A recent global research shows that 73% of companies admitted they are not prepared for a crisis. This staring peril is just exacerbated with the frequency of natural catastrophes ascending under global warming and the macro-economic and geopolitical environment getting increasingly complex in all major continents today. In this Q&A, Ms Nan Dong and HKIoD Deputy Chairman Dr Christopher To, part of the Faculty of HKIoD Global Directorship Programme 2019, shared their respective insights on the communication and dispute resolution aspects in a crisis. Together, their perspectives provide an elaborated view to help a company or an organization understand how they may proactively prepare for the rainy days.
- Can you share with us your most unforgettable crisis management experience?
ND: The most unforgettable case in my career is a cyber leak that happened around 2015. There used to be a theory that this type of crisis has no actual impact on a company’s valuation. However, this case has shown that a cyber crisis can take a significant toll on the company’s market value. The company involved saw its stock price slump by 30% immediately following the first media report and faced the dilemma of whether to call a trading halt.
My team was only given full mandate to steer the crisis communication strategy after some damage had already been done. Before we were brought in, the Company was passive and tried to let the “one-day news” die down in one day. The news ended up going viral, which wasn’t a big surprise in the 24/7 digital era, and was rather out of control in terms of the amount of speculation and unfair accusations covered by the media. In the end, the PR crisis was successfully put out as we took over and shifted to a proactive strategy of transparency and addressing stakeholder expectations.
This incident always reminds me that in a high-stake event like this, taking the chance to see how a problem may play out, instead of proactively managing reputation, may flash over some internal stakeholders’ mind. In the early stage of a proliferating issue, one may not be able to estimate the magnitude, impact and reach of the issue. As an external consultant, our role is help clients make sound judgements and, more importantly, provide ample preparation. While no one should over-react, one must fully understand the potential risks involved and know how to cope with them readily, so it does not get into a reputational crisis amid a crisis.
CT: More sudden changes of senior management, such as the departure of a CEO, go without comprehensive communication with key stakeholders, in recent years. This has stunned me quite a bit. I feel that these companies may have overlooked the emotional impact on stakeholders, be they employees, investors or customers, when they suddenly “find out” the leadership of a company has quietly departed.
I will always recommend a company to issue a joint statement with the departing senior management member, proactively rationalizing the departure, showing appreciation (if appropriate) and explaining all sound arrangements the company has made to maintain corporate governance and operational excellence.
- A lot of companies take the approach of “no comment” and let “one-day news” die in one day. Has it ever worked? Is it different in the digital age?
CT: When someone has “no comments” and remains silent, often it only expedites vivid speculations and makes a saga more controversial than it needs to be. Some companies think it is fine to let people speculate, with today’s news being tomorrow’s history. But this mindset always leads to a snowball effect that comes back to haunt the development of the actual dispute.
When a company always has “no comment” on matters that it holds a clear duty to explain to stakeholders, it projects a negative, mysterious and non-transparent image, which can hurt the trust of important stakeholders – customers, investors and employees – who have direct bearing on the company’s well-being and bottom line.
Even in case of litigations, companies can manage stakeholders’ expectations by telling them they will be given more background information once key decisions or milestones become clear. A professional PR consultancy will also have a role in helping the media report any public disclosure precisely, reflective of the legal position disclosed in the public domain.
ND: I completely agree with Dr To. To add just a little more, in the data breach example, you can see that the approach of “no comments” and tolerance of “one-day news” clearly does not work. Many people such as analysts, field experts and key opinion leaders can fill in the media stories even without the company’s participation, and the stories never actually die in one day.
- What kind of companies do you think have better risk/crisis comms preparedness overall? Do you think listed companies have better crisis preparedness overall?
CT: In terms of the dispute resolution aspects, I would like to highlight the cosmetic industry as a role model. The formulas of cosmetic products under different brands are quite similar to each other. However, industry disputes associated with proprietary formula are few. From my observations, it is a highly collaborative and united industry focused on promoting the growth of the total market share such that every brand can benefit from it. As a stark contrast, the construction industry is exposed to frequent disputes, with a comparatively more adversarial norm. This is particularly exhibited in the aspect of contract terms and the difference in the definition and interpretation of these terms in the eyes of different parties as well as pushing the risk down to the bottom of the supply chain to absorb.
ND: Before answering this question, I would like to remind you that not only bad companies have crises. In fact, a reputable company also has its rainy days. Companies operating in industries that are prone to crisis should always stay prepared and they are usually the ones that are doing better. For example, consumer brands and retailers – issues big or small happen to them daily, from supply chain management problems to customer complaints/ personal injuries. Theoretically, all airlines should be prepared for plane accidents – this is an obvious risk that everyone can envisage. Although it does not occur frequently, the actual impact (on the directly affected) and the emotional impact (on the public) is deep and wide when it does. Oil and gas companies and their crises share attributes of both the mentioned industries and beyond.
- How would you suggest a company making its first step in crisis communication preparedness?
ND: They should have a long-term and comprehensive plan. One-off planning never works and will not work in today’s fast changing world. Crisis preparedness is a continuous effort. Some of the personnel you trained before could leave the company and new employees joining the business should be sync-ed with the approach as soon as possible.
The emphasis should be put on whether all that you do or invest in crisis preparedness is effective or not. A company should not stop at developing a crisis management manual and protocols. In most cases, crisis preparedness success stems from a company’s highest organ, relying heavily on the commitment of the management team and the board. Naturally, thought-through implementation at each level down to the front line is equally important. In a recent HKIoD article, Baker McKenzie’s Dispute Resolution Partner Mr. Gary Seib has creatively quantified how to identify the most lethal potential crises specific to a company’s business through a simple formula by factoring both the crisis “likelihood” and “graveness”. This approach is applicable to any company. In addition, with the macro environment radically and rapidly changing, evidenced in the dramatic proliferation of Brexit, trade tensions, US-China relations, etc., companies today must be more robust with their crisis strategy review now than ever.
- In a striking crisis, why is it common/essential for companies to hire a third-party advisor?
CT: Every company should hire an independent professional advisor to support the management of crises that have significant legal or reputation implications for the business. Also, companies should enlist independent support early, since containing a proliferating issue when it is small is the most ideal scenario. As a third-party advisor, we have wide and deep exposure and experience servicing different organizations and undergoing tricky scenarios.
ND: In addition, an international consultancy with a local team on the ground in the major markets your company operates in adds an extra layer of value. Understanding the local culture, practice and norm is vital to optimized stakeholder communication and engagement results, especially in a crisis.
- Nan, you mentioned that the external environment continues to change and internally there are inevitably personnel moves from time to time. How can a company make sure that its crisis communication tools stay relevant?
ND: A regular refresher is crucial. For example, a Swiss banking giant I serviced before hosts a structured and ongoing training plan that is designed to equip members at different business units and levels. New joiners are arranged to attend a designed series of training courses suited to their capacities. As for existing staff, they are given an annual curriculum that include refreshers and new training courses, should there be major policy changes/updates on the firm level.
- From a maximization of company value perspective, can you tell us why crisis communication is a worthy investment?
ND: From a return on investment point perspective, dealing with crises unprepared is much more expensive than establishing structured crisis strategy beforehand. This chart shows you the winners and losers’ loss in company value as a result of a crisis. For winners, they still incur a loss in a crisis, naturally because during a crisis the focus is on minimizing loss, but the loss is significantly lower (10% of company value lower!) than the losers who have not handled a crisis well.
Source: Pentland Analytics
I admit that a professional consultancy-led crisis preparedness (prior to crisis) and crisis management (at crisis) is not a nominal investment, but it is an investment with ultra-high return when you look at this average number: 10% of company value!
CT: Drilling down to dispute resolution/litigation that many consider a key crisis, especially for listed companies – from a long-term profit consideration, it becomes clear that companies should invest in preparing a consistent and thought-through dispute resolution approach.
As a basic principle, companies exist to generate productivity for the common good of the society, rather than resolving differences. How can a company generate revenue if a CEO spends most of his/her time resolving disputes?
Some companies treasure their reputation to an extent that when one has taken advantage of its good will, they will go that extra mile to make an example of this person/entity, adversarial form of dispute resolution is inevitable.
Nevertheless, we should all be aware that when a company frequently takes different parties to court, its business partners cannot help but worry, would they be next, if the matter is relatively straight forward. From the public’s perspective, they can do nothing but sit back and witness all the dramas, sometimes including drastic stock price fluctuations of the two companies (if they are both listed). At the end of the day, both companies suffer, as do investors, customers, employers and no-one really benefits in the long run.
Good companies strike a balance between relationship (long-term financial gain) and monetary damage (short-term) and seek less adversarial out-of-court settlement methods of resolving one’s differences such as negotiation and/or mediation, not only at the start of a dispute but throughout the proliferation of legal proceedings, where possible so as to come to a sensible solution, at minimum risk and above all maintain on-going relationships as far as possible.
HKIoD Deputy Chairman Dr Christopher To is an independent mediator, adjudicator and arbitrator who is on the panels of various leading global alternative dispute resolution bodies.
Ms Nan Dong is the Hong Kong Head and Greater China Financial Communication Head of Hill & Knowlton Strategies.