Excellent crisis management starts well before the crisis happens

Insight

A hit to corporate reputation can occur at any time.

The Ardent Leisure Dreamworld tragedy is just one example of a litany of reputational crises that have devastated corporations globally over the past few years. They negatively impact share price, profitability, business operations and can destroy personal reputations and end careers.

The rapid rise over the past decade of the chief risk executive is testimony to how many companies are taking reputation and risk seriously…or are they?

Deaths at a leisure park such as Dreamworld would have to be, crisis planners would say, something for which management and the board would plan. Whether Ardent Leisure did this or not is now irrelevant because they are being roundly panned for the way they have handled the crisis.

Worryingly two recent research papers show an alarming disparity in what boards and executives say and what they do when it comes to preparing for a crisis. The Deloitte Crisis of Confidence report released earlier this year surveyed 300 board directors globally and found, among others, that only 49% of these companies have playbooks for likely crisis scenarios and only 32% engage in crisis simulation or training. Only half said board members and management have specific discussions about crisis prevention.

More recently, SenateSHJ surveyed 150 business and corporate communication executives across Australia and New Zealand for our Reputation Reality report. One of the key findings was 96% of those surveyed said corporate reputation was a primary asset. Interestingly, only half had a budget line item for reputation management and only half were planning to invest in crisis simulation training.

Experienced crisis practitioners understand that leadership in a crisis comes from senior management and, in some instances, the board, however, it is only successful if:

  1. There are at least one to two executives and board members with crisis experience.
  2. The company has prepared proper crisis simulation exercises and in the process, assessed and reviewed its business continuity plans and crisis communication plans. Only once a company has been through a crisis or crisis simulation does each area of the business and the management team truly understand the significant implications on their ability to operate and function properly at such time. Only then too does the management team realise that a crisis is not the sole domain of corporate affairs, nor the executive team, but rather it is something requiring an integrated response and approach involving multiple stakeholders.

At some point, a board has to make a decision about their involvement in a crisis. The Ardent Leisure board made a call to announce the CEO’s bonus two days after the tragedy. Clearly this called for better contextual decision making with someone wearing a ‘reputation hat’. This decision was never going to play out well and has created a sub-story within the broader story.

Every Australian corporation should now be asking whether their board and executive team is prepared for a crisis and whether they have made the time for planning, simulations and thinking about reputational risk issues?

Our research found that not only are executives saying there has been an increase in the risks affecting reputation over the last three years, but that reputation is more important to manage and a lot harder to manage than it was three years ago.

It is hard enough recovering from potential financial losses following a crisis, and it is even harder to measure things like long-term reputational damage, stakeholder trust and the trust and morale of employees. Ardent Leisure like VW and lately Samsung will find this out in time.

Ultimately, good risk and reputation management stems from developing the right attitude from the board down and putting in place the necessary budgets, plans and training – long before the need arises.