Steps to take now to save your business from crisis
Goldman Sachs headquarters.
Last week, Greg Smith resigned from Goldman Sachs. Unlike the ordinary, “I quit,” Smith’s resignation letter appeared in the New York Times. He accused his former employer of ripping off customers and promoting seedy managers.
Smith kicked off a classic crisis communications problem for the company—one that any of you could face, albeit likely on a smaller scale. His critique initially wiped out $2.15 billion of Goldman Sachs’ market value and brought stinging criticism from a former regulator, CEO peers, industry pundits and even an heir of one of the founders. Would a firm of your size survive such a public lashing?
“The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence,” Smith wrote. He has been Goldman Sachs’s executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
Sources of conflict
If you think only a disgruntled employee can cause this much damage, think about the effects of grandstanding public officials, whistleblowing regulators, former vendors and board members with loose lips.
Over the past 21 years, COCO+CO. has helped client partners shocked by such controversies as embezzling, labor disputes, environmental disasters, regulatory disagreements and worse. You didn’t hear about most of these thanks to proactive and genuinely honest CEOs who were not afraid to take advice and do the right thing. Putting out fires afterward always proves more difficult. To put it simply, open business cultures fare best during crises. Business with divisive CEOs and staff used to keeping information close to the vest tend to fail. Those who trust no one usually have something to hide. Here are some lessons learned.
Prevention requires planning
At the outset, crisis prevention requires planning. Most people hate planning because it’s boring, too much work or holds them accountable. However, in the end, planning is preferable to embarrassment or loss of money.
Plans should begin with goals. These may include ensuring financial viability (limit costs and litigation potential), preserving public trust and responsible image, quickly bringing crises to closure, preventing costly government agency involvement, reducing political grandstanding, avoiding “no win” deadlocks and taking full advantage of optimum market conditions.
Next, plans address “what if” questions. The example you don’t consider will hurt the most, but at least you will become more agile and better able to respond to any situation. While space is limited here, some obvious questions might be:
- What if a union tries to organize employees?
- What if confidential customer data is somehow leaked to the public?
- What if a staff member goes to the press about…(company finances, sexual harassment, erroneous customer fees, etc.)?
- What if a government agency accuses your organization of misdeeds?
- What if a neighbor accuses you of polluting their property?
Once “what if” questions are asked, consider proactive moves. Begin communicating now to fill the reservoir of good will before disaster strikes. If, as examples, the first time the local newspaper receives a press release from you is during an emergency, or an employee receives a newsletter is before a union organizing meeting, you will not be trusted.
Work now to build a company culture based on trust (e.g., reward managers who share information and operate as team players), conduct everyday open communication (full staff meetings, open door policies, etc.) and use tactics specific to each group of stakeholders (press releases for the media, electronic or print newsletters for employees or customers, quarterly community report advertising, etc.). Don’t just go through the motions since people can tell if you’re genuine or not.
This goes for boards of directors too
If you are a member of a board of directors, ask the “what if” questions at every meeting, and study the responses you receive. Dig deeper if you are not satisfied. Tough questions from a board member helped expose embezzling at a small employee credit union several years ago.
Watch out also for managers who are jealous, egomaniacs, paranoid or delay sharing information. Remember, directors may become personally liable for the actions of the organization.
When the unthinkable occurs
Most companies actually have very good reasons for conducting the types of activities that got them into trouble. Be flexible, get out in front of the emergency and tell the truth. Explain the facts loud, clear and often. Doing so builds your credibility and creates an image of cooperation and nothing to hide.
Timing is everything when it comes to executing strategy. When crises occur, notify and involve affected audiences before someone else does. In addition, you must show a humane as well as business face, break industry jargon into easy language, take reporters’ calls, name a contact that can answer questions and identify allies.
Unfortunately, the first response of most executives is to go into lockdown. Paranoia trumps reason, causing the CEO to install gatekeepers and managers to keep information close to the vest. This approach usually exacerbates the very crisis it aims to prevent—employees became insecure, the media curious and regulators suspicious. Stonewalling doesn’t work because legal notices, online filings and news stories ensure people will find out.
If you haven’t worked to fill the reservoir of good will over the years, as discussed above, your enemies will be ready—and well-equipped—to pounce. They will tell the media and public you can’t be trusted, your low cost method of addressing a problem is inferior and change is either unacceptable or long overdue. They will use such tactics as questioning the facts repeatedly (leaving the impression you have been unresponsive), magnifying imagined problems, depicting solutions as flawed or untested and employ non-expert “experts” for public hearings and media interviews.
If you’ve always openly communicated, continue to do so now. Issue press releases, buy advertising, go to public meetings, etc. If you do anything differently now, your motives will become suspect.
Since every situation is different, call COCO+CO. at (800) 374-4103 or use the Contact form to discuss your particular need or interest.