A government regulator announces a surprise enforcement action against your license. A reporter is on deadline to write a damaging story planted by your competitor. A civil lawsuit threatens to derail your business.
These are scenarios where a well-executed crisis management plan can make or break an organization’s reputation and finances.
The Good and Not-So-Good.
Some organizations handle such crises well and build enhanced trust and respect. Others do not.
One of the most successful corporate responses to a crisis is Johnson & Johnson’s response to the death of seven people from cyanide-laced Tylenol capsules in Chicago. The company removed over 30 million bottles of Tylenol from store shelves, halted new production of its blockbuster product, worked with law enforcement to find the person responsible, was transparent with the media in frequent press briefings, and established itself as a leader in making tamper-resistant bottles.
Closer to home, Wells Fargo is recent example of a lackluster crisis response that damaged the bank’s reputation. After bank customers reported receiving unexpected fees and credit cards, the Los Angeles Times wrote an exposé about the pressure on local bank employees to aggressively sell products. Company officials denied it. Eventually, the bank was accused of opening as many as two million fake accounts.
The bank failed to take the problem seriously, gave conflicting and opaque media responses, and fought with its customers. Even though it fired 5,300 employees for fraudulent sales, it refused to take responsibility for creating a culture that gave rise to the conduct. The bank eventually paid nearly $3 billion in fines and settlements and tarnished its reputation.
Crisis Management Done Right.
There are a number of steps professionals and organizations can take when managing a crisis.
Be Proactive. When confronted with a reputational, regulatory, or financial crisis, it’s important to get out front of the problem. Ignoring it will make it worse, not make it go away. In some cases, this may mean reaching out to report problems to regulators before they discover it on their own through an angry customer or competitor. In some industries, you may have a duty to report certain information to your licensing or regulatory agency.
Get the Facts. Conduct an internal investigation to quickly understand the pertinent facts. We recently published an article, Conducting Internal Investigations, that discusses legal and practical considerations in conducting internal investigations that will help you gather the facts you need to make sound decisions.
Get the Timing Right. It’s important to get the timing right in your response to a crisis. If you act too slowly, it may be too late to change public opinion. If you act too quickly, you may not have all the facts and may make bad decisions. Balance the need for speed with the need for accuracy.
Appoint Spokespersons. Designate the people who will speak for the organization. If the media is involved, designate a spokesperson with experience in dealing with reporters. The spokesperson will be the voice and face of the company. It is important that this person be media savvy, familiar with the facts, trustworthy, and credible. The spokesperson can respond to media inquiries and notify the media if you have news to share.
If your regulator is involved, designate a spokesperson to deal with the government agency. This person will usually be an attorney familiar with government regulatory work. Your regulatory liaison should be a straight shooter who understands the duties and responsibilities of the government. When your spokespersons make statements, they need to be accurate. If you are still gathering information, it’s okay to say you don’t know but you are looking into it.
Make Your Case. Don’t naively assume that just because the truth is on your side, the truth will prevail. A bad perception becomes a bad reality if left unchecked. If there are favorable facts, communicate them to your employees, your customers, your industry, and the public, as appropriate. A loss in the so-called “court of public opinion” can become a loss with regulators or in a court of law if left to fester unchecked.
Pick Your Spots. Just like the old Kenny Rogers song goes, you’ve got to know when to hold ‘em and know when to fold ‘em. Focus on things that matter. It won’t help to get in a food fight with everyone who sends out a nasty tweet, for example. During a crisis, don’t overreact to every perceived slight. Pick your spots.
Be Empathetic. Some crises are manufactured and warrant an aggressive response to correct the record. But others involve actual mess-ups and real harm to real people. If your organization has erred, it can be helpful to show genuine empathy. But don’t be Tony Hayward. In 2010 an explosion of a BP oil rig in the Gulf of Mexico killed 11 workers and injured many more. An estimated five million barrels of oil leaked into Gulf waters, the largest accidental spill in history. Hayward, the BP CEO, was the public face for the company. He downplayed the oil spill, calling it “relatively tiny.” Then, in a misguided attempt to show that he identified with the disruption caused to local residents, he lamented to the media that he too would “like my life back.”
Rebuild Trust. If the crisis damages your reputation—whether with your regulator, your employees, your customers, or the public—it’s important to start re-building trust on day one. You can do this be being candid, transparent, and straightforward and by sincerely fixing problems if you’ve messed up. It can also be helpful to accept responsibility. But talk to your lawyer about the legal and regulatory consequences of an admission of wrongdoing.
The law firm of Swanson Hatch, P.A. assists organizations in internal investigations, crisis management, and responding to government regulators, among other things. Former Minnesota Attorneys General Lori Swanson and Mike Hatch have decades of experience at the intersection of government, media, law, litigation, and public policy. Swanson and Hatch are media savvy problem-solvers who assist organizations in resolving complex problems and minimizing legal, financial, and reputational risk. They have overseen thousands of government investigations and lawsuits. Before becoming Attorney General, Mike Hatch served as Commissioner of the Minnesota Department of Commerce for eight years. Prior to her twelve years as Minnesota Attorney General, Lori Swanson—a journalism major before law school—previously chaired the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. and served as Solicitor General and Deputy Attorney General of the State of Minnesota. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com.
Crisis Management Legal Considerations.
There are a variety of other legal considerations when dealing with a crisis.
Document Preservation. If you are facing potential litigation or regulatory investigations, ask your attorney about the need to preserve documents or evidence bearing upon the crisis. If you are on notice of reasonably anticipated litigation, you likely have legal duty to preserve relevant records.
Insurance Coverage. In some cases, you may have insurance coverage for the incident that lead to the crisis. If you think you may have insurance coverage, timely notify your insurers of any potential claims. Insurance policies contain notice and reporting obligations, and if you do not comply with these provisions, you may lose potential coverage for a claim.
Indemnification. In other cases, you may have a contract with a third party that provides indemnification for your legal fees or damages relating to a crisis. An attorney can help you review such provisions.
Attorney Supervision. In some cases, your organization may receive the benefit of the attorney client and attorney work product privileges if your attorney retains public relations or other professionals to work under his or her supervision in managing the legal aspects of the crisis. In a landmark case called United States v. Kovel, 296 F.2d. 918 (2nd Cir. 1961), the court found that communications with professionals hired by counsel to assist in providing legal representation to a client may be protected by the privilege. And in a case called In re Grand Jury Subpoenas, 219 F.3d 175 (2nd Cir. 2000), the court found that a public relations firm hired by Martha Stewart’s counsel to respond to inaccurate media reports about her stock transactions furthered the attorney’s legal work because the media reports might influence whether prosecutors and the SEC pursued charges against her.
But the courts have reached different conclusions on whether these privileges extend to such non-lawyer professionals. In deciding whether to apply the attorney-client privilege to public relations and other professionals brought on board to help manage a crisis, courts have considered such factors as: (1) whether the law firm or client hired the professional; (2) whether the professional had a long-standing non-legal relationship with the client or was brought on solely to help with legal aspects of the crisis; (3) the nature of the work performed by the professional; (4) whether the professional is paid by the lawyer or the client; and (5) whether the professional is the de facto equivalent of an employee of the company
Albert Einstein once said that “in the midst of every crisis, lies great opportunity.” While it will not seem so at the time, a business can show its character by how it responds to a crisis.
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www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
A government regulator announces a surprise enforcement action against your license. A reporter is on deadline to write a damaging story planted by your competitor. A civil lawsuit threatens to derail your business.
These are scenarios where a well-executed crisis management plan can make or break an organization’s reputation and finances.
The Good and Not-So-Good.
Some organizations handle such crises well and build enhanced trust and respect. Others do not.
One of the most successful corporate responses to a crisis is Johnson & Johnson’s response to the death of seven people from cyanide-laced Tylenol capsules in Chicago. The company removed over 30 million bottles of Tylenol from store shelves, halted new production of its blockbuster product, worked with law enforcement to find the person responsible, was transparent with the media in frequent press briefings, and established itself as a leader in making tamper-resistant bottles.
Closer to home, Wells Fargo is recent example of a lackluster crisis response that damaged the bank’s reputation. After bank customers reported receiving unexpected fees and credit cards, the Los Angeles Times wrote an exposé about the pressure on local bank employees to aggressively sell products. Company officials denied it. Eventually, the bank was accused of opening as many as two million fake accounts.
The bank failed to take the problem seriously, gave conflicting and opaque media responses, and fought with its customers. Even though it fired 5,300 employees for fraudulent sales, it refused to take responsibility for creating a culture that gave rise to the conduct. The bank eventually paid nearly $3 billion in fines and settlements and tarnished its reputation.
Crisis Management Done Right.
There are a number of steps professionals and organizations can take when managing a crisis.
If your regulator is involved, designate a spokesperson to deal with the government agency. This person will usually be an attorney familiar with government regulatory work. Your regulatory liaison should be a straight shooter who understands the duties and responsibilities of the government. When your spokespersons make statements, they need to be accurate. If you are still gathering information, it’s okay to say you don’t know but you are looking into it.
Crisis Management Legal Considerations.
There are a variety of other legal considerations when dealing with a crisis.
But the courts have reached different conclusions on whether these privileges extend to such non-lawyer professionals. In deciding whether to apply the attorney-client privilege to public relations and other professionals brought on board to help manage a crisis, courts have considered such factors as: (1) whether the law firm or client hired the professional; (2) whether the professional had a long-standing non-legal relationship with the client or was brought on solely to help with legal aspects of the crisis; (3) the nature of the work performed by the professional; (4) whether the professional is paid by the lawyer or the client; and (5) whether the professional is the de facto equivalent of an employee of the company
Albert Einstein once said that “in the midst of every crisis, lies great opportunity.” While it will not seem so at the time, a business can show its character by how it responds to a crisis.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com