Chartered Accountants and Professional Business Advisers

Crisis leadership

Every organisation is susceptible to a crisis. And social media means that news moves faster than ever. Not only that but what constitutes a crisis is changing. One fifth of British companies have experienced cyber-attacks in the last 12 months and who would have thought a year ago that crisis management firms in the US would be having to advise firms on how to prepare their organisation for a tweet from President Trump?

We’ve categorised the situations that could constitute a crisis into the following areas:

Natural disasters

“Acts of God” don’t just impact your people and physical assets, they can also impact the service you provide. For example, if a disaster hits one of your suppliers in another country how are you going to continue to deliver the same service to your customers?

Data breaches and cyber security

The British Chamber of Commerce released a survey this April (2017) that found that one fifth of British businesses have been on the receiving end of a cyber-attack in the past year. Organisations including TalkTalk, British Gas and Yahoo are just a few of the household names who have fallen victim to this type of attack.

This shows that organisations need to be prepared for ‘when’ not ‘if’ they experience a cyber-attack. An added incentive to be proactive include the upcoming General Data Protection Regulation which will introduce stricter penalties for firms that suffer data breaches. From 2018, companies could be fined up to 4% of their global turnover or 20m Euros – whichever is larger.

External individuals

Sometimes an individual who doesn’t work at your organisation can cause a PR crisis for you. Just look at the big crisis management firms in the US who are having to design plans in case of a tweet from President Trump. Whether it’s a positive or a negative tweet – either can have an adverse effect on the organisation’s performance. Outdoor clothing company, LL Bean experienced this when Trump praised them causing a customer backlash with previously loyal consumers throwing out their LL Bean products.

Faulty/controversial product/service

A recent example is Samsung’s Galaxy Note 7 phones catching fire cost the organisation at least $5bn and had far-reaching PR implications.

Your people

As they say, “to err is human”, so preparing for potential mistakes made by your people is essential. It may be that one of your employees makes an inappropriate comment on social media or at a public talk. Back in 1991, Gerald Ratner of Ratner jewellers called his products, “total crap” wiping a whopping £500m from the value of the company.

Criminal acts

One of the most common crises are criminal. Be it theft (stock or data), cyber-crime, terrorism or accounting. One of the most high profile cases of accounting fraud was the bankruptcy of the energy trader, Enron, back in 2001. Investors poured billions into Enron as it reported strong profits only to see stock dwindle to nearly nothing amid doubts about the reliability of their financial statements. The scandal led to the demise of auditors, Arthur Andersen. Shareholders lost $74bn, thousands of employees lost their pensions and jobs. Unsurprisingly, it was cited as the biggest audit failure.

Often, when a crisis arises, it is a combination of the above categories, for example, internal fraud (your people and a criminal act).

A good leader will make sure there’s a framework plan – but perhaps more important, are the qualities the leader embodies during the crisis. In our discussion at the Godalming Breakfast Club, we discussed the leadership traits we believed were necessary in a crisis:

  • Stay calm as this will build credibility amongst your employees.
  • Communicate, communicate, communicate - even when there is little or no good news. Communicate what you know.
  • Respond quickly time is of the essence, especially knowing how quickly news travels on social media. Inform your people and your customers as soon as possible. On that note, make sure you have ways to contact your clients quickly and directly.
  • Be honest and contrite, especially if it’s something you are to blame for. Apologise, say you’ll fix the problem and give the facts. It will help your credibility and will help you regain customer’s trust.
  • Care – and show you care. Look after your people and understand that they will need time to recover and get back to normal.
  • Provide clear direction to remove any unnecessary uncertainty and to get people back to normality, or at least a new normal.
  • Provide hope to help people see beyond the current crisis
  • Reassure your clients as without about your clients as without them there is no business.
  • Be visible Make sure you’re “in the thick of things”. It’s morale-boosting and shows your employees that you’re all in it together.