Planning for Your Next Crisis

This post first appeared on Risk Management Magazine. Read the original article.

In December, Stephanie Korey, CEO of luggage maker Away,
stepped down in the wake of news coverage claiming she had created a toxic
workplace. The evidence about Korey’s behavior came via her messages to (and
about) her employees on the popular workplace messaging platform Slack. In
October, a video on social media chastising billionaire Ken Fisher for
inappropriate remarks at a wealth management conference caused investors to
pull nearly $4 billion from Fisher’s money management firm. And in 2018, the
maker of a “smart” teddy bear learned it exposed millions of recorded messages
between parents and children to hackers. The ensuing social media storm led, in
part, to major retailers pulling the brand from shelves and the company going
out of business.

It is not often possible to spot a crisis before it hits.
But over time, it is almost certain that a crisis will occur. And in today’s
world, the timeframe is shrinking. As a result, the best strategy may be to act
as if your company exists in a perpetual state of pre-crisis.

If you are responsible for enterprise risk management, this
means you need to analyze operations, envision what could go wrong, and plan
how to respond. This is especially important in a hyperactive social media
world where the value of company and brand reputations can be lost in the time
it takes to tweet. People are inundated with information and tend to make snap
judgments, so in the public arena, due process is all but lost. Therefore, your
response to a crisis must resonate. Crafting what may seem to be a “common
sense” response to your crisis situation can send it spiraling out of control.
Companies today have to elevate their crisis game by knowing how to break
through the psychology of online mobs with messaging that either persuades
people to your point of view or sends the mob looking elsewhere. Each of the
crises described above demonstrates the importance of planning and giving your
best response from the outset.

Clearing the Air with a Cogent Response

After online news site The Verge published a story
about Korey’s behavior, including screenshots of her Slack messages to
employees, the social media response was overwhelmingly negative. Making
matters worse, two days before the story broke, a European journal featured an
article in which Korey said, “Fortunately, I have an incredibly thoughtful and
smart team around me.” Within a day of the Verge story, Korey publicly
apologized on Twitter. In her apology, she mentioned working with an executive
coach to improve as a leader. In January, Away named a new CEO and announced
that Korey would become executive chairman.

There are hundreds, perhaps thousands, of comments on social
media by people stating how appalled they were by Korey’s behavior. Many of
them mentioned no longer wanting to buy or own the brand’s products. Customers
and people doing business with Away want to know the company has policies,
procedures, standards and corporate values that reflect their own. Away’s board
could have immediately acknowledged and addressed employee, customer and
business partner concerns with an explanation of how this situation came to be,
and how they would repair its root cause. Simply replacing Korey as CEO and
moving her to a broader management oversight role within the company raises
more questions about who is enabling the toxic culture. Far from ending the
crisis, their actions to date have caused consumers to think twice about the
brand.

Apologize, But Then What?

According to wealth manager Rachel Robasciotti, who attended
the invitation-only event where Ken Fisher spoke, the billionaire’s crass
remarks included comparing the practice of building client trust to “trying to
get into a girl’s pants.” That same evening, another attendee posted a video on
Twitter criticizing Fisher for his behavior. Within 16 hours, the video had
been viewed 70,000 times. A day later, Fisher sent an email to his employees,
which a spokesman shared with media, that read, in part, “I’m confident if you
were there you would have understood what I said in context was nothing like
what is being currently reported…I want you to know I am sincerely sorry if
anything I’ve said in your presence offended you.”

The next day, Fisher took a more contrite tone, telling Forbes
in writing, “I realize this kind of language has no place in our company or
industry. I sincerely apologize.”

Fisher certainly mishandled his first response by not
considering current social mores or the perspective of the socially conscious
public pension funds that were his clients. At the outset, Fisher’s view seems
to have been that his firm provided great returns for clients and that was all
they cared about. But there are many investment firms competing for clients
like Fisher’s, and the pension funds punished him. Fisher should have
apologized authentically from the outset. His comments and initial response
were considered so egregious and tone-deaf that the second apology should have
included tangible actions like taking a sabbatical or otherwise relinquishing
operational control to insulate employees and clients from his behavior.

Weighing the Cost of Inaction

According to media reports about the Spiral Toys smart teddy
bear, the company left customer data from its CloudPets brand on an unprotected
database, exposing more than two million voice recordings between parents and
their children. Spiral Toys eventually went out of business after Target,
Walmart and other large retailers pulled the toys from shelves. But the
remaining toys, including those in the secondary market, still pose a security
threat, experts say. Once it learned of the initial breach, Spiral Toys took
months to notify consumers. Social media channels lit up with frustration and
animosity at the company’s inaction and lack of professionalism.

Few parents consider the risk of buying a smart toy, but
this incident exposed those risks in remarkable ways. Rather than do nothing,
the toy maker could have publicly addressed the risk by taking the product off
the market, offering a voluntary recall, or investing in back-office security protocols
to win the public’s trust. Fallout from the incident could extend far beyond a
single toy model or even a single company. In December 2019, researchers noted
in a global toy market study that “security and privacy have become the major
concern for the smart toys market.” To address this problem, industry leaders
may ultimately have to pay a higher price to win back public trust, dictated by
costly regulations or other extraordinary measures.

Pre-Crisis Planning

In any crisis, there are four questions that need to be
addressed: 1) How did this happen? 2) Who is to blame? 3) Is it going to happen
again? and 4) What are you doing to prevent this in the future? Some leaders
err in how they respond to the first question, setting the stage for the crisis
to spread. Typical missteps include:

Relying solely on
a legal response
.
Pursuing some legal action could help set the right
tone from the outset, but if it is seen as stonewalling, this strategy is
likely to backfire. The better option is to align messaging for the public
crisis response with the legal strategy.

Shifting blame.
This approach often creates more questions or erodes whatever credibility is
left after the crisis started. For example, assume a company singles out its
CEO as the bad actor in a crisis. The company would then have to address
objectionable culture, business practices, procedures and standards that
allowed the conduct to be tolerated in the first place. After the firing, what
about tomorrow and the next chief executive? And what if a company is found to
be wrong in shifting blame, including by scapegoating one of its own people?

Accepting blame
vs. taking responsibility
.
In trying to do the right thing, a
well-intentioned leader may offer such a broad apology that the public thinks
the company is at fault, even if the facts are not yet clear. To help calm the
waters, a CEO or other executive can accept responsibility for addressing the
impacts of a crisis while clearly establishing that the company will sort out
what went wrong, keep the public informed and take action before assigning
fault. The key is for people to know that justice will prevail—or they will be
inclined to pass their own judgment and share it on social media.

Whether it catches fire on social media or not, every crisis
is unique, and risk managers can and should prepare. Identify your most likely
crisis scenarios, develop a standby communications plan and materials, rehearse
a quick and effective response, and be ready with a narrative that assures all
stakeholders of a just outcome.

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