The Corporate Crisis: Ties That Bind

The question facing chief executives is not one of “if” their organization will experience a corporate crisis, but rather a question of “when” will their organization experience a corporate crisis. It is this inevitability that binds chief executives the world over. Whether it is an oil tanker run aground, a fire or explosion at a company facility, the sudden death of a senior executive or misconduct on the part of a senior executive, every organization will at some point in its existence face an organizational crisis that will threaten to disrupt its operations and the stability of the organization.

Corporate risk exposure and corresponding risk management have become global, transcending corporate boundaries. In today’s global operating environment, multinational corporations must be increasingly knowledgeable about risk and be innovative and proactive in their crisis response. The nature of a corporation’s cross-border crisis exposure has also increased, areas such as anti-corruption, terrorism, geopolitical risk must now be addressed in crisis response protocols.

A corporate crisis can quickly become an extremely chaotic event and defining moment in the life of an organization. The immediate objective and benefit of any proactive corporate crisis response plan rests in its ability to create order amid the chaos and prevent the original crisis from escalating and creating another crisis.

A corporate crisis will critically test with unrelenting consequences both the organization’s crisis response protocols as well as the conduct of corporate management, particularly should circumstances suggest any degree of civil or criminal liability exposure from within the organization.

Given the fact that a corporate crisis, if improperly managed and addressed, has the potential to destroy an organization, no organization can afford to be reactive in a crisis responding from a defensive and disorganized posture and expect to succeed. Not only will organizations suffer embarrassing and costly mistakes, executives will end their careers with these organizations.

For a corporation, the immediate objective and benefit of any effective proactive corporate crisis response plan rests in its ability to be able to create order amid the chaos and preventing the original crisis from escalating or creating a new crisis. Bearing in mind, that in a crisis situation, a corporation must make the right decisions and must make them under difficult circumstances including constraints on both time and resources, a properly drafted corporate crisis management plan is an essential component of any organization’s overall compliance program.

Yet, even when recognizing the potential severity of a corporate crisis, there still exist several common misconceptions being advanced by many corporations and crisis training firms relating to crisis management. Two of the most prevalent involve the definition of what constitutes a crisis and the second involves the question of can a crisis be prevented? Many organizations and crisis training firms insist that a corporate crisis can be prevented. Many more fail to differentiate between a crisis and other events, severe or otherwise, that may impact an organization. They tend to overuse the term crisis to cover even the most minor of corporate problems.

For the purpose of this discussion a corporate crisis is defined as:

An unforeseen, extraordinary and negative event or series of related events that if not effectively addressed will have the potential to destabilize and disrupt an organization’s operations and viability, thereby causing the loss of significant organizational value, as well as having the potential for serious civil and/or criminal liability exposure, as well as threaten the organization’s ability to meet its obligations to its various constituencies.”

The two key elements to this definition are:

  • The event must be unforeseen. This element of the definition excludes certain industry related events that cannot be considered wholly unexpected.
  • The event must also be extraordinary.

Corporations tend to encounter a significant number of potentially minor disasters or problems in their everyday operations. Organizations that operate in emerging countries or in high-risk environments, as well as those whose normal business operations carry a high degree of liability exposure, continually expose themselves to inherent operational risk that can increase over time. Examples of these type of business operations include cruise lines, deep water/arctic oil exploration, mining and the airline industry.

While the potential disaster rates within these industries are relatively infrequent, there does exist a certain amount of inherent risk that low probability events such as large-scale environmental disasters or airline crashes can and do occur. There is no question that such disasters are tragic to the families involved and can take a huge toll on the corporation. However, these events are neither unforeseen nor extraordinary. Rather, they are foreseeable risks that are inherent to their business and these organizations are already required to address these risks in their disaster planning.

During a crisis, the organization will be tasked with two critical imperatives. The first is the ability of the organization to respond in a strategic and timely manner.   Second, the organization must possess the necessary expertise to accurately anticipate the degree and direction of any potential liability exposure they may be facing. The correct analysis and evaluation of the organization’s crisis response and disclosure obligations, as well as correctly assessing any potential liability exposure all factor into the organization’s crisis response. The correct response and disclosure under one set of facts or with one government agency may be incorrect under different circumstances and agencies.

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Michael D. Celockhttp://www.omegastrategic.com/
Michael's public-private sector experience spans both the advisory and operational spectrums of corporate governance and compliance, international affairs, intelligence, national security and law enforcement. Mr. Celock also has substantial experience regarding compliance with the FCPA and multi-jurisdictional government and corporate investigations. Mr. Celock regularly counsels corporate clients on strategic, operational and political risk, cross-border due diligence, corporate internal investigations, crisis mitigation, the FCPA and international crime and corruption issues as well as devising innovative solutions to complex problems arising from non-traditional corporate situations. Mr. Celock’s work is often of a cross-border and international dimension across a variety of industries and is designed to promptly and effectively identify, assess and manage rapidly changing risks facing the client. Mr. Celock’s intervention provides clients with the ability to respond strategically and in a timely manner to existing or emerging situations that threaten the business and reputation of the organization. Mr. Celock was appointed by President Clinton to the position of Special Advisor to the President for National Security Affairs. Mr. Celock has also served as a consultant to CIA’s Office of Transnational Issues. Responsibilities included providing unique functional expertise to assess existing and emerging threats to the national security interests of the United States and to identify, disrupt and prevent illicit financial transactions that threatened U.S. National Security.
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