Accidents, data leaks, systems compromised, labor complaints, power blackouts, product recalls, raw material shortages, environmental issues, climate disasters, and several other complications. Internal or external situations, capable of temporarily paralyzing operations and with great potential to be amplified by the press, media or social networks. Regardless of their kinds and magnitude, crises are increasingly complex and multifaceted.
If not even national laws and regulations are capable to curtail all the nuances of a society in constant evolution, the difficulties faced by companies – small, medium or large – to prepare for situations that require emergency action are understandable.
What to do? Who to contact? When to activate the insurer? What are the impacts? How to contain the damage? What can be done to hold business continuity or to resume payments, etc.? How to guide communication? What are the legal consequences of each decision taken in an emergency? Anyway: where to start? The ability to provide an adequate and rapid reply to the problem can be vital.
What we call crisis management is the antidote that allows companies not only to face their problems, notwithstanding of complexity, but also to curtail and prepare themselves to, if necessary, minimize losses and unwanted legal, economic, financial and reputational consequences.
After all, better-prepared companies are more likely to recover faster from a crisis. Considering the importance of the topic, we inaugurate with this text the series of articles that aims to inform and address issues about emergency response, reputational tenure, and all the efforts that can be undertaken in advance to mitigate risks and control legal repercussions in a crisis.
To begin with, at first: what is a crisis?
We consider a crisis to be any fact or event – sudden or gradual – capable of causing damage and that, therefore, requires an immediate response. It is therefore not limited to major accidents such as explosions and leaks. It covers any and all circumstances, of higher or lesser degree, with the potential to cause damage to the activity, reputation and/or financial results.
For airline companies, for example, crises are not limited to a plane crash – which, by the way, has a very low recurrence. Crises can also occur due to the accusation of the crew for discriminatory treatment, the death of an animal transported or a forced landing due to unforeseen health emergency with passengers. Or even, of course, due to the most diverse developments of flight delays and cancellations, generated by issues of the company itself – such as extrapolation of the flight hours limit – or external factors – such as weather events.
It is also extremely relevant to keep in mind the possibility that these external factors may lead to major crises, which can also occur in the event of fuel shortages, lack of parts and components essential for maintenance, or even a strike by flight controllers.
In an oil and gas company, in another example, the crisis is not only due to environmental accidents of great repercussion. Protests by social and environmental movements, bird deaths, task accidents on platforms and logistics complications are examples of sensitive incidents that can be very difficult for companies.
Regardless of the business’ sector and the size of the company, the fact is that organizations are faced with all sorts of crises on a daily basis.
Even if companies are, as in the examples, from heavily regulated industries and consider themselves, in principle, technically prepared to respond promptly to crises, failures can occur at any time – and the problems are accentuated precisely when these failures accumulate.
As James T. Reason[1] teaches, small failures can converge into big problems, and it is precisely at this point that seemingly insignificant factors individually gain relevance when combined. Definitely, small can get big. Each decision made necessarily leads to a legal consequence.
Attention to the legal implications
It is in this context that crisis management is of crucial importance to deal with the legal implications that a crisis can entail. Poor crisis management, especially by ignoring the legal aspects involved, can have devastating impacts on a company's business and reputation.
A crisis always triggers a range of legal challenges, from litigation with customers, suppliers, or employees, to regulatory investigations and lawsuits. Lack of preparation and inadequate response to these issues can result in significant financial damage, loss of stakeholder trustworthy, and irreparable damage to its reputation.
By ignoring the legal aspects involved in a crisis, one runs the risk of facing serious consequences, such as fines, penalties, loss of inflow of contracts, and even criminal prosecution. Additionally, the lack of a proper legal approach can undermine the company's ability to recover and to resume payments, etc. normal operations, directly impacting business continuity.
Therefore, it is essential aspects to understand that prevention and proactive tenure of legal issues during a crisis are essential to protect the company and its interests. It is necessary to identify, mitigate, and manage the legal risks associated with crises, ensuring that the company is prepared to efficiently face challenges and minimize negative impacts.
A preventive approach focused on the legal issues related to crisis management can add great value, protect the company from potential damages, and enable business continuity in a resilient format.
Companies that are always in the routine of "putting out fires" usually adopt immediate measures that can temporarily close gaps and avoid momentary risks. In the long run, however, postponing action on relevant issues can also turn into a crisis itself. Problems recur and often "overflow". Temporary solutions, which deal only with superficial aspects, cause old problems to reappear and new ones to be created.
An unmanaged or poorly managed crisis can result in avoidable and significant losses. Having a well-designed and properly structured crisis management and business continuity plan is the first step. However, if it is not accompanied by other actions, it may not be enough.
There is no point in having policies if the company does not have constant training and synergy between the areas that will need to work together in crisis situations. In the same sense, a risk matrix prepared only by the business continuity/technical areas are also not the best strategy. By acting in this way, for example, a legal assessment capable of mitigating the legal impacts inherent to the situation and reducing exposure to litigation is no longer to have, which would help to decrease losses.
What is increasingly seen is that, in the imminence of operational challenges, the ability to respond becomes vital.
In each such context, this series of articles will seek to address the most varied types of crises, in different segments and sizes of companies. The objective is to contribute to preparing companies to provide immediate responses, capable of mitigating the impacts and damages generated by a crisis. For those who are interested, our multidisciplinary team from the Crisis Management practice is prepared to debate and to deepen the topics that we will bring in this space. See you in the next article!
[1]James T. Reason CBE is a former professor of psychology at the University of Manchester and has contributed to studies and research related to risk management in companies, by proposing that factors associated with tenure and organization converge massively to the occurrence of accidents in organizations, constituting latent failures of task systems and can cause major accidents.
