The challenge of conflicting legal and communication advice in a crisis

Craig BadingsCraig Badings, Partner at SenateSHJ, discusses ‘crisis management’ in reference to legal advice. He analyses 12 ASX-listed companies and how such crisis’ had an effect on the company.


What was acceptable 20 years ago in crisis management isn’t necessarily acceptable today and when it comes to crisis management decision making, what is legally right may not be perceived as the right thing to do in the eyes of key stakeholders.

Today, if an organisation fails to engage with stakeholders, listen to them and tap into their zeitgeist, they increase their reputation risk.

And a crisis has a steep price.


The cost of a crisis

SenateSHJ conducted research with a data scientist across 12 ASX-listed companies who had suffered a crisis over the past decade.

Some of the numbers were sobering. They took a hit to their market capitalisation of between $12m to $6.4bn. On average they experienced a 30% drop in earnings per share (EPS). Share prices took between eight to 12 months to recover and, in some instances had yet to recover to pre-crisis levels at the time of the research.

The total loss in market capitalisation across all 12 companies was AUD$12.606bn.

Market capitalisation loss was calculated from the time of the crisis to the point of share price recovery or the point at which the share price flatlined.

In one instance, it took nine years for one company’s share price to recover to pre-crisis levels while another recovered swiftly because of the positive and prompt actions taken by management.

The research also considered daily media sentiment, closing share prices and share price recovery time. Besides the obviously large financial implications, in the case of two companies, media sentiment took years to turn positive.


Culture is the cause of most crises

Most of these crises could be attributed to culture. Specifically, this included one or a combination of the following: an imbalanced focus on shareholders versus the customer, poor governance, under-reporting, under-staffing, unrealistic deadlines, poor training and staff development, a lack of accountability and measurement, and management style.

An organisation can have the best reputation and risk management practices in the world but if their culture is not aligned with their values or purpose, they dramatically increase their organisation’s risk exposure. Almost every crisis in which SenateSHJ has been involved, as well as most I’ve read about, stem from poor behaviours.

The mark of culture is defined by the smallest behaviours management is prepared to accept. Misjudgement or mismanagement in this regard can land them in a crisis.

It costs money, and damages reputation equity which, according to studies, accounts for a large portion of an organisation’s intangible asset value; a Cap Gemini EY study in 2003 found 80%-85% of market value of S&P 500 comprises intangible value.


What role should lawyers play in a crisis

Two years ago, we conducted research with lawyers, from across Australia, NZ, the UK, US, and Canada who had experienced a crisis. We wanted their views on the challenge of conflicting legal and communication advice in the face of a crisis.

It was conducted in conjunction with our global PROI network, and the findings were used to inform a chapter of crisis management expert and author Dr Tony Jaques’ latest book: Crisis Counsel: Navigating Legal and Communication Conflicts.

Among the findings was communication professionals are too willing to disclose information in a crisis which may lead to liability or future litigation.

The lawyers were also concerned about the lack of legal awareness among communicators. Most lawyers interviewed believe they, rather than communicators, should take the lead in a crisis.

The relationship between communications professionals and lawyers in a crisis is always important, often challenging and sometimes fraught. But it is a relationship which is key to protecting an organisation’s reputation.

The areas most prone to conflicting legal and communication advice relate to disclosure and apologising. In the main, the lawyers believed communicators’ tendency to communicate openly and transparently results in a possible conflict between disclosure and potential legal liability.

Some lawyers felt saying sorry creates the potential for conflict, but from a reputation perspective, liability alone should not stop doing what’s right. There are ways to say sorry and express compassion without admitting liability and importantly without compromising the organisation’s values.

But the lawyers also agreed with good sense on both sides, there is always a way to work through competing concerns to ensure the organisation is not unnecessarily exposed legally nor reputationally.

Other findings included:

  • Making decisions in a crisis under time pressure with inadequate facts is seen as a major challenge for lawyers.
  • Lawyers strongly support face-to-face meetings with communicators to reduce conflict and achieve the best crisis strategies.
  • Although some lawyers believe conflict with communicators is not common, many still don’t trust communicators to do the right thing when a crisis strikes.
  • Lawyers believe the main strength they bring to a crisis – ahead of legal expertise – is being calm and predictable.
  • Lawyers believe the main strengths communicators bring to a crisis are understanding stakeholders and the ability to develop succinct messaging.
  • Better understanding and respect for each other’s roles was identified by the lawyers as the single most important factor in working better together.

Craig has 30 years’ experience advising major corporations and senior executives in Australia and South Africa on their reputation in good times and bad. Much of that time has been spent working in the trenches with boards, management teams and in-house communication teams assisting them with issues and crisis preparation and management, media coaching and media relations, communication strategy, social media strategy and thought leadership. This work has included a cross section of sectors such as: financial services, professional services, education, medical devices, property and construction, FMCG, telecoms, tech as well as various government sectors. Craig has coached thousands of executives in presentation, messaging and media performance.

He is the author of two ebooks and two published books on thought leadership: #Thought Leadership Tweet — 140 Prompts for Designing and Executing an Effective Thought Leadership Campaign and Brand Stand: Seven Steps to Thought Leadership. Through this work he has evolved a bespoke thought leadership methodology which helps companies develop their point of view and take it to market.

Outside of work Craig loves spending time on his surfski exploring Sydney’s beautiful coastline and inner harbour.

You can connect with Craig via LinkedIn.