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Doug's Note: Crisis Management

    Client Alerts
  • March 07, 2013

This winter edition of our Public Company Forum newsletter addresses a variety of topics, ranging from fine tuning disclosure controls and procedures for the new conflict minerals rules, to making sense out of the hodgepodge of rules regarding director independence, to a tip regarding responding to SEC comment letters. Also in this edition, Andrea Chomakos, who heads up our Estate Planning group, writes about often overlooked tax pitfalls of employer-owned life insurance. I hope you will find these articles helpful.

I want to add a thought about something that everyone knows is important but is tempted to ignore until it is too late – crisis management. I have two theories as to why this is a difficult topic to address head on. First, the nomenclature might be off-putting. To many of us, a “crisis” is a cataclysmic, one-in-a-million event that is so unlikely that there seems to be no point wasting time thinking about it.

The reality, however, is that significant, time sensitive events happen all the time, even to companies with state of the art processes, training, governance policies and risk management. They include such “routine” things as:

  • Departure of an executive
  • Material litigation or government investigation
  • Loss of a dominant customer or supplier
  • Product failure
  • Unexpectedly poor financial results or liquidity concerns
  • Facility shut down, environmental spill or act of God
  • Data privacy breach or other technology security issue
  • Ethical or reputational issue

Yet companies often are caught flatfooted at the very moment that they must react immediately and precisely. Maybe a better name would solve the problem, like “Murphy’s Law Management” or “It Must be Monday Management.”

My second theory is that crises seem intrinsically hard to plan for since they are, by definition, unexpected. You already work hard to develop and implement strong disclosure controls and procedures, internal controls, governance policies and enterprise risk management. So, the idea of expecting the unexpected sounds like an exercise in futility and unnecessary expense. But it’s really far less daunting than you might think.

Effective crisis management is primarily about knowing:

  • Whom to contact internally (board of directors, board committees, management) and externally (counsel, accountants, public relations) and how to find them quickly
  • How to coordinate and limit information flow both within and outside of the company, including social media
  • Who are the ultimate decision makers

If you are not completely comfortable that you can answer these questions at a moment’s notice, when the sky is falling around you, then add crisis management to the agenda of the next meeting of whichever group within your company is charged with risk management, then be sure to set a deadline for putting something in place. It will save you precious time and stress, and make you look well prepared, the next time Murphy’s Law kicks in.


Additional Articles from the Winter 2013 Public Company Forum:


Potential Pitfalls of Employer-Owned Life Insurance

The Burden of Independence

Between a Rock and a Hard Place: The Remix

Your Questions, Our Answers: SEC Comment Letters