In today's fast-paced communication environment and the advent of 24-hour news cycles and social media, even a seemingly insignificant or isolated incident can quickly become a crisis with the potential to irreparably damage a company's valuable reputation.
The value of a corporation's reputation, although hard to measure, cannot be understated, said David Maggiore-Anet, Corporate Legal Consultant for LexisNexis. In fact, the initial findings of a pilot study by NYU/INSEAD Business School Professor Ingo Walter found that the average annualized loss from a "reputation¬-sensitive" event was $3.5 billion.
"Obviously, there's a lot of variables there, but there absolutely is an effect on the corporate bottom line," said Maggiore-Anet.
"With social media and just the advent of how things flow across the network, good and bad ... there really are no isolated areas anymore," said Colin Kelly, a partner with Alston & Bird LLP in Atlanta.
In most corporations the general counsel will often be one of the first people who is contacted once a crisis takes place.
"In my experience, the GC has to be the quarterback in terms of the crisis," said Kelly.
He said that preparation for a crisis needs to occur long before anything happens.
"Even though it's hard to plan for every kind of crisis scenario that a company will face-whether it's an employment matter, a hacking scandal or a catastrophic event where you have loss of life at a manufacturing plant-the important thing is to have is a crisis management plan ... set up well in advance," said Kelly.
That plan should designate a group of individuals who would be on the internal crisis team, as well as outside counsel and possible retained experts who can act quickly in response to an event.
For example, in the case of customer data, vendors should already be in place to react immediately should a breach occur, said Kelly.
"That's something where minutes and seconds mean millions of dollars, so you have to have those relationships set up ahead of time, or otherwise it can be a matter of days or even weeks before you get a vendor to go in," said Kelly.
Although a crisis that goes "viral" can be confounding to a company that hasn't yet embraced social media, some companies have used the platform to their advantage.
"Companies that are very social-network savvy, I think, will use and are using the network in order to help to shape their exit from a crisis. The company can use the social media to get its unified crisis management plan communicated and start to get people to understand what's going on and what the solution's going to be," said Kelly.
"And you get it much quicker than having to give an interview to a local newspaper or a reporter and then hope it gets picked up broadly. Companies now have the ability to actually proactively send out the message without having to go through traditional media," he said.
Kelly said that one of the most important decisions a company needs to make is to choose a spokesperson who can be the face of the corporation through the scandal.
"Who the spokesperson is makes a huge, huge difference in the message. Whether it's an internal person or external, you just have to be very careful with who the messenger is, because they're going to be very, very important," said Kelly.
"Most important is someone who shows empathy, especially if you're dealing with a situation where there's been loss of life or catastrophic event within the company. When you're dealing with those situations, you want a communications person who has the human touch," said Kelly.
"Rather than choosing someone who may be tactical-really good at blocking and tackling, so to speak-that may not always be the best person to handle it. That may be a good person to have on the team, obviously to handle the legal risks that are involved, and insurance recovery and litigation management, and all those sorts of aspects of crisis management, they may not have the human touch that you need," he said.
Kelly said that the central person has to be good at sticking to the crisis management plan and executing it as well as unifying everyone in the company under one message and avoiding conflicting or inconsistent messages.
Change the wave of litigation
"Another important aspect is understanding that you can change the wave of litigation rather than having to just ride it. In other words, you need to engage the right experts, the right outside counsel and internal folks in a crisis to help define and shape the litigation even before it's filed," he said.
"If you've got some sort of a catastrophic event-whether it's a major environmental issue, or whether it's a loss of life, or whether it's a customer privacy issue-you can't just be resigned that litigation is going to happen no matter what you do and you might as well just be as prepared as you can," he said.
For example, in the case of a catastrophic event, Kelly recommends that the company immediately reach out to affected family members as well as getting the process of engaging insurance begun as soon as possible.
"Get involved and get ahead of what the facts are going to be instead of just reacting to the crisis. Through a privilege basis, through retained experts and through your outside counsel you can get ahead of the litigation pretty quickly and have a sense, at least, of what the facts are, what your experts say happened so you can be better prepared to defend it. If you get outside counsel and experts there on the ground-what we call our 'boots on the ground' strategy-within days, or in some instances hours of a crisis, that gives you a much better chance to help shape the course of what your litigation and your government investigation profile is going to look like.
"It's better to have those people there, onsite, dealing with investigators and dealing with family members, and dealing with the facts-good, bad and ugly-and transporting that information to general counsel, rather than doing that process two years from now when the lawsuits commence," said Kelly.
For more information about LexisNexis products and solutions, connect with us through our corporate site.