Crisis 101: A survival guide for in-house counsel
Mary Ellen Bench, City Solicitor for the City of Mississauga
What began as a simple recall of cars became front-page news. On February 7, 2014, General Motors ordered the recall of 800,000 vehicles due to faulty ignition switches. GM told the public that the switches could malfunction, causing the engine to stall and the airbags not to deploy. GM revealed that it knew as early as 2004 about the faculty switches that caused 124 deaths and 275 people to be injured. After an internal investigation conducted by external counsel, 15 executives were fired. By the end of 2014, nearly 30 million cars where recalled and $900 million was paid out to the U.S. government for a compensation fund for victims’ families.
Meanwhile another car company is in the middle of a crisis. In 2014, American and European regulators noticed discrepancies in Volkswagen vehicles when testing emissions. This was not an accident. Volkswagen programmed their cars to show low levels of emissions in laboratory testing when in real-world scenarios the car emits up to 40 times the legal limit of nitrogen oxide. By September 2015, under pressure from U.S. regulators, Volkswagen admitted to cheating.
Crises destroy companies. While GM and Volkswagen may seem like rare nightmare scenarios, their tales of lies and cover-ups can happen to any organization. In-house counsel must be prepared for the worst and help their organizations be in the best position not only to survive but be better.
GM and Volkswagen are good examples of what should and should not be done in a crisis. Even though the automakers have similar issues, both took a very different approach.
“Volkswagen is more of the old-style approach, where you try to get all the information first,” says Mary Ellen Bench, City Solicitor for City of Mississauga. “They deny, confuse and blame instead of meeting the problem head on. GM reminds me of Loblaws/Joe Fresh, where they met the problem head on. They didn’t justify the problem but dealt with it head on. That gets the public confidence.”
Jane Shapiro, SVP National Practice Leader for Crisis Communications at Hill and Knowlton Strategies, describes GM and Volkswagen's problems as a matter of trust. "With GM and Volkswagen, whether it's true or not, people believe that senior management knew that there was something wrong, that the damage is so broad that they had to have known," she explains. "So the trust between the companies and the public is undermined."
“With Volkswagen, if there isn’t a regulatory authority, they’re not going to admit to it,” says Bench. “Taking ownership of the issue helps with corporations in their reliability. I’ve been practicing law for 29 years and in the beginning we said we don’t answer questions except in front of the courts. We can’t do that anymore. Don’t try to avoid questions. Take your lumps.”
Step 1: Know Your Role
The first step in a crisis is to know your role as in-house counsel. Organizations need their legal departments to help create and implement emergency plans. In a crisis, the legal role involves issue spotting. Bench recommends having relevant legislation ready digitally and in paper format.
“The first thing I do is gather as many facts as I can,” says Bench. “You have very little time so make sure to get as much input as possible. You can’t provide good advice without good facts. We’re incorporated into communications and we have our checklist. I have all the legislation I need on my iPad and a box with paper copies in case of an emergency.”
The role of in-house counsel has evolved over the past few years. Traditionally in-house counsel was responsible for legal issues, managing risk, liability and regulatory considerations. Now in-house counsel must be concerned about the organization’s reputation.
“Increasingly general counsel are not just tasked with legal issues but with reputation management,” says John Ratchford, Principal and General Counsel at Navigator, a public strategy and communications firm specializing in crisis management. “In the past, litigators focused on legal jeopardy. That was fine in the pre-Internet days. Now lawyers have to do legal and reputation at the same time. Lawyers want to get all the details before they say anything. Communication people want to say more but in the simplest way possible. General counsel realize more that they need to do both.”
One of the major decisions for management will be if the organization should apologize. In-house counsel must carefully weigh whether an apology is appropriate, and make sure that if an apology is issued, it’s sincere. Apologies can help alleviate any public outrage and maintain confidence in the organization. GM CEO Mary Barra apologized in March 2014 to employees, one month after the early recalls, and publicly in front of a U.S. congressional committee. Volkswagen issued a public apology through a full-page ad in several American newspapers.
“Most jurisdictions have apologies legislation that enables organizations to say sorry without litigation risk,” says Ratchford. “Saying it early is good. It is a challenge and there’s no way to make it easy.”
Apologies are part of keeping a strong reputation. Crisis management plans must include steps to maintain an organization’s reputation, particularly after the emergency is over. Ratchford warns in-house counsel not to minimize the financial cost of damaged reputations.
“The tendency is to view legal jeopardy as quantifiable in terms of damages whereas reputation is seen as nebulous and unquantifiable,” says Ratchford. “I see definite quantifiable loss in reputation with loss of sales, loss of senior management, share prices going down and the inability to recruit new talent to the company. There’s quantifiable damage and it has a substantial effect. With GM and Volkswagen, the share prices dropped and sales dropped. There’s a cost there.”
Step 2: Assess the Risk
To help keep costs down, in-house counsel must manage risk. This is accomplished through crisis management plans, which include contingency plans and a list of responsibilities and duties for each department.
“In-house counsel have the critical job of putting in place appropriate crisis management plans.” says Todd Burke, a senior litigation partner at Gowlings who practices in the crisis management area. “They are part of helping to create good governance so their organization should be in a ready position. In-house can take the lead in effective planning.”
A good crisis management plan includes representatives from multiple departments with a centralized office or committee to coordinate tasks. To help identify risks, Burke says organizations need to use vulnerability audits. Creating a crisis management plan shouldn’t be a once-for-all task. Plans must be practiced and fine-tuned through training and practice drills.
“You need a multidisciplinary plan that incorporates legal, communications and regulatory aspects,” says Burke. “The plan has to address your constituency and who your stakeholders are. A good plan is one that takes a holistic view of the organization. You also don’t want a crisis management plan to sit on the shelf and is never revisited so keeping it current is key.”
While the organization is working to fix the problem, in-house counsel must keep an eye on statutory and regulatory concerns. Volkswagen was forced to admit wrongdoing by the Environmental Protection Agency (EPA), not the National Highway Traffic and Safety Administration (NHTSA), the major U.S. agency that regulates vehicles. Have a clear plan in place to prioritize what legislation must be checked for different emergencies.
“Don’t over-react and make sure you know statutory regulations so you know how to respond,” says Bench. “Don’t hide things. We’re trained to protect the clients. Know what’s confidential and be aware of third party privacy. The legal part of the decision is minimal. You have to focus on getting out more information to protect the brand as opposed to future litigation. Volkswagen can save a few dollars on legal but they lose their reputation. You don’t recover from brand damage easily.”
Step 3: Get the Word Out
The elephant in the room for crisis management is social media. Nowadays major scandals don’t just play out in the newspapers and on TV but also on Facebook, Twitter and other social networks. Both GM and Volkswagen have taken a hit from customers on social media. For in-house counsel, they must work closely with the communications team to make sure the facts released are correct.
Social media doesn’t have to be an enemy. Not only can organizations communicate directly to consumers, employees and other stakeholders, but organizations can also get instant feedback on whether its communication is effective.
“Social media is more than getting the message out,” says Ratchford. “It’s most important because you can monitor the story. You can measure the story and even by location because a lot of social media has GPS location associated with it. We can identify how many are responding and where they’re responding.”
For social media to work, you need good monitoring. Ratchford points out that accounts used to promote products or services should not be used when releasing information.
“Brand banners in social media can sometimes be inappropriate,” says Ratchford. “You don’t want to have promotional content right by tweets on what you’re fixing as a corporation. Maybe you want to do that stuff on a corporate account. You want to monitor and keep on top of it. Stories that are mundane can take off on social media.”
Good monitoring includes keeping up with relevant information. Even if your organization decides to minimize use of social media, be aware that others will be communicating.
“Other organizations will be using social media in a crisis,” says Shapiro. “For example, police and fire departments might be sending out information that relates to your company. Regulators are communicators too. So it’s important that your voice is heard.”
Make sure to identify who will be spokesperson (usually the CEO or president of the organization) and have a system to create short, clear statements that can be quickly released to the public.
“With BP, the CEO at the initial stage said this is a textbook case in handling a crisis,” says Ratchford. “Then a few days later, he said he wanted his life back and that was unfortunate. In the US Gulf states, BP is still running ads that they’re committed to the economy there and cleaning up the environment.”
For GM, their spokesperson has helped them move towards a brighter future. CEO Mary Barra is committed to changing GM’s corporate culture. She created a product integrity team so that product defects can be fixed quickly. Meanwhile Volkswagen’s troubles continue. The company may be liable for up to $18 billion in fines from the EPA.
“A crisis can damage a brand’s reputation in a lasting way,” says Ratchford. “If the information comes out before you’re ready and you don’t respond, you lose credibility in the first few days. It’s better to pull off the Band-Aid quickly. The public is not as judgmental as you think. They’re more surprised that people don’t rectify the situation. Just share what’s important to them. There’s a crisis and here’s how to deal with it.”
Julie Sobowale is a writer and journalist based in Halifax. This article was originally published in the Spring 2016 issue of CCCA Magazine.