Six Rules for Navigating Corporate Crisis | FTI Consulting

The Six Ground Rules for Successfully Navigating Any Corporate Crisis

corporate crisis

Expected or unexpected, all change is disruptive. An operational crisis, some form of leadership malfeasance, an unexpected financial setback, an activist shareholder campaign — even an orderly leadership transition where a clear line of succession has been established — all are still disruptive to the business. But while disruptive, these moments of change can be an opportunity for growth — if you can manage the change effectively…and, most importantly, if you can continue to tell your business story, a feat that has become far more complicated in today’s fragmented media environment.

Everyone Is a Publisher

The explosion of digital communications channels and the attendant democratization of information has dramatically altered the way companies interact with their constituents: employees, investors, consumers, shareholders, regulators, NGOs and other core audiences. In this era of transparency, business is increasingly done in public, and the speed at which information travels from stakeholder to stakeholder cannot be underestimated. A disgruntled employee can walk out of a meeting, tweet about it and start a chain of events that can quickly spiral out of control. The rise of social media means the right (or wrong) 140 characters on Twitter can permanently alter the fortunes of a company, and sites like Glassdoor have provided employees with outlets to air their grievances in the public square.

One of the oldest rules in communications is that if you don’t tell your story, someone else will tell it for you. That’s even truer today. When the internet provides a megaphone to anyone with a keyboard or touchpad, millions are standing by to tell their version of your story.

For example, let’s say that following a moment of financial distress, a CFO launches a significant cost-rationalization program that will result in facility closures and significant job loss. Traditionally, companies would bring in outside consultants; the consultants would drop pink slips on desks, hand out a few brochures and move on. That’s the George Clooney “Up in the Air” model — a one-way, top-down communication lacking in empathy. But today those employees are walking out the door with the means to tell their stories to millions. A few taps on a smartphone, and suddenly it’s a story, migrating from Twitter to Buzzfeed to the Senate floor. In this scenario, control of the narrative is quickly lost, and momentum has been ceded to potential opposing parties.

As journalism critic A.J. Liebling famously said, freedom of the press is guaranteed only to those who own one. Today that includes everyone with an internet connection. Consequently, the old model — a pink slip, maybe an HR newsletter — is not sufficient. Communication is critical, and you ignore it at your peril.

Why You’ve Never Heard of the Transocean Oil Spill

A company called Transocean owned the Deepwater Horizon drilling rig; all but two of the lives lost in its explosion were Transocean employees. But few people have ever heard of a Transocean Oil Spill because Transocean employed an effective communications strategy in the wake of the tragedy, and BP did not. To be transparent: FTI Consulting represented Transocean. But it’s inarguable that BP bore the overwhelming brunt of the public scorn, shareholder outrage and political controversy in the weeks, months and years following that disaster, while Transocean did not.

Why? Transocean did three key things effectively.

One, it moved quickly. It is impossible to overstate the importance of speed during a crisis, particularly one as visible as an oil rig explosion. Its (and, by extension, our) team was on the ground in New Orleans soon after the disaster struck and connected with the media immediately. Remember: Not telling your story gives others license to tell it for you.

Two, Transocean had the right communicators on the ground — ones with local knowledge and understanding. It had people there who knew how the story would develop, could build relationships with key local players and addressed the big picture by developing and executing an integrated communications strategy for all audiences. It is critical to have frontline spokespeople delivering consistent messages. If a company has different people telling different stories, it has ceded the story to less friendly communicators: the media, third-party activists and politicians.

Three, and most importantly, Transocean acted with empathy. Its top priority was to honor those who lost their lives, support the families dealing with the tragedy, support the survivors and establish an honest dialogue with those who had been affected by the explosion. Accountable, honest and thoughtful communications can see you through nearly any crisis. Transocean demonstrated concern, compassion and empathy by taking steps such as holding a memorial service and having its CEO visit the families of the victims.

The take-away here is that doing the right thing counts as much in business as it does in personal life.

BP, unfortunately, learned that lesson the hard way. It had too many missteps; it didn’t have an integrated, cohesive strategy; it was perceived to be lacking in empathy; it didn’t course-correct quickly. Consequently, the phrase “BP Oil Spill” caught on in a way that “Transocean Oil Spill” never did. Once that happened, the communications battle was lost. And though the end result was due to many factors beyond communications, you can’t help but look at the penalties paid by the companies to see which did a better job in framing its narrative. Transocean eventually paid a total of $1.4 billion, while BP’s final bill was close to $20 billion.

The Six Core Rules for Preparing for Change

An oil spill is about as extreme a corporate event as can be imagined, but the ground rules for successfully preparing for — and navigating — a disaster of that scope can be applied to any crisis scenario. Fundamentally, effective communication depends upon preparation. What keeps CEOs up at night are the things they don’t know, but they can rest easier if they are prepared.

There are six core rules for preparing for change and for dealing with it once it strikes.

1. Store up capital. Leaders should support initiatives that generate trust and confidence so that when crises arise, they have built up sufficient goodwill to prevent excessive reputational damage. This capital can range from corporate social responsibility initiatives to simply developing a policy of actively engaging key stakeholders with clarity and transparency.

2. Know what you’re dealing with. Leaders must insist upon knowing the current perceptions of key stakeholder groups. Are opinions moving? If so, are they moving positively or negatively? This tactic is often met with resistance (no one wants to tell the boss what they think she doesn’t want to hear), but it is critical to gaining insight into your challenges and opportunities.

3. Craft a proportionate response. If opinions are moving in the wrong direction, it is imperative to craft a response that is calibrated to frame the issues correctly. You must ensure that you are ahead of the curve, correcting misinformation and helping stakeholders understand your point of view — in essence, taking steps to ensure that you are the one framing the story. In all cases, the nature of the response must match not only the financial but also the reputational implications. Wells Fargo’s sales practices scandal that made headlines last fall is a perfect example. The company reported $86 billion in 2015 revenue, making it dangerously easy for it to dismiss a $185 million fine without thinking about public fallout. That mistake cost CEO John Stumpf his job, and the bank incalculable reputational capital.

4. Work from the inside out. As communications professionals know, there are many stakeholder groups that need to be attended to, but employees are often either overlooked or their importance underestimated. But if your own employees don’t buy into your position, message or initiative, it won’t succeed. Reaching your internal stakeholders requires knowing your organization’s informal channels of communication, which often resemble the unofficial chain of command in the military, where a grizzled sergeant in the field delivers the real story to the troops. Learn who dominates the informal communications channels in your organization, and engage them early and often.

5. Feed the beast to tame him. A bunker mentality, where “no comment” is the default position, can be a death sentence. All stakeholders, internal and external, need information. The CEO is the only person in an organization who can change a bunker mentality. Strategy and substance cannot be divorced from communications — and it all needs the endorsement of leadership, which ripples throughout the organization in concentric circles emanating from the C-suite.

6. Prepare for competitive opportunism. Not only must you frame the issues with which your organization is confronted, you must also try to predict how adversaries might adjust their strategy to take advantage of yours.

Following these six rules does not guarantee success because, as we know, in times of change and crisis the only thing you can truly count on is the unexpected. But you will be equipped to deal with the unexpected and to confront your communication challenges head-on.

As Warren Buffet famously said, “It takes 20 years to build a reputation and five minutes to ruin it.” Protecting your enterprise’s reputation is a key management responsibility: spend time every day working to secure it.

© Copyright 2017. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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