Preserving Senior Management Credibility in a Crisis

When confronted by a crisis, one of the most common mistakes made by major organisations is a failure to adequately manage the “tone from the top”.

Without proper messaging and communications from senior management, there is a real risk of losing senior management credibility. Once damaged, this is very difficult to rebuild.

Whatever the cause of a crisis, it is essential that businesses quickly consider the legal and practical consequences of any public response and strategically frame the message, in order to manage stakeholders and build confidence in the organisation’s response. As the latest edition of Cleary Gottlieb’s Global Crisis Management Handbook sets out, it is vitally important that companies demonstrate that senior management has conveyed the correct tone from day one of a situation.

Click here to download the Global Crisis Management Handbook.

Loss of credibility leads to problems

There are countless examples of companies getting into difficulties in this regard. In a recent automotive product defect crisis, which led to over 100 deaths ahead of a recall in 2014, the tone from the top had not created the right culture within the organisation. The internal investigation concluded that there were conflicting messages from top management, an apparent fear of reporting bad news up the chain of command, and an absence of clear decision-makers. The company ultimately paid approximately $2 billion in fines and civil settlements, and the CEO was required to testify before Congress.

Presenting the right kind of leadership is critical to public perception and to isolating the problem and also plays a key role in conveying the right message to regulators. The credibility of senior management is also relevant to relationships with other stakeholders, such as auditors and lenders.

Department of Justice guidance

In April 2019, when the U.S. Department of Justice released updated guidance on how it will evaluate corporate compliance in the event of a criminal investigation, it placed considerable emphasis on the conduct of senior leaders with regards to encouraging or discouraging compliance. The DOJ now focuses more heavily on distilling “lessons learned” from misconduct and incorporating those lessons into the compliance programme, using objective metrics collected from monitoring and information gathering.

The additional detail provided in the latest guidance offers practical insights into how prosecutors will consider compliance programmes in each stage of an investigation. In particular, prosecutors will focus on the extent to which a company has tailored its programme to its risk profile, for example; the degree to which an ethics and compliance programme is dynamic and tested; the existence of ongoing data gathering, measurement and record keeping; and the fact that people at all levels of the corporate structure should demonstrate a commitment to compliance in words and acts.

Crisis planning

To set the right tone at the top, businesses should, in our view, havie a document at the ready that outlines their compliance efforts and describes the mechanisms in place. This is intended to ensure that organisations can readily demonstrate that they take compliance seriously, as well as the specific measures that are in place, and allow for a rapid response to “culture” enquiries from regulators and other stakeholders, if required.

Another tip is to thoroughly document compliance and remediation efforts, setting out the specific mechanisms that have been put in place to promote an effective control environment, such as compliance programmes, policies and procedures, training records and personnel evaluations. Again, the ability to demonstrate that controls are in place, and that issues are identified and remediated, is an important tool in maintaining trust in an organisation’s processes if a crisis does hit.

Organisations may also anticipate the spotlight turning on senior management by preparing and maintaining specific examples of how leadership has promoted and modelled proper standards of behaviour across the organisation in the past.

Leadership credibility in a crisis is crucial

The reputational impacts of a crisis can be felt for years, especially when poorly handled. A well-planned public response based on a proper assessment of the situation relies on strong leadership; demonstrating that senior management is in control from the start can avoid the perception of a spiralling issue, which is so often seen in complex crisis situations.