Rebuilding the Damage of a Crisis and Preventing Its Recurrence, the Key Role of the General Counsel
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November 13, 2024
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First published in El Confidencial, on April 24, 2024. The entire article is available at https://blogs.elconfidencial.com/juridico/tribuna/2024-04-24/reconstruir-danos-crisis-papel-clave-general-counsel_3872138/
General Counsels have a key role in their organizations, especially in the current situation marked by uncertainty (where the range of risks facing a company is wider than one might wish). They are responsible for protecting the legal interests of companies and ensuring compliance with all applicable laws and regulations. Society seems to have become accustomed to living with the feeling that world stability hangs in the balance. After the pandemic crisis, the invasion of Ukraine, the rise in commodity prices, energy costs, the rapid rise in interest rates, comes the conflict between Israel, Hamas and Iran. Three years ago, none of what is happening could have been anticipated, but companies must have mechanisms in place to react quickly to unforeseen situations. The cost of not doing so is very expensive.
How a company handles a crisis can have the greatest impact on its market value, as well as its reputation. In fact, an FTI Consulting report examined 100 crisis events over a 20-year period. Of those 100 crises:
- 32% of senior executives lost their jobs;
- $200 billion of total value was destroyed; and
- 14% of the companies studied went bankrupt.
The General Counsel has a key position to work on the prevention of possible risks and to check, in a preventive manner, that the company has the necessary resources to respond to unforeseen eventualities.
However, there are risks with which it is already known that it is necessary to live with. Among them are those of compliance with the changing legislation in force, which also results in increased litigation and a slowdown in the functioning of the justice system. The regulatory invasion in Spain is breaking records. In 2022, the official gazettes at state and regional level published 1.3 million pages of new regulations or amendments to existing ones. It is not surprising, therefore, that the main risk identified by directors of corporate counsel is regulatory compliance, as reflected in the study ‘The general counsel report 2024’, prepared by FTI Consulting and Relativity, in which 87% of respondents expect the level of corporate risks to increase in 2024.
According to the report, compliance tasks dominate all other risk areas, with 30% of respondents saying this is their biggest challenge in 2024, up seven points from last year.
But more risks are on the report’s list, such as those associated with privacy and data protection, the implications of advanced technologies - such as artificial intelligence - or issues related to improving products or manufacturing processes, corporate governance issues and environmental sustainability, the increase in litigation and investigations and the increase in legal expenses.
And, once the risk situation has passed, how should the company proceed? Under the baton of ‘general counsel’, it must assess what regulatory, legal and commercial risk remains and how to move forward to rebuild. Transparency, accountability and ongoing stakeholder engagement are critical to rebuilding the trust of key audiences in the company and to protect, promote and enhance the long-term success of the business.
The general counsel’s credentials place him or her in a unique position to encourage actions and investments that will help an organization recover from one crisis and prevent the next. General counsel has the ability to coordinate different departments, such as risk and compliance, to help ensure that they have sufficient resources to avoid future pitfalls that led to a crisis. It should identify whether key decision makers were involved at key moments in the initial crisis. You should also coordinate those responsible for corporate affairs and external communications to ensure that a problem that caused a crisis is not only resolved, but that regulators are informed of the steps the company has taken to prevent a recurrence.
Overcoming any crisis involves rebuilding a company’s reputation. This requires time and commitment. Even assuming that decisions must be made that are internally unpopular. Such resolutions may negatively affect margins or sales, but they are essential to protect the company from falling back into crisis. The goal is to learn from the experience, to make genuine changes in the way a company operates, to regain the trust of stakeholders. All of this boils down to regaining reputation, and with it, market confidence. In times of uncertainty, it is essential to be clear about this roadmap and to be able to rely on a ‘general counsel’ to carry it out.
Published
November 13, 2024
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