Companies involved in consumer-focused products or that have well-known brands need to change the way that they conduct investigations when they are involved in controversy that affects people, the environment or community safety.
The expectations of consumers and the community have changed in the last few years – what was previously acceptable is no longer. Historically, when an issue arose – let’s use an example of a factory having an environmental breach that polluted a local waterway – the company involved would put out a press release, with words similar to the following:
‘We are investigating reports that water from our facility has leaked into the nearby river. XYZ Corporation takes its environmental policies seriously and will investigate immediately to determine the nature, cause and effect of the breach. Nothing is more important to us than public safety and the safety of our employees.’
This is a classic defensive position and is a reasonable holding statement that most lawyers would approve. It does not admit liability and it does not even admit that there has, in fact, been a breach – it merely notes that ‘reports’ have been made before offering words from its code of conduct or a policy. This statement would certainly have been enough to hold off the media, concerned citizens and employees while the company started its enquiries.
Due to the very short news cycles of today, the challenge of managing a complex investigation within a short timeframe means that you will need to move to the ‘front foot’ rather than being defensive. The defensive position (such as the one set out in the above quote) is a classic holding response: give information only when really needed and never admit liability.
Continuing with the environmental breach example, assume that the water that had allegedly leaked from the company factory polluted a nearby waterway that was being used for drinking water. As a result of the leak, some people in the local community started to fall ill, restaurants started to be closed for health reasons, and there was generally an outcry where community leaders and regulators started pushing for someone to blame. In this situation, the company would probably not have enough time to conduct an investigation before it would be assumed to be at fault.
In the current 24/7 news cycle and with the increased use of social media, it is highly likely that the company would be required to respond much faster than it would usually be comfortable doing. The obvious risk in taking a position too early is that things may come to light later which might make the company regret that position. In some cases the need to respond early is often to appease a regulator or the community, to avoid any community uproar.
An obvious example of this is BP’s statement after the explosion of the Deepwater Horizon drilling rig in the Macondo Prospect oil well off the coast of the United States. After facing pressure from the government, BP made significant admissions and offers to those that suffered loss, or at least claimed to have suffered loss, as a result of its actions. As some of the claimants took advantage of this and misused the system to claim for unassociated losses, BP would have regretted its early statement.
Investigations now happen in a live environment, are often played out on television and via social media, and are certainly much more challenging to manage than they previously were. The following are some points of difference between the ‘new’ and ‘old’ styles of investigations.
Release of information
When conducting an investigation, it is highly expected that you will be forced to release information as it comes to hand. There is no doubt that legal teams should be involved in crafting the language for public statements; however, they must be immediately available – if the message does not go out quickly it may look as though you sat on the information while you built your defence. If information was around for some time but was not released, people will assume that the information was negative and either the company hoped it would never come out or that those within the company needed time to get their story straight. Right or wrong, reasonable or unreasonable, that is the way the new generation thinks.
Typically legal departments tend to want to hold information back, which can be problematic in today’s environment. The right balance needs to be drawn on the right (or, perhaps, the expectation) of the community to obtain the information that answers the questions in a timely manner.
It is possible that a series of releases will be required, instead of just one release (or no releases for those taking entirely defensive stances). These releases could be across multiple platforms, possibly including standard press releases and statements via Facebook, Twitter, the company website and any site that has been set up specifically to release information on the investigation. Press interviews may also be required, however they should be avoided when possible due to the potential challenges they can present to an inexperienced media person.
Use of social media
If your business does not have a social media strategy then you are missing out on a cost-effective way of advertising and getting your message to a large segment of the population. Likewise, if you do not use social media to your advantage in times of crisis, you will be missing a large opportunity. Having company Facebook, Twitter and LinkedIn profiles is a minimum. In some markets you will also need profiles on local social media (such as Weibo in China).
Company social media accounts should be strictly controlled. A policy should exist that limits access to these accounts, and all posts should be approved before they are published (just like press releases would be). Use of the accounts should be maximised in times of crisis to send out regular updates about an investigation. Each update should be kept brief: let people know that something is happening, that people are working on it, that you will report back, and that you have not forgotten about the crisis.
These accounts are also ideal for making people aware of the times of press conferences or times that you will release more information.
In crises, the aim is to keep the information flowing without having to individually address consumers, the media and regulators. Wherever possible, include a link to where people can find out further information.
Control of the media
Controlling the media is a skill, and even the best PR companies find themselves facing bad publicity from time to time. This needs specific expertise, and not all PR experts have the necessary experience in dealing with complex compliance issues that involve potential legal liability and community backlash. The key to managing the media is to manage the messaging. A good PR expert will be able to do this for you. The challenge, as always, is being able to send the right message at the right time.
Depending on the issue that you are trying to manage, there might be some form of community uproar. If your products or services are utilised by people (i.e. you are a B2C business), consider how to manage in an environment where the community is against you. You may need to close stores for a period of time, manage any potential backlash, and handle security issues such as looting, picketing or the blocking of your workplace. Clearly the welfare of your staff is key, so it is important to make sure that they are protected in their place of work. In some cases it might be appropriate to bring in additional security or crowd-control resources, and in others physical barriers may be necessary. Certainly, the plan is to deescalate the situation, not add to it with increased provocation through security.
The community is best managed through communication and showing the faith that they can have in you. This is often developed over time and therefore there is a built-up level of trust in your brand and product. You can lose this trust very easily in a crisis situation if you are not open and honest and do not focus on communication.
Multiple regulator involvement
When a crisis exists, it is likely that you will have multiple government departments, and possibly NGOs, involved in the investigation. Many of the regulators will announce that they are starting their own investigations. It is possible that they will conduct dawn raids on your offices or factories in order to obtain the necessary evidence.
One thing that is almost guaranteed when dealing with multiple regulators is that they will not communicate with each other. While it is possible that some may communicate or even collaborate if they are in the same country, they hardly ever do. While there is some collaboration across the United States and the United Kingdom in relation to FCPA and Bribery Act matters, there are minimal places where that actually happens (and when it does it is not always effective).
You are highly likely to get multiple requests for the same document. It is a good idea to create a deal site (similar to what you might use for an acquisition), where all necessary information is loaded onto one site and then access is provided to the regulator. This will support discovery requests and provide a simple location to track access to documents. Insofar as effectively managing multiple regulators, there is little more that you can do on this front.
Leaking of information by community, government or NGOs
It is also expected that any government or NGO that is conducting an investigation (whether authorised to under a law or not) will leak information if and when they feel appropriate. It is often the case that they will issue information to the media before providing it to your company. When conducting the investigation rules of evidence do not apply, and the police, regulators or any government agency is likely to leak that information.
In some cases, an investigating agency may be required to release information as part of a Freedom of Information Act request to the agency from a member of the public. This can be quite frustrating to the company who is finding out information from the media rather than it being provided by the agency as part of some judicial proceeding. This is generally the norm, so managing that information is vital. This might occur in the above example, when the government might be testing the water and releasing its results before you have had a chance to release your results.
Pre-judgement and presumed guilt
Whenever there is an issue that touches the community, there is a natural tendency to want to assign blame. Unfortunately, as a large company that could be responsible, it is very often the case that you will be pre-judged as guilty. In this environment, the judgement is not by a court of law but by the court of public opinion. The court of public opinion is generally very strong and will certainly come before the court of law.
While you do not want to have a case in the media or without the rules of evidence, as we have seen in many situations if the court of public opinion goes against you (and there is a chance that you were culpable in some way) then it will be near impossible to turn things around. In this situation, it is important to realise that you may be fighting the court of public opinion today or tomorrow. You will not be waiting for three to four years to argue in a court of law. That argument will happen immediately and probably publicly, in the press, with a mixture of leaked documents, and without the value of the court system to provide transparency. Of course, a lot of this assumes that you are in a location where you have such rights in the first place.
Inability to maintain privilege
Lawyers, predominantly litigators, are always conscious about maintaining privilege in documents and reports prepared for the contemplation of litigation. This is a wise approach and certainly one steeped in 500 years of legal maxims. However, the current models, where cases are heard in the court of public opinion, do not really support the protections that legal professional privilege provide.
In many countries, the concept of privilege does not exist or is limited to external counsel who, given the importance of the case, may be involved but in many cases are not. In some cases it is just an internal counsel that is handling matters as it happens so fast and people are just not ready to engage external counsel that quickly. Either way, there is definitely a trend that privilege may not be available. In any event, you might waive that privilege to release a report or document that is in your favour. This is especially useful if you are in the court of public opinion.
Management being detained
In some countries in Asia (notably China), executives can be detained before the subsidiary even knows that there is a problem. The detaining of executives, particularly foreign ones, is a tactic that is commonly used by authorities. This way they can question the individual and also retain information in a country. Because many countries have relatively porous borders, some governments prefer to detain executives under house arrest or in a local police station. It needs to be said that senior executives of foreign companies in China are definitely under the spotlight should an issue happen on their watch. This spotlight is brighter when the breach includes information on (Chinese) citizens, involves food safety or high-level restricted industries, or could be declared a state secret.
There have been many high-profile detainees in China in the last few years. Any government that has a sense of global worth only ever invokes that right when they have strong evidence. You can assume that if a senior executive has been detained, certainly in China, there is some substance to the allegation or that the issue has some merit. It is also advised that executives never try to leave the country illegally. While this has occurred in China, it is certainly frowned upon and pressure will be brought on the company to return the executive to face charges.
Restrictions on products
If the issue that you are investigating involves a specific product, the product will almost always be subject to some form of restriction. It may need to be recalled from shelves or changed or modified in some way. It might also be subject to a reduction in price, or the company may need to provide refunds to concerned buyers. In many cases around allegations of price fixing and collusion, it is common to immediately decrease the price in order to reduce the focus of attention on the investigation. While this might be seen as an admission of guilt in many cases, governments are often only interested in securing a better deal for themselves and their constituents. We have seen some of this activity recently in the reduction of spare part prices by European car manufacturers in China.
While it goes against the grain for many lawyers, admitting liability early when you are liable goes a long way to reducing community backlash and saving your reputation. When food scares recently occurred in China, the company concerned immediately admitted liability and promised to take steps to manage the situation. They ended up being part of the solution rather than part of the problem. In these situations, your brand will bounce back much stronger, and it will likely reduce the angst associated with the incident. From a legal perspective, it also allows for the team to focus on the compensation aspects of the case rather than arguing about liability.
With 24-hour news channels and social media activity, failing to communicate during a crisis is not an option. Silence will never be forgotten by the public, while the company that continues to communicate will be able to continue to maintain that trust with its customers. Remaining silent is a mistake. Even if you do not have all the answers yet and are still investigating, you should say so and say it often.