The GC's guide to Corporate crises

 The GC's guide to corporate crises
www.insidecounsel.com/2013/01/28/the-gcs-guide-to-corporate-crises?eNL=51192189150ba0853a00011a?utm_source=ic&utm_medium=email&utm_campaign… 1/6
InsideCounsel

The GC's guide to corporate crises

Tips to help you prepare for and manage unforeseen problems and
emergencies

The Penn State sex-abuse scandal. Wal-Mart exposed for possible Foreign Corrupt Practices Act (FCPA)
violations. The Cinemark movie theater shooting in Colorado. Sandy Hook Elementary School.
Last year, companies and organizations faced an array of crises that forced them to confront some of their
worst nightmares. And general counsel likely were at the front lines. “Often, when there is a crisis, it’s either because of a legal matter—an investigation, some type of bet-the- company litigation—or it’s something that
likely will result in a lawsuit,” says John Wilson, a partner at Foley & Lardner. “Therefore, the general counsel needs to be a key player in forming and carrying out a company’s crisis-management plan.”

Some lawyers who’ve been involved in corporate crises compare the experience to trying to tame a wild beast. “The situation is what one fellow described to me as riding a tiger,” says Tom Campbell, a partner at Pillsbury Winthrop Shaw Pittman and leader of the firm’s crisis-management team. “Over the months, he
became so exhausted and overwhelmed that he felt like he couldn’t hold on. But he knew that if he let go, he’d be consumed alive.” Unfortunately, when it comes to crisis management, experience is the best
teacher, according to Patricia Poole, a partner at Baker Hostetler and head of the firm’s emergency-response and crisis-management team. “Once a company goes through a crisis, no matter how small, it generally knows what its strengths and limitations are,” she says.

Because all crises are fact-specific and unique, it’s impossible to plan out highly detailed response and management strategies. But there are common threads that companies can anticipate, which will help them prepare for forthcoming bumps and prevent problems from evolving into explosions.

GCs guide their companies when they find themselves in dire situations.

Imagining the Worst

Shortly after Sandra Leung became the corporate secretary at Bristol-Myers Squibb in 1999, the biopharmaceutical company experienced a series of regulatory crises that she worked hard to navigate. Leung, who now is the company’s general counsel and corporate secretary, says she’s immensely
proud of helping Bristol-Myers Squibb work through those crises and contributing to a commendable turnaround that has helped the company thrive over the past decade. Part of what helped her to succeed was keeping a level head and following the company’s crisis-management plan. “It’s important to have a crisis plan because if you don’t navigate through the crisis well, you could have disastrous results within the company—not only from a shareholder and stock price perspective, but also from a public opinion
perspective,” she says. “The company’s reputation could be damaged if a crisis is not handled appropriately. Companies must be proactive in crisis management and actually have a plan in place.”

To formulate effective crisis-management plans, GCs should complete broad risk assessments to ascertain their companies’ weaknesses as well as the possible natural disasters they could face. GCs and their boards should conceptualize all encompassing crisis-response plans for their companies, as well as individual
plans for each of the company’s business units.

“Companies should have a written crisis-management plan that includes as many scenarios as possible,” says Poole. “It depends on the nature of the business. For some businesses, a chemical spill or explosion is possible. And depending on location, companies need to plan for tornadoes and snow storms. All companies are subject to fire crises and workplace fatalities, too.” Randy Mastro, a partner at Gibson Dunn and co-chair of the firm’s crisis management practice group, says having procedures and protocols in place for reporting, decision-making, investigative steps, public relations, disclosure obligations and crisis-response actions helps mitigate crises when they actually hit. “There’s a tendency to react spontaneously or emotionally to crisis situations,” he says. “Having protocols in place helps eliminate problems down
the road and reduces panic.” Once plans are in place, companies should drill employees on them and update
them annually, according to Poole.
Cyber Concerns
There’s one potential crisis that threatens nearly every company in the world: cyber-attacks. The Ponemon Institute recently found that the mean annual cost of cybercrime was $8.9 million per company, and companies experience an average of 1.8 successful cyber-attacks per week.

According to a survey from FTI Consulting Inc. and Corporate Board Member, 55 percent of general counsel rated data security as a major concern, up from 23 percent who felt that way in 2008. One-third of GCs say they don’t believe their companies’ boards are effectively managing cyber risk. Less than half of
company directors say their companies have crisis-management plans in place to respond to cyber-attacks. “I hate to say this, but I think it is going to take several well-publicized security  breaches before a supermajority of corporate boards finally embrace the fact that doing business today without a prudent crisis plan in place is a formula for disaster,” Corporate Board Member President TK Kerstetter wrote in the
study. “Cyber risk and social media developments only increase the odds that it will happen to your organization—so boards should take steps to protect their company’s reputation.”

Key Players
The members of companies’ crisis-management teams will vary depending on the crisis. For example, if the crisis relates to a government investigation, the general counsel should recruit the CEO, chief financial officer, head of corporate communications and the heads of any business units that may be implicated as
team members. For other crises, such as white-collar crime, members of senior management may need to be excluded from the team. In all crises, it’s critical for companies to seek help from outside counsel who are
experts in the types of crises they’re facing. “Crisis-management professionals go from crisis to crisis to crisis, and they begin to identify and see patterns in highly complex circumstances,” Campbell says. “Those complex circumstances, to someone who has seen and done it before, are far more manageable than
they are to somebody who’s experiencing that complexity for the first time. Don’t go it alone.” Campbell adds that companies should designate their crisis-situation outside counsel before crises even unfold. “You don’t want to be putting your team together in the midst of the crisis because there’s a very good chance that you will not find the right people in time,” he says. It’s also crucial for companies to select outside counsel they’ll feel comfortable working with in high-stress, high-emotion situations. “The last thing you want to
do is be stuck in the proverbial lifeboat with someone who you really don’t like and don’t particularly trust,” Campbell says. “Literally, in these crisis-response situations, you will be staking your professional career on the experience and judgment of your crisis-management team.”

Companies also must seek help from external public relations firms that are already familiar with them. Experts say it’s imperative that companies develop these relationships ahead of time. “If there’s an inkling that something might evolve into a crisis, giving the public relations firm a heads up so they can help
the company be the eyes and ears of what’s being said about the crisis is a very good practice,” Leung says.
A good PR firm will help companies develop draft questions and answers that will
be readily available in the event of a crisis or negative event. They’ll also guide
the company in choosing crisis-response spokespeople. “Spokespeople should
be selected for their quality, their ability to look good during a crisis and [their
ability] to think on their feet,” Poole says. “The head media spokesperson, even if
it’s not that person’s full-time job, is a very important role and should be assigned
to someone who’s going to put the company in the most favorable light.”
Game Time
Once a crisis hits, GCs should begin investigating immediately. “You need to understand what it is that happened,” Campbell says. “The general counsel needs to lead the crisis-management team, most often in coordination with a very senior executive so that you have both the management and legal
sides of the equation.” Leung says GCs should focus on integrity as they enact their crisis-management
plans. “You must make sure that the facts are known and not let emotions or subjectivity get in the way,” she says. She adds that it’s important for GCs to realize that employees will rely on them for leadership during crises. “People will look to you and will open up to you if they know you’re someone they can trust.
It’s important to have that reputation within the company before the crisis happens—to be known as a person who will do the right thing and the type of person people can go to for advice.”
Overall, Leung says, a crisis is a time for a general counsel to shine or to fail. “People will remember how you reacted and how you supported them,” she says. “It’s important to remember that not all crises are the same, and general counsel have to think about how they will lend the most value in each situation. You have
to think beyond just getting the company through that particular crisis and have a view toward how to avoid that type of crisis in the future. All the actions you take have to be taken in a bigger-picture context. Sometimes that means additional training, fixing a few processes or something even deeper than that. But it’s really important to learn what led the company to be in that position to have that crisis arise and try to avoid that.”

When a crisis breaks, GCs must remind their companies and PR teams that there isn’t a quick fix. Crises often involve investigations, remedial plans and sometimes litigation. Therefore, delivering accurate information in the correct tone and at the appropriate time is essential.

“Developing the right public message while you are doing the hard work that needs to be done to find out the true facts is critically important,” Mastro says. “There have been situations where the company is intent on doing exactly the right thing, but because of the PR message that comes out at the outset of the
crisis, there’s a distorted view or misperception about the company that will linger and dog the company throughout. That can be a real problem in these situations: perception replacing reality. You have to give reality a chance to catch up to perception, but you have to play some role in shaping the perception by being
smart about the public message.”
Staying Sane

Experts say it’s important for general counsel to keep stress at bay when dealing with crises.
Tom Campbell, a partner at Pillsbury Winthrop Shaw Pittman and leader of the firm’s crisis-management team, says it isn’t unusual for GCs to want to lash out in the heat of the moment. But they should resist the temptation to respond to crises in anger. “You should always operate in a cool, dispassionate and
reasonable way,” he says.

There are a variety of ways GCs can keep a level head. Sandra Leung, general counsel and corporate secretary at Bristol-Myers Squibb, says practicing yoga has helped her destress and stay focused in her career, especially when she has faced crises. “Staying calm is the most important thing,” she says. “It helps me have a clear view of what’s most important.”

Foley & Lardner Partner John Wilson says GCs also can relieve stress by hiring top outside counsel. “They can do a lot of the legwork and take care of the details,” he says. “That allows the general counsel to focus on their two most important jobs: communicating with the board and communication with the rest of senior management.”
EVENTS
Deal With It
In the heat of the crisis, GCs must prioritize communication with management, the board, outside counsel, insurance carriers and PR teams to effectively coordinate a response.
“What I learned from working with [Bristol-Myers Squibb] in these types of situations is the importance of staying calm and focused, and making sure your board of directors are fully informed as to what’s going on,” Leung says. “You must keep them abreast of the facts, and that means sometimes having regular meetings or information sessions for the board; you don’t want any information gap with your board.” Poole says GCs also must keep in mind the expense and time involved in dealing with crisis. “You have to keep a handle on who’s doing what and how much it’s going to cost,” she says. “Try to come up with a budget. Although it’s hard to anticipate what the needs will be depending on how the scenarios change as they go, you must keep a handle on the work being done and the hours being spent so there isn’t sticker shock when you get the bills.”

Experts say successfully ushering a company into a crisis-recovery phase depends on how good of a crisis-response plan the company had in the first place. “If you had protocols in place and they worked, that’s the most comforting thing for everyone,” Mastro says. “Typically, what will come out of an internal investigation is fact-finding and remedial recommendations, which will ultimately go to company management and the board. What you’re really trying to do as a GC is to make sure the company responsibly addresses the crisis by finding out the true facts, assessing the different potential exposures and liabilities, and proposing a plan for how to address them and prevent such crises from occurring in the future. If you have that kind of action plan as a GC, you will have gone a long way toward the corporation coming back to normal after those steps have been taken.”
Essential Addendum
In this day and age, technology enables bad news to surface in the public domain almost instantaneously. Patricia Poole, a partner at Baker Hostetler and head of the firm’s emergency-response and crisis-management team, says one way to mitigate the risk of leaks is to instill a rigorous social media
and technology policy.
“I prefer in most environments—particularly manufacturing environments, where injuries could be gruesome—that the policy be no mobile phones allowed and no photographs allowed,” she says. “Additionally, a lot of times companies want to protect their processes, customer lists or formula—they need to protect those for business reasons, copyright reasons or trademark reasons. Companies don’t want every employee to be able to take pictures in the workplace. So there’s a legitimate business reason to have a social media
policy. It should be an appendix to the crisis-management plan.”