Top Ten Crisis Risk Management Maxims

Tuesday, May 1, 2007 - 01:00

Julia R. Dillon

The Metropolitan Corporate Counsel

As part of its continuing focus on the responsibilities of corporate counsel, the Conference Board presented a program, on "The Growing Role of General Counsel in Crisis Management." Luke Kissam, general counsel of Albemarle Chemical; David Snively, general counsel of Monsanto; and William Von Hoene, general counsel of Exelon discussed crisis management issues from the perspective of corporate counsel with examples drawn from their own experience. Bill Ide served as moderator. Bill is chair of the ABA Task Force on Attorney-Client Privilege and Partner, McKenna Long & Aldridge LLP. He is a former President of the ABA and the former general counsel of Monsanto.

Each of the three panelists noted that their respective industries - specialty chemicals, agritech/bioengineering and nuclear power - were not high on the list of those most trusted by the public. Security of physical plant is of course of vital concern to all three, but another common theme among them was the importance of public relations and the fact that "good science is not always enough" to avert media or reputational crises. As Luke Kissam commented, "Out of the gate, we ['high risk, low trust' companies] are perceived by the public as less trustworthy and less credible, so we have to do more than other companies. Whether you're right or wrong simply doesn't matter."

What to do, then? The panelists were charged with giving some advice on the subject, and their combination of hard-won experience and insight made for an enlightening presentation of the changing parameters of what defines successful crisis risk management today. Following is a list of "Top Ten Crisis Risk Management Maxims" which the editors of The Metropolitan Corporate Counsel have culled from that presentation.

1. Understand The Concerns Of Your Constituency And Cultivate Trust

William Von Hoene noted that because Exelon operates nuclear facilities, it is essential for him to be candid, and to respect the concerns and fears the public may have about nuclear reactors. "The one thing we do not want to do is to be perceived as denigrating the seriousness of ANY release of nuclear material - from a public relations standpoint it is very difficult to give assurance to the public using statistics without appearing to minimize the significance of something like this. Understandably, the public wants the people running the nuclear industry to be completely candid; and we must demonstrate that we subscribe to that." It is essential to understand and respect the fears and concerns of your constituency, especially if your industry, falls into the "low trust, high risk" categories.

Cultivate relationships with your constituency when there is no apparent problem or issue. While it's impossible to anticipate every problem, you can usually anticipate the constituencies you will be dealing with when you have a problem. Understand them; try to "shape the landscape" while you can. He noted that even a small problem can become a big problem or contribute to making another problem more difficult.

2. There's No Such Thing As A Small Problem

David Snively then spoke about his experience at Monsanto, where early recognition of crises has been critical for many years. "One of the things that set us apart has been our ability to move swiftly and with agility; we want to know what's behind a crisis, so we can alter its course early." Where handling a problem is delegated to subsidiary in a foreign country, it is important to assess its resources and whether it has the multifunctional capability necessary to successfully meet the challenge. Greater awareness of local politics and practices can contribute to assessing the scope of a problem.

3. Beware The "Creeping Crisis" And Keep Your Eyes Open

Similarly, Luke Kissam spoke of his fear of the "creeping crisis," which can occur if a company, despite doing excellent science, attracts the attention of the media who mistakenly report on it. It is essential for "high risk, low trust" industries to remember that good science is not enough; anticipate that the science your company or even your industry is doing may become public, and be ready to head off misunderstanding.

4. Find Natural Allies And Credible Advocates

All three general counsel indicated that it was helpful to find advocates who do not have a close relationship with the company - academics, distinguished people - "to tell as much of your story as they can." They will bring extra credibility to the table.

Luke Kissam stepped in here to express his agreement. "No one wants a bad product; it's bad for business. So you have to do the tests, and when you do, it's best to have the tests done outside your company by well qualified researchers. We might help fund the research, but in order to guarantee that they do their best science, it's important that the scientists reach their own conclusions - that they 'own' the results. These scientists have become our most convincing advocates." He added that Albemarle had found tremendous advocates among firefighters and fire marshalls, who have spoken out on the company's behalf as supporters of effective flame retardants.

5. Create Cross-Disciplinary Teams And Practice Preparedness

As William Von Hoene remarked, "By the time legal problems reach a GC's desk, they must be looked at in a holistic fashion. There are almost always public relations, operational, or marketing aspects. Legal departments need to coordinate their efforts with the departments responsible for these areas."

David Snively described the importance of cross-disciplinary teams, and that at Monsanto, IT is especially important. "Because information is the key to global risk management, IT may well be the single most important component of the program. Should the IT system go down either by external forces or a natural event, the results would be catastrophic unless the risk management plan includes preparedness for that possibility. Monsanto has a predesignated multifunctional team within the company to implement crisis management which includes legal, government affairs, public affairs and a whole range of other talents. In addition, people are brought in from the outside to provide training. On call are a handful of consultants who specialize in dealing with the media in crisis situations and can serve as the company's face externally in difficult situations.

All three counsel stressed the importance of preparedness. Mr. Kissam described the drills run at Albemarle for "one-time crisis management" - a plant explosion, a truck spill. Once the drill begins, everyone stops in their tracks and heads to the Situation Room immediately.

6. Involve The Board In Crisis Managment

The three general counsel then described the crisis risk management efforts they currently have in place. David Snively commented that Monsanto has a very structured crisis management program. Enterprise risk assessment is run from the board down.

Bill Von Hoene mentioned that at Exelon, the Risk Oversight Committee is a subcommittee of the Audit Committee of the Board of Directors. Every quarter for each one of Exelon's three businesses, the Board compiles a report to the Risk Oversight Committee of what it considers to be the ten most significant potential risks, indicating whether it is mature or immature. "It is arguably a burdensome task for the Board to take on," he added, "but I do think that for a board to take on this assignment provides comfort to our shareholders that the Board is applying its collective wisdom to performing what may well be its most important function in today's troubled world."

Luke Kissam noted that a similar program had been implemented at Albemarle, and that its Risk Committee, while not a subcommittee of the Audit Committee, did communicate with it regularly about enterprise risk management. He also observed that in his experience directors are becoming increasingly involved with risk management. This is of great interest to them in a climate where directors face personal liability and auditors are reviewing directors' actions to determine if they've asked the right questions.

7. Pay Attention To Records Retention, Especially Emails

All three general counsel voiced their concerns about records retention, especially with respect to email. Luke Kissam expressed that he was more worried about the creeping crisis than the one-time crisis he had earlier described. He mentioned education and a "stringent" records retention policy that includes email were essential and added that many times problems can start at the top. "In my experience, nine out of ten times the most damning emails are written by top executives or board members - someone at or close to the top. So you have to pay attention to those people especially."

David Snively emphasized that at Monsanto, once a crisis with legal overtones arises, a record retention hold is immediately placed on any related records. Everyone is made to understand that everything they write down will be on record. Crisis management meetings are held face to face, preferably with a legal officer present. "We raise people's sensitivity to what's expected of them. We have a briefing about what we did right and what we did wrong. People need to know that everything they write may become available in litigation."

William Von Hoene concluded the email discussion on a hopeful note. "We train everyone on email authorship early and often. We have some pretty neat examples of how things said in jest or carelessly can have tremendous repercussions. General and repeated training are essential. I believe that while email containment may be an insurmountable problem, it's also an attackable problem."

8. Act Decisively

David Snively described Johnson & Johnson's handling of the Tylenol recall "as a classic example of good crisis management. We all can learn from that. J&J got on the issue early, they acted on it, they put the right people in front to be their 'face' and they were decisive. They turned the situation around in a way that provided the public with confidence in them and their products that continues to materially contribute to making them the profitable company they are today."

9. Redefine "Successful Risk Managment"

Learn to define "success" differently. Don't just shoot for legal success. In some cases, general counsel should consider making decisions that may not seem advantageous from a litigation standpoint, but they may be best from a public trust standpoint. There is a public relations cost to denying, obfuscating or evading what the public may perceive as a serious issue.

10. Be Prepared For A Long Haul

Get ready for a long ride. Usually the business response is to get things done as quickly as possible, but if you are unrealistic about the size and scope of the problem, you'll make mistakes up front in trying to accelerate the solution. Von Hoene noted that building trust requires "seasons" of work, not just "an episode or two." All three agreed that it takes time for crises to be resolved, and it behooves a general counsel to take the long view when confronted with them.

Julia R. Dillon is an Associate Editor at The Metropolitan Corporate Counsel.