Every company will face a crisis at some point. It could be a government investigation, data breach, product recall, or other significant event. An effective communications strategy can minimize the impact of the crisis and demonstrate leadership’s ability to effectively steer the company. In contrast, an ineffective strategy may worsen a crisis or raise doubts about company leadership.
Directors should confirm that management has an effective communications strategy before a crisis occurs. Although no two crises are the same, thorough preparation can prevent the pressures of a crisis from interfering with the company’s message. When developing a strategy, directors should consider the following guidelines.
1. Establish Clear Lines of Authority and Communication
A crisis will generate media and government interest. To maximize control of the narrative and to ensure that accurate information is conveyed to the public, the company should have a concrete decision-making structure to quickly resolve key questions and prepare meaningful, clear, and truthful responses to media and investor inquiries. Once those questions are resolved with the input of company counsel, a media-savvy spokesperson (which could be an officer) should be designated to deliver the company’s narrative. An individual director, unless designated as the official spokesperson, should respect the company’s established communication channels and resist the urge to respond to inquiries, including those of investors, analysts, friends, professional acquaintances, and reporters.
2. Seek the Advice of Counsel
A crisis can cloud normal decision-making processes. Experienced legal and communications counsel will keep the company focused and help to minimize legal exposure. In consultation with counsel, the company should identify its objectives, create a specific strategy, and ensure that the company is disciplined in working toward its objectives.
3. Set the Narrative But Avoid Premature Disclosures
When a crisis leads to an internal investigation, the company has the advantage of knowing the facts before anyone else. This allows the company to set the narrative. Outside legal and communications counsel are critical resources for advising the company on what information to include in the company’s narrative, as well as when and how to convey it. Once the company decides to disclose information, the company and counsel should carefully script talking points (including answers to possible questions) to avoid miscommunications. The company should deliver all relevant information as soon as possible, thereby avoiding subsequent disclosures that unnecessarily prolong the crisis. Conversely, the company should avoid prematurely disclosing incomplete information or setting unachievable timelines, which may cause investors to lose confidence in company leadership and expose the company to legal liability. Care should be taken to avoid selective disclosure in violation of Regulation FD.
4. Guard Against Leaks
During an internal investigation, there is a risk that information will leak before the investigation is complete. Sensitive information should be shared on a strict need-to-know basis to prevent leaks, and the results of an investigation should not be shared with the public until the investigation is completed. If there are information leaks, the company should resist the temptation to disclose investigative results or information prematurely, which can make the situation worse.
5. Be Accessible
The nature of the crisis may require the company to speak publicly on multiple occasions. In such circumstances, the company should adhere to consistent and truthful talking points aimed at achieving the company’s strategic objectives. Where possible, a willingness to address press reports and allegations–even if merely acknowledging they are being investigated–demonstrates confidence, transparency, and a commitment to effectively resolving the crisis. There are potential pitfalls to addressing the public, however, and the company should consult with experienced legal and communications counsel before each public statement.
6. Be Mindful of Multiple Audiences
Publicly-traded companies have multiple audiences, including regulators, shareholders, and possibly plaintiffs’ lawyers. To achieve its objectives and comply with the law, the company should work with its counsel to develop a coordinated approach that considers how each audience will interpret the company’s statements. If there are parallel government investigations, counsel should make courtesy calls to the government agencies prior to any public disclosures. Additionally, the company should guard against possible Regulation FD violations by avoiding selective disclosures to certain parties such as institutional investors and investment professionals.
7. Be Prepared To Communicate Change
Often a crisis will result in changes to corporate priorities, enhancements of procedures and controls, or removal of key management personnel. Directors may be called upon to communicate significant decisions that could attract the attention of regulators, activist investors, and private plaintiffs. In these situations, outside legal and communications counsel can be effective in crafting communications for the public and for outgoing management that minimize legal exposure and government threats.
Bradley J. Bondi and Bart Friedman are partners with Cahill Gordon & Reindel LLP. They advise financial institutions and global corporations, boards of directors, audit committees, and officers and directors of publicly-held companies in significant corporate and securities matters, with particular emphasis on crisis management, internal investigations, and enforcement challenges. Michael D. Wheatley, a litigation associate at Cahill, assisted with this article.
The rate and complexity of change in the marketplace is greater than ever before—and not showing any signs of slowing. From innovation and disruptive technologies to regulatory activity and stakeholder scrutiny, companies are constantly presented with new risks and challenges. As NACD’s new Chair Reatha Clark King observed, writer William Gibson captured the inflection point most corporate boards find themselves approaching: the future is here, it’s just not evenly distributed. As these changes force global economic shifts, it is necessary for those in the boardroom to understand and prepare for the future structure of directorship now.
This week, NACD held the second in a series of exploratory meetings in Chicago to discuss how the boardroom can define and prepare for the challenges and opportunities expected in the next five to seven years. This meeting series—held in New York City, Chicago, and Los Angeles—will culminate in the kickoff of NACD Directorship 2020 at the 2013 NACD Board Leadership Conference. An effort to provide directors with a clear vision of what their roles will resemble in the future, NACD Directorship 2020 will extend from educational programs and roundtable exchanges to publications, all shaped by feedback from these events.
At the Langham Hotel in Chicago, more than 100 directors attended the afternoon session to discuss two topics: the future state of communications between the board and C-suite and how to select performance metrics that will generate sustainable organizational profit. Sessions were led by NACD President and CEO Ken Daly; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; NACD Chair King; and former Bell and Howell CEO, current NACD Director, and Northwestern University Professor Bill White. During the highly interactive sessions, each table was given a specific set of questions to discuss and provide thoughts among their peers. Takeaways from the event include:
Directorship is a part-time job with full time accountability. Inherent in the board/C-suite relationship is an information imbalance. However, with the right culture and board leadership, the board and senior management can easily communicate expectations and necessary information.
A CEO’s leadership style can serve as an indicator that the risk of information asymmetry has become too high. Directors establish a level of trust with the CEO and management to allow for board access to other members of the senior team, as well as site visits to see the company’s operations.
With an expanding board agenda, process and expectation setting are critical. The board should clearly communicate to management the types and format of information that need to be presented.
An empowered lead director or non-executive chair can help mitigate the risk of information imbalance. By facilitating communication channels and work between the independent directors and the CEO, this leadership position can break down some of the road blocks that may develop between the C-suite and directors. The relationship between the CEO and lead director or chair should be transparent.
Culture is critical in effective dialogue between the board and senior management. With the right culture, directors can be sure they are aware of the risks that are keeping the CEO up at night.
Sharing information via performance metrics, which are focused on what directors need to know, can bridge gaps in information flow. Ultimately, the board has to make winning decisions which are informed by data.
Today, directors balance short-term shareholder expectations with generating long-term sustainable profit. The role of the stakeholder, though, is more significant than ever before and expected to grow. In the future, directors will have to be increasingly focused on balancing shareholder return with stakeholder concerns.
It may be difficult for the board to address and to communicate with every stakeholder. The board should identify which stakeholders are critical to the strategic plans, and target communications to those groups.
Balance also extends to leading versus lagging indicators. The board should first approve the right strategy and set goals accordingly. Leading indicators will drive ensuing performance—but lagging indicators are also necessary to provide the right feedback loop.
Innovation is important to the success of any company. How innovation is defined, though, is largely dependent on the company, and should be rooted in the corporate strategy. For some, innovation will manifest in processes, products, or both.
The next NACD Directorship 2020 event will be held Sept. 10 in Los Angeles. Between events, NACD’s blog will feature viewpoints and research from our NACD Directorship 2020 partners—Broadridge, KPMG, Marsh & McLennan Cos., and PwC—that will take a deeper look into the emerging issues and trends that will redefine directorship.
At any NACD education program, the discussion of directorship as a part-time profession with full-time risks is bound to arise. Yet following any corporate crisis, the question is always asked: “Where was the board?” Outside of the C-suite and boardroom, many perceive that directors should be able to foresee and avoid a crisis before it strikes.
This perception is misguided for several reasons. As a result of legislative and regulatory activity, since the 1960s corporate boards have become increasingly independent of management. Although legislation such as Sarbanes-Oxley and Dodd-Frank mandated independence at specific committees, this has extended to the entire board. Today, most publicly held company boards comprise a majority of independent directors, and often the CEO is the only executive director.
The development of independent boards is not negative. In fact, it ensures that the board can effectively carry out its mission and responsibilities, and fairly hold management accountable to shareholders. However, there are a few consequences when directors are selected entirely for independence. Directorship, as noted above, is a part-time role. Inherently, directors rely on senior management for information necessary to carry out their oversight responsibilities. When outside directors are chosen for lack of ties to the corporation, they do not necessarily bring knowledge of the business or industry. Therefore, the benefit created by adding an independent director is largely tempered, as this outsider is reliant on the CEO for the information necessary to his or her oversight role.
To combat this risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these gatherings, the Bridging Effectiveness Gaps: A Candid Look at Board Practices white paper was created. As Bridging the Effectiveness Gaps notes, broadly, these gaps were found in the areas of strategy and risk, executive compensation, CEO succession planning, and board evaluations. By convening management and directors from different companies, the meetings fostered candid and open conversation regarding areas where communication tends to break down. However, where communication was generally the root of the problem, it was also the solution.