Business Risk December 2010 / January 2011

Are You Prepared for a Crisis?

Anyone who said, in summer 2008, that top financial institutions would soon implode or be bailed out, and predicted the crash of the global economy would have attracted laughter. The size and speed of the crisis that soon followed showed how ill prepared the business world was and how poorly it handled the situation.

With signs that the worst may be over, although uncertainties still abound, this is the time to take stock of your firm’s ability to be prepared for the unforeseen and act expeditiously.

Crises generally are:

  • Natural disasters
  • Environment- and health-related
  • Man-made — arson, terrorism, labour disputes, fraud, corruption

Asia is exposed to all these risks: natural disasters regularly occur in the region and we all fear another major earthquake in Japan. China seems particularly apt to cause health problems with global impact, due to its explosive growth and environmental record regarding chemicals and tainted food.

Corporate fraud is common in Asia and likely to become worse. Reacting swiftly and effectively —and to be seen doing so — is critical to survival and preserving a firm’s brand, reputation and share price.

Although many firms have business-continuity plans that they can apply in the event of a natural or environmental disaster, most are unprepared to deal with substantial fraud, terrorism or other man-made crises.

The larger the firm, the less likely that it could respond adequately to a major crisis, as such organisations often mechanically utilise risk registers that are not infallible. The key, rather, is developing practical and realistic plans to deal with a crisis hands-on, which is often after a mass staff defection, allegations of impropriety, sudden loss of confidential data, or an unexplained movement of funds.

Company directors should ask:

  • Are systems and protocols in place?
  • Have they been tested?
  • Can the firm respond expeditiously?
  • Is there an effective infrastructure?
  • Can all staff find the crisis-containment team at any time?

Directors should know the firm is equipped for any major emergency. In my experience, the first 48 hours are the most critical. Directors should immediately support senior management in mobilising resources, while focusing them on resolving the core issues and minimising disruption. Activating the crisis-containment team as fast as possible is key.

If there is insufficient in-house knowledge or experience, organisations should seek an independent risk-mitigation consultant—for the first few days, our consultants act as the “aggregate” to hold together the disparate elements of a corporate response. Crisis-containment teams usually comprise—depending on the size and location of a firm—the senior management of finance, operations and legal departments, and external specialist consultants in both containment and communications. As many PR firms are not specialists in crisis communications, it is important to make this distinction.
The team’s goal should be to consistently and quickly facilitate well-informed decisions. The first step is to comprehensively assess ground zero and estimate any current and future damage. Serious fraud or corruption, for example, is often determined by quickly examining documents such as schedules, travel patterns and computer files including emails, as 95% of business records reportedly are recorded electronically. Options can then be identified and discussed.

Senior management must be presented with information and recommendations if they are to make the right decisions, yet they should not become too involved in the minutiae if they are to see through the crisis and visualise a resolution.

Crisis-containment teams should regularly ask:

  • Is this an enterprise-threatening issue?
  • Do we have enough resources in-house?
  • Can we call in outside specialists?
  • What is the probable long-term financial impact?
  • Have we plugged all immediate and identifiable gaps?
  • Are losses recoverable or insured?
  • Which controls failed and are we still exposed?
  • Who was involved, what is the damage and what are we doing about it?
  • Shall we send a report to the authorities?
  • Are we required to report anything to regulators?
  • Are we prepared to handle the media?

Crises are unpredictable, but with a well-designed and tested structure in place, firms can mitigate damage to their reputation, organisation and share value, while protecting staff and client loyalty.