|You have worked hard to build a thriving business… then the unthinkable happens… your company is thrust into the limelight… nationally and negatively!
“It could never happen to me,” had been your mantra thus far. As a result, you are totally unprepared… no crisis plan exists, you don’t even know who to call for help.
- A child choked on a promotional item you provided to a customer.
- Someone was raped in the parking lot at your event.
- Pets are dying, allegedly from an ingredient your company provided to pet food manufacturers.
- The FTC Commissioner has called a press conference for January 4 to announce a multi-million dollar settlement against your company which makes a top-selling weight loss product.
- A toxic spill in your facility rose over the berms (higher than mandated legally) and spilled into the city streets.
- Your small, publicly-traded company is prominently featured in a negative industry round-up article on the front page of Barron’s. As a result, your stock drops from $40 to $14 that day!
- Your company’s letterhead is superimposed on screen… as the lead story on the evening news…“Bribery Scandal at City Hall.”
What Keeps You Awake at Night?
- Will your customers desert you?
- Will their customers sue you?
- Should you attend your major industry trade show in two weeks?
- You are out of the country on business. Your managers attempted to manage the situation without you… 24 hours later you are told about it. Do you cut your trip short and return home?
- Will your company survive this crisis?
- Are your personal assets at risk? Have you protected them adequately?
You fly home, rush to the office after a few hours of sleep… without showering or “dressing” for work. The FDA has asked for a product recall and press release. How do you manage all of the calls that are coming in? The media has staked out your facility. How do you get out of the office without a microphone and camera being thrust in your face? What if they follow you home at the end of the day? Are you at risk legally?
“As business leaders, it's our responsibility to anticipate and prepare for landmines that can undermine growth. Crisis can strike the most successful companies unexpectedly and often requires urgent action, particularly when dealing with the media. The more successful your company is, the bigger you are as a target. Thus, the more important it is to prepare in advance,” explained Steve Cheng, CEO of Window Rock Enterprises.
Legal Concerns in Crisis Management (Contributed by Mark Burton, JD, CSBA, CMEA, In-House Counsel/Vice President of National Operations, Business Evaluation Systems)
Most of us believe that if we do everything in a competent and ethical manner, we won’t face the legal challenges that companies like Enron and Worldcom had to deal with. We know that we are good corporate citizens and take care of our clients and treat our employees in the best possible manner. We are safe, right? WRONG.
Your first response may be, “why should I worry, I will win the case.” In many of these circumstances, even if you prevail, you may end up spending tens of thousands of dollars on legal fees that you will never recoup and have your business’ name smeared in the media.
What are some of these legal issues?
Product Liability: Product liability stands for the proposition that someone used a product that you were involved with at some level and because something was wrong with that product they got hurt in some manner. Under this theory everyone involved in the manufacturing and distribution of the product can be sued to compensate the injured party. That means that even if all you did was to provide a piece of the total product or brokered the transfer of the product or imported/exported the item, you may be named as a defendant.
Professional Negligence: A law suit under the theory of professional negligence asserts that you as a professional, be it a Certified Public Accountant, architect, life insurance agent, etc. has done something or not done something that has harmed the plaintiff and that as a professional you should have known better. Needless to say, professionals live by their reputation. Even if you win the case, you may very well have lost the war.
Res Ipsa Loquatar: Res Ipsa isn’t a cause of action by itself, as product liability and professional negligence are, but rather it’s a specific theory under negligence that takes away one of your protections. Generally, in a negligence law suit, the plaintiff must demonstrate that you did a bad thing. But here, the burden of proof is switched over to you, the defendant. Res Ipsa Loquitur literally means “the thing speaks for itself.” It is used in those circumstances where something happens that is so incredible it appears as though you MUST be responsible.
And What About Your Personal Assets?
“For many small and mid market companies bank loans and lines of credit are secured by personal guarantees, usually on personal real estate. In such cases your personal assets are at risk in the event you have a flood of expenses hit the business at one time. And as pointed out above, that can happen even if you win any legal action that you may face,” noted Gene Siciliano, the CFO for Rent who advises numerous mid-market companies.
“Consider the need to suddenly put together a crisis management team that is not up to speed and not guided by a well crafted crisis plan. The time they must spend goes up, the fees go up, the retainers go up, and you run short of cash. Your business loan payments don’t get made – the choice could be loan payments or payroll, and the lender learns you are facing serious legal issues,” he continued.
“His job is not to judge your likelihood of prevailing; rather, his job is to protect his company’s money. You may find credit lines shut off and payment demands made that could result in the lender placing a lien on the collateral – your home. While it may all work out in the end, your relationship with your lender will never be the same. And the added stress in the meantime?” Gene concluded.
On another side, “Two of the best ways to protect one’s family and keep assets liquid is to purchase personal life insurance and name the family as the beneficiaries. First, the death portion of the contract is free from creditors. Second, a pension or profit sharing plan is also exempt from creditors. These two proven methods must be in place before any law suit is filed,” advised Leo Thomas, a partner in the national benefits and pension administration firm of Price, Raffel Browne.
Is This the Worst Thing That’s Ever Happened to Your Business?
While it may definitely feel as though this is the worst day of your business life, it may well be the beginning of the best.
This is not a Pollyanna statement but the voice of experience speaking. Presuming that yours is a mid-market company, it will now be perceived as larger and more important due to all of the media attention. No one believes small companies make headlines.
The key is to properly manage that attention and to ensure that your company is treated fairly by the press.
This is best done by preparing in advance. It is important for all companies today to have a crisis plan and to have interviewed and know those who will serve on their crisis team, should such an event ever occur. Contact data on all members of that team 24/7 should not only be on file but also readily available.
“Preparing a crisis plan can be as simple as establishing a relationship with a crisis management firm so you know who to call when crisis strikes. It's like having a fire escape plan for your building. You don't imagine you'll ever need it, but it's good knowing you're prepared just in case,” noted Cheng.
It is also an opportunity to become a major “voice” in your industry. We have had clients lead an industry trade show panel on crisis management. It is an opportunity to do good and get positive attention by putting on a seminar on “Product Safety” or “What to do in the Case of a Product Recall.”
You may also be approached by Fortune 100 customers you’ve not sold to before. Why? You are now viewed as a real player in the industry.
We’ve also had industry analysts begin to follow a small company, due to the Barron’s mention. They would never have made it on the analysts radar screen otherwise.
“Ascertain that your business is properly insured, work with a business attorney to confirm that you have taken all appropriate steps to avoid legal liability and have a crisis management plan in place that is ready to swing into action should something threaten your reputation,” asserted Burton.
You decide… does your company need a crisis plan? Contact The Blaine Group