revenues to fall. Analysts will be asking about the effect of the crisis on operational results, and will be concerned with how quickly the company's financial picture will return to normal. Employees, naturally, will be nervous about layoffs in wake of the crisis. They may start to entertain notions of leaving preemptively, if they believe the crisis has sufficiently weakened the company.

Make sure the company is communicating its views and information in plain terms. Reiterate the company's concern for any victims, its commitment to investigating and correcting any alleged misconduct, and its belief in its ability to meet its ongoing obligations. Internal communications do not require any degree of formality, but you should review them with the possibility in mind that they may be leaked to the public. Inform employees that there is a centralized system in place for dealing with the media, and let them know who the designated point of contact is so that inquiries can be directed appropriately.

Best Ways to Gain, Easiest Ways to Lose Credibility

A good way to damage the company's credibility in the aftermath of a crisis is to stonewall or ignore the problems. Executives should not be ducking the rank and file. Not calling important partners until you want something from them, or not calling large customers until you want more money from them, are sure ways to lose points with these constituencies. Analysts are going to lose confidence in the company if you give guidance that is not achievable in the quarter following the crisis, or worse, ignore their calls.

On the other hand, you'll gain credibility by being honest, plainspoken, visible and available. Tell partners honestly whether the crisis will have a material impact on your relationship with them. There are SEC fair disclosure regulations that you must comply with, but in accordance with those, you should call customers or prospects with bad news before they hear it from a third party. The same goes for analysts--call them before they call you. These simple precepts will go a long way in mitigating the damage of a crisis.