Responding To Crisis: Don’t Be Afraid To Take The Hit

It is an understatement to say that the coronavirus has created a public health and economic crisis that, according to most experts, will have long-term consequences for companies across the globe as they grapple with the potential legal, operational, financial and reputational fallout from a prolonged period of business disruption. Companies are already taking steps to protect the safety of their employees, ensure business continuity, and minimize lost revenue. But they also would be wise to develop contingency crisis plans to manage developments as they continue to unfold and to update any plan they already have in place. According to a recent report by Dun & Bradstreet, 94% of Fortune 1000 companies are experiencing supply chain delays due to the coronavirus. Yet many corporations are ill prepared to manage these risks. Research by Deloitte, for instance, found that only 47% of employers have the “capacities or processes in place to meet a crisis with the best possible outcome.” Less than half say their companies have “playbooks for likely crisis scenarios.” Only 32% engage in crisis training and simulation.

Companies are likely to be judged by regulators, investors, partners, vendors, employees and the media on how well they responded to the crisis. Companies should resist the temptation to hide bad news during times of crisis. Taking a reputational hit today may build credibility and trust down the road for a company that shows leadership by communicating honestly, clearly and transparently with its stakeholders. More communications are better than less during times of uncertainty and volatility.

Here are some best practices that companies should consider to help them manage the crisis:

• Develop or revise the company’s crisis management plan. This plan should include a roadmap for responding to all imaginable scenarios, such as employee layoffs, plant or office closures, debt defaults, product shortages, distribution interruptions, employee deaths, changes in work-at-home and travel policies, severe revenue and stock declines, potential litigation, regulatory infractions and the like. These should be prioritized based on their likelihood of happening.

• Establish a designated crisis team to manage emergencies and developments that may arise and to communicate with key stakeholders going forward. These teams should include representatives from each business function and legal and communications counsel and have a direct line to the CEO. They should take into account regional coverage and time-zone variations and designate point people in various geographic offices. Each person’s role should be clearly identified, as should lines of authority, such as who has decision-making powers. The team also should engage the appropriate third-party experts, including outside legal and public relations counsel, as well as subject matter experts who can provide professional guidance. Consider regular meetings or calls for keeping the team up to date and for modifying the plan if necessary. Assemble media lists that include the phone numbers and email contacts of key reporters and editors covering your company in the event information needs to be released urgently. Monitor media in real time to be able to respond quickly to inaccuracies and misinformation about your company. Establish a social media presence to control the message and disseminate information quickly when necessary.

• Develop a public relations plan for communicating with key stakeholders including employees, vendors, partners, customers, investors, regulators, government authorities and the public. Designate one or more people who will be responsible to deliver these messages and make sure they have the proper experience in handling sensitive information and/or crises and can project an image of confidence, calm and integrity.  Create messaging for each of the scenarios in the crisis plan and for each audience. Draft messages for traditional and social media as well as communications that can be posted on the corporate website. Be forthright with investors, employees and regulators about risks, your contingency plans and how you are monitoring and mitigating risks. If services will be disrupted, explain why and how you are trying to fix the delays and when they might return to normal. If you have public shareholders, make sure disclosures, earnings forecasts and outlooks are timely, accurate and adjusted as necessary.  Media train those who are going to interact with the public.  While generally conducted in person, media training can be accomplished by video conference as well.

• Prepare to answer the following questions, which could come from stakeholders or the media: Were you adequately prepared for the crisis? Did you take urgent action to protect employees and customers when it became clear they were at risk? What actions were taken and when? Were you prepared to have employees work from home or did technology delay your ability to ensure continuity? Did you have an action plan when the risks of product disruption, office closures, and the need for remote working became clear? Did you adjust public disclosures and outlooks to reflect the impact of the virus on earnings? Did you take the appropriate actions to ensure liquidity? What were they? What disruptions did you experience as a result of the situation? How long can you endure the work-from-home orders and these business interruptions without cutting costs? Will you lay off employees or shut down offices if it lasts beyond Easter? Do you expect employee lawsuits, given that plaintiff lawyers are already trolling for this business? How about shareholder or investor lawsuits? Has any employee died from complications of COVID-19? What permanent effects do you anticipate from this experience? Will work life be forever changed?  How do you believe your industry will change? How will your company change? Will your industry be requesting/receiving any government assistance?  How long can your business survive in the current environment?

• Conduct a business and legal assessment. Companies should consider how the public health crisis has impacted their liquidity, earnings and services and how the crisis may continue to affect them. This can be used to draft realistic and truthful statements for communicating with stakeholders. It also can be used to develop and, if necessary, implement a contingency plan. Companies also should consider how they can continue to keep employees protected from exposure in the workplace, what the HR policies are that cover an employee who must care for someone with the illness or themselves if they get sick. What are the covenants in lending agreements, should cash flow disruptions cause defaults? What are the events that could cause further damage to the balance sheet? What are the available lines of credit to ensure liquidity? They should examine all contracts and insurance policies to evaluate risks. What relief can the company seek from the local, state and federal governments?