Managing a crisis

June 3, 2014

Avoiding a public crisis

The most important element you can use to avoid public crises is creating trust in your internal systems. Whistleblowers tend to only go public if they have exhausted all the internal avenues available to them – alerting the public sphere is a last-ditch effort.

When allegations of improper practices are made public, the consequence to a firm’s reputation can be disastrous. Mitigating the fallout from such events begins first and foremost with establishing, implementing and maintaining an effective internal reporting programme. Internal whistleblowing is always easier to manage than external leaks. Thus, reporting must be encouraged internally to dissipate the chances of negative media, public and regulatory attention.

Whether you’re just starting to plan or are already evaluating the internal whistleblowing procedures at your firm, you must consider the following:

  • Do you have a strong and enforceable procedure for internal reporting of ethical and/or legal issues?
  • How is whistleblowing perceived by the culture of the firm?

The answers to these questions will usually uncover the abstract barriers that all organisations face in starting or maintaining a successful internal reporting and ethics programme. Employees often do not report ethical and legal concerns because of the structural and cultural flaws within corporations. These flaws usually include distrust in the internal reporting system, the vilification of “snitches”, a belief that management is not held to a uniform standard, and the fear of retaliation and alienation from peers.[1]

How can you implement or restore faith in the internal reporting system and alleviate employee fears of retaliation? If you are evaluating a longstanding policy on reporting unethical and corrupt behaviour, or if no such policy exists and you have just received a complaint, ample opportunity exists to strengthen the compliance and ethics of the firm.

Here are some tips to help implement and solidify a culture centred on ethics and compliance:

  • Attitude

What is the attitude towards whistleblowing at the firm? If self-interest and unquestioning loyalty towards the firm take precedence over ethical behaviour, employees are unlikely to report transgressions. Changing the attitude towards internal whistleblowing starts with top management, though regular transparent communication and protection of employees that raise issues.

  • Transparency and communication

Are reporting processes transparent? Firms must communicate the fact that they have an internal reporting scheme. The process should be clear, with assigned accountability at every step.

  • Anonymity

Is it possible to raise an issue anonymously? Giving employees access to a hotline and guaranteeing a certain amount of anonymity somewhat eliminates the fear of social or material reprisal from management and peers.

  • Disincentives for whistleblowing

What are the possible material and social repercussions for the whistleblower? Many employees fear losing their job or getting demoted if they press an issue too aggressively. There are also fears of social consequences (for example, alienation by other staff) for those who uncover and report any issues that cast a negative light on the firm. The best way to invite employees to raise issues is to reassure them that material repercussions will not take place, and align ethical standards of people with the standards of the firm. Profits are important, but only if they are obtained by legal means.

  • Rigidity and uniformity

Is the policy communicated, followed and adopted uniformly across all levels? Sometimes employees overlook corruption and fraud because they believe management does not hold the same ethics standards as they do. Great managers lead by example; thus, top management must be on board to show all employees that ethics and compliance are the foundation to sustainable success. Management should regularly communicate the message to employees to instil a rigid, ethical culture within the firm.

  • Quick follow up and investigation

Will the employee’s concerns be investigated, or will they be disregarded? An employee may not want to bother with reporting transgressions if they think their concern will be filed away, overlooked or blindly dismissed. Issues brought directly to managers or reported via hotlines should be escalated as quickly as possible. The majority of employees who leak information to external media raise and press the issue internally at first, yet they become discouraged if the issue is not investigated or dismissed, causing them to choose their personal code of ethics over reputational damage to the firm. Employees need to feel confident that if they raise an issue with a manager or through a hotline, an investigation will ensue.

Companies must establish and maintain a transparent, uniform, well-defined reporting framework to encourage internal whistleblowing. Cultural and abstract barriers can be overcome with clear communication and adoption of the policy through all levels of the firm. Successful internal reporting strategies aim to:

  • establish a strong ethical firm culture, with compliance being a priority
  • encourage employees to raise issues with the confidence that they will be dealt with immediately
  • minimise damage if external leaks do occur.

Establishing a strong ethical foundation shows employees, stakeholders and the public that the firm is serious about sustainable business practices. If external whistleblowing occurs, a successful internal reporting strategy is proof that such an incident is an anomaly, and that the firm takes compliance matters seriously.

Handling a public crisis

Lanny Davis, counsellor to Bill Clinton in the late 1990s, pointed out the basics of crisis management: “Tell it early, tell it all, tell it yourself”. In an age of lightning fast information, a firm’s reputation is its most valued asset. Showing eagerness and willingness to improve the culture and reputation of the firm proves that management is concerned with sustainability.

What happens when an organisation is blindsided by external whistleblowers? Ideally, there is already a structured compliance and risk management plan in place, but not all companies spend time preparing for such occurrences. If you find yourself in this situation, there are things you need to remember and abide by in order to minimise reputational and financial damage to the firm.

  • Make a statement as early as possible

Address the public, stakeholders and customers as soon as possible after initial leaks occur. It is important to show the public that the company is actively investigating the situation. Firms that are quick to align their goals with the public’s in finding out as much information as possible and taking appropriate action have a much better chance of saving face.

  • Do not lie

In today’s age of social media and 24-hour news sources, information can be unveiled and verified much quicker than appropriate corporate response times. Even if you believe allegations are false, it is best not to dismiss them until an adequate amount of information and proof is collected and analysed.

  • Establish the company as the main point of contact and provide updates regularly

Depending on media exposure of the case, many information outlets will reach out directly to the company for updates and information. It is important to establish the firm as the authority on the matter by investigating the allegations thoroughly and immediately. This makes it easier to mitigate negative media and shows the firm’s commitment to resolving the issue. Regularly updating on the progress of the investigation through press releases and other venues instils a responsible image of the firm to the public, stakeholders and customers.

  • Work with authorities

If it is alleged that laws are broken, firms that actively work with enforcement agencies in investigating the issue will be issued much lighter sentences or fines. In some cases, where there has been exceptional cooperation with authorities, no penalty has been handed down at all.

  • Learn from observed mistakes

After all is said and done, analysing the situation and the causes for transgression will lead to better developed compliance and internal reporting standards.

The major thing to take away from a public crisis is to implement an internal reporting scheme as soon as it is feasible. To maintain a solid reputation amongst customers, it is necessary to catch corrupt and fraudulent practices early. If the firm is blindsided by allegations, however, management should use the occasion as an opportunity to improve compliance and ethics internally, as well as to prove to stakeholders that sustainability is their number one priority.

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