Crisis Management

Sunday, July 1, 2007 - 01:00

At around 6:40 p.m. on 27 December 2006, off the coast of northwest England, a commercial helicopter crashed into the sea with the loss of several lives. At 10:30 p.m., very shortly after the tragedy was being picked up by news agencies, a "Code Red" call was received by Eversheds, through the emergency number for the 24/7 Crisis Management support service we offer in our health and safety team. By midnight, following a request from our client (whose personnel had been passengers on the helicopter) members of the Eversheds' team were on the road, reaching the incident headquarters which had been set up onshore around 3:00 a.m. the following morning. When the first press briefing was given by the emergency services and the businesses involved at 11:00 a.m. in the morning, the client's CEO had been provided with a full briefing on the legal and related issues likely to arise as a result of the tragedy.

In June 2006, two separate UK subsidiaries of U.S. corporations suffered explosions at their facilities. One led to a fatality; the other fortunately did not but there was a short-term risk of a potentially toxic gas cloud in the locality. Overnight, given the difference in time zones, the parent corporations were able to instruct us to attend the site and provide support so that the respective businesses were already receiving counsel and advice as the internal and external investigations got underway.

These examples are in the field of occupational health and safety which is by no means the only arena in which crisis management support may be available or needed (antitrust "dawn raids" are often cited as an example, too), but they provide compelling examples of clients' and law firms' developing views about the management of unexpected and serious incidents within a business.

The traditional role of the UK equivalent of a trial attorney meant being instructed when the court proceedings were served upon the client. Most "corporate" law firms in the UK did not "do" criminal law a few years ago; criminal cases were handled by (in the main) smaller, local law firms covering local courts and usually only representing individuals. In the larger cities, and in London in particular, there were a few niche firms handling white-collar crime.

That has changed over the past few years. Many law firms have moved to cover criminal - or the new "regulatory" - work where corporate clients had become at greater risk of criminal sanctions. What has changed and why? What are the new realities?

It has been observed, more as a matter of political commentary than jurisprudence, that during the past 10 years more than 3,000 new "criminal" offences have been created. The idea, still contemporary in European Union members, that criminal law was directed at the individual, has not found such currency in the UK, probably due to the common law heritage of the UK (and Ireland) rather than the codified basis of other jurisdictions. The notion that the imposition of criminal liability and sanctions should arise from deliberate or reckless acts has also been blurred very considerably by strict liability laws protecting employees and consumers. The traditional burden of proof in criminal cases (beyond any reasonable doubt) has notable exceptions in UK health and safety law, for example. Here, an employer can be prosecuted for breaches and met with a reverse burden of proof. In these cases it is for the employer to prove that it did everything "reasonably practicable" to avoid the breach. This concept (colloquially referred to by some as "guilty until proved innocent") was challenged but upheld, the basis being that an employer was uniquely placed to know about the risks in its business and to assess the measures needed to manage if not eliminate them. So the employer could be convicted despite taking protective measures because an accident still occurred (usually resulting in death or serious injury).1 Perhaps uniquely given the stigma of a conviction, social policy was being used as a driver to increase corporate responsibility.

Corporate criminal liability in the UK generally means a single sanction - the payment of fines by the corporations concerned. Traditionally in health and safety, fines were modest, so much so that it was argued that less scrupulous employers might consider non-compliance almost worthwhile economically when judged against the risk of a major incident and subsequent fine. There had been little judicial guidance on sentencing until in 1998 the Court of Criminal Appeal laid down some guidelines.2

Since then, the increase in fines has been dramatic. The notion that fines should be noticeable to a corporation, to its directors and to its shareholders, has meant that the UK courts have been prepared to impose much larger amounts. There is ultimately no upper limit either. We have therefore seen in the UK the highest fines in health and safety offences far outstripping any similar sanctions for other criminal offending (bearing in mind that a corporation cannot be imprisoned). Currently the highest fine stands at 15 million, imposed upon a utility corporation over its failure to maintain a safe gas supply infrastructure to domestic customers. Even the indisputable tragedy of a family of four people losing their lives in an explosion at their home was not the most aggravating factor. That was considered to be the exposure of the wider general public living in that area to a similar risk over a period of several years. In less notorious cases, it is still conventional to expect criminal prosecution of an employer in at-work fatality and serious injury cases which in turn means that for more "routine" health and safety breaches the stakes have also been raised.

Higher fines tend to be more noticeable on a number of fronts. There is a duty, for example, to publicise certain enforcement measures taken by the authorities in the UK in the workplace. The nature of a criminal investigation, whether or not it involves the police, also tends to mean that employees are aware of what is going on. (If individually they are not, then the Trades Union and their representatives are likely to have that knowledge.) The impact and disruption of a criminal investigation also tends to be noticed by customers and clients. This may be due to publicity or a drop in the ability of a corporation to perform as it ordinarily would. For example, after a machinery accident, it is common for that machinery to be prohibited from use until investigated, checked or modified. These considerations, and others, operate to force an employer to confront the practical realities of an incident (whether it is defined as a "crisis" or not).

Neither is the impact of these arguments limited to the field of health and safety. The nature of the UK legislative regime, and that of the EU, means that the same scenario may well arise in the context of environmental law (a pollution event or other escape), food (contamination) or a variety of other product liability scenarios, usually safety-related. Health and safety is merely a ready example.

It is, of course, a "good thing" not to be an employer faced with criminal sanctions and/or a poor compliance record. Whether or not it really influences clients/customers and potential client/customers will vary according to the nature and reputation of the corporation. However, the scrutiny is unwelcome.

Generally in relation to business regulation, the enforcement agencies appointed with the task of investigating incidents have extensive powers granted specifically to them for this purpose. They may demand documents, records, computer information and indeed information from individuals. There are certain protections built into the statutory powers that they are given. However, these safeguards are often considered to be illusory. There is no mechanism, for example, to challenge the exercise of some of these powers by enforcement agencies. The only way in which employers can do so is after the event - and after the damage is done. For this reason, most do not bother.

This concern should perhaps be tempered by one of the advantages that the involvement of lawyers might bring. In the UK the doctrine of legal professional privilege is preserved even in the course of criminal investigations and in the face of increasing compellability of witnesses. The internal investigation, or expert evidence, can all be cloaked with privilege to prevent the obligation of disclosure. The use of information gleaned by investigation agencies may be similarly restricted and it is now common in the UK in the occupational health and safety field, for example, for internal investigation reports to be commissioned by lawyers for the express purpose of preserving privilege. This has grown as an issue in part because the power of the employer's lawyer's role has been diluted by ethical professional guidance given by the Law Society regarding conflicts of interest in 2006 following lobbying by the Health and Safety Executive which argued that its powers to undertake private "voluntary interviews" with employees were being compromised by the presence of the employer's legal advisers. This potentially inhibited (or worse) the employee's answers. Regulatory lawyers regarded this as one of the ultimate "cop outs" of their professional representative body, arguing that it neither understood, still less confronted, the real issues that needed to be addressed.

The example given above offers one explanation why lawyers in the UK have acquired an important role from the inception of an investigation into major health and safety incidents. There is, from a client's perspective, both an opportunity and a need to protect and influence the direction of a criminal investigation that makes a lawyer with suitable experience a valuable addition.

All businesses will define a crisis in slightly different terms according to their sphere of activity. For a food business, the quality and safety of its products will generally be the issues around which a crisis is defined. Where recognised brands (whether food or non-food) are involved, PR expertise will play a key part in handling a crisis. Some high-profile corporations have a PR-led crisis management plan and PR professionals will always form part of any crisis management team. Equally a business operating in a hazardous sector - for example, chemicals or energy - may well define a crisis in environmental and human terms, with HR and customer service functions to the fore alongside the PR guys.

However you slice the pie, though, in the UK crisis management should mean involving your lawyer(s) at the beginning - when the incident occurs. The nature of our regulatory regime, the criminal sanctions which exist, and bluntly the lack of familiarity of most businesses with how to deal with a serious investigation in the aftermath of an unplanned major event are all factors which should make any other conclusion commercially untenable.1 R v Janway Davies [2002] EWCA Crim 2949

2 R v F Howe & Son (Engineers) Ltd [1998] All ER (D) 552

David Young is a Partner in the regulatory group in the Birmingham office of Eversheds LLP. He has experience with regulatory investigations and prosecutions, particularly in the fields of health and safety, environmental incidents, food safety, product liability, trading standards and road transport.

Please email the author at davidyoung@eversheds.com with questions about this article.