The Interrelationship Between Major Investigations and Crisis Communications

March 26, 2021

The term crisis communications seems almost redundant in our current environment.  We are bombarded every day with information about the pandemic death toll and infection rates, the largest cyber-attack in history, the financial crisis, efforts to overturn a presidential election and an attack on the US Capitol building while Congress was in session. Much of crisis management planning and communications is thinking through various scenarios and formulating a plan for each. Investigators, outside counsel, litigation consultants, and compliance advisors regularly meet people while they are staring down the barrel of a crisis that is already playing out in the news or is on the verge of doing so.

We have all witnessed firsthand how things can go from bad to worse when a company or individual makes public statements hastily without first gathering the facts. Issuing denials, betraying the confidentiality of whistleblowers, obfuscating, appearing tone-deaf, or avoiding questions can shift the focus away from the allegations and make the companies refusal to acknowledge or take ownership of the issue the bigger story. If handled poorly, crises can cause long-lasting damage to a company’s reputation and share value. On the other hand, if handled well, a crisis can become an opportunity for a company’s management team to demonstrate their mettle and character to investors, customers, and employees. Crisis communications is a critically important tool in the company’s arsenal during a high-profile investigation. On a recent episode of the Fraud Eats Strategy podcast, I spoke with Skadden Arps partner Pat Fitzgerald and FTI Consulting Senior Managing Director Rachel Rosenblatt about the interrelation between major investigations and crisis communications.

Securities fraud, corruption, prosecutions, search warrants, arrest of executives, cyber-attacks, and consumer frauds all tend to play out in a very public way. If executives have already made public comments that are potentially problematic, there are important steps to take to align public commentary with legal considerations. Such as “need to know”, legal privilege and efforts at not undermining your legal strategy.  Assuming the legal and communications teams are aligned and trying to do the right thing, it’s key to understand that even if the team is aligned, that it may not be enough. There needs to be message discipline so that messaging by anyone on the team doesn’t get ahead of everyone else, lead to confusion, inconsistency or undermine the strategy. Also, the team needs to be thinking several steps down the road and anticipating further developments, whether they’re good or bad because no crisis is static. Also important is the attorneys need to be thinking about broader considerations beyond just the litigation strategy. So that in fact and appearance, the client understands that the advice that the lawyer is given is addressing the whole context.

In crises, clients could be apprehensive that the lawyer is only looking at it through the lens of the litigation strategy. When that is the case, their advice could be discounted. To avoid those situations, Pat suggested that counsel needs to incorporate not just litigation strategy or how to protect against a government investigation, but an overall strategy and that recognizes there are other issues at play including corporate reputation.

At times, the existence of the investigation is not in the public domain. Some factors inform the decision as to when to make a public statement. One of the key things to know about crisis communications is that a company or an executive’s reputation is made or broken based on how they react to the crisis, not to the crisis itself. Knowing this, it is important to plan for all the possible scenarios that could surround a crisis becoming public while also being mindful that not everything’s going to become public or catch the interest of the media. The pace of the news cycle continues to intensify while newsrooms are continuing to contract. It is prudent to wait and see before publicizing an investigation, but you do have to be prepared for any eventuality.  One obvious consideration is whether there’s a legal obligation to disclose which could come up in the context of an SEC disclosure requirement of a public company. When there are legal obligations to disclose, discretion is out of the client’s hands. There may be practical considerations. You may learn that the story’s about to break in the news media and the better course of action may well be to get out in front of it. And of course, if there’s anything that would indicate that public health and safety may be jeopardized by a delay in an announcement, that may well eclipse other considerations. If there’s no legal or practical requirement to disclose immediately and the story is not about to break, it often makes sense for the team to take some time, get their arms around the most salient facts and get organized about a plan of action before making an announcement. That instinct to take a little time to get your arms around the facts has to be balanced against what is often a key question that will be asked at the time of eventual public disclosure – how long a company has known about it and why the company didn’t act before. Taking a modest amount of time to get your facts straight makes sense, but it shouldn’t become a de facto excuse to ignore the issue of disclosure.

Ethical culture, transparency, social responsibility and accountability have become baseline expectations for organizational behavior and inform the sentiment of consumers, customers, the media and shareholders. By the same token, public comments can worsen public sentiment, ravage the company’s market capitalization, and undermine legal defense strategy. This gives rises to the question of whether it is possible to provide public comments in increments while the investigation is unfolding. In other words, can you start with the statement – we’re looking into it, are horrified at what we’ve heard and we’ll devote considerable resources to getting to the bottom of this and report back with what we’ve learned? The answer is a qualified yes. What is key here is whether and how any promise to report back is qualified. It’s very dangerous even though it’s well-intentioned to state or create an impression at the beginning, that all new information be reported in real-time. The company may be bombarded in a crisis with lots of new information, some of which may entirely lack credibility. The client doesn’t want to disseminate useless information or spread disinformation. Similarly, there may be a whistleblower or witness who comes forward but says they’re reluctant to speak for fear that they’ll be outed as a whistleblower at that time. For these reasons, the company’s promise to update should be qualified so as not to foreclose the ability to agree to appropriate confidentiality terms with a whistleblower or other witnesses. And of course, the real-time disclosure of facts may risk hindering an ongoing investigation.

You’re much better off under-promising, and then exceeding the promise than over-promising and having to walk it back. The reality is you don’t always have time to plan and game out every possible scenario, particularly in the event of a crisis breaking. When there is time before the story breaks, companies should have a set of statements they can roll out and a crisis protocol that dictates how you make those statements. That’s going to allow the organization to respond quickly and focus on reiterating values and core messages.

Whatever is driving an investigation, it is prudent to swiftly convey that the company is cooperating fully with the authorities. Even though you may have said very little that materially addresses the crisis at hand, you will be in a much better position when it comes to the public perception of your company. You’ve expressed cooperation, as opposed to saying no comment, which the public perceives as guilt. What that also does is put the company in the driver’s seat to communicate out at a future time when the company is ready because you have a little goodwill for having made public statements.  You said something. And so you are putting yourself in a position of cooperation rather than no comment.

The topic of whistleblowers and victims is sensitive when it comes to unmasking them and revealing their identities. Allegations of retaliation against whistleblowers or disparaging victims are terrible scenarios, which can be catastrophic to a company’s public image and shareholder confidence. The challenge is how to counter whistleblower and victim allegations without looking like you’re attacking them or their character. It’s never good for Goliath to attack David. There are a few rules of thumb when it comes to whistleblower matters. Whenever possible, the company should take the high road. Address the merits of the accusation but leave the whistleblower out of it. Always lead with empathy. If there’s a human toll, empathy will never be viewed as an attack on the victims.  Of equal importance is to seek out diverse points of view on your approach to ensure that your response is going to have the desired result and not backfire because you didn’t take time to look at it from several angles and properly consider how it could trigger a backlash.

High-profile investigations and crisis communications are inextricably linked.  The time to start thinking about them is when your hair is not on fire. Thinking through the various negative events that could occur and impact the organization and then reasoning through how the company would approach the investigation and discuss it publicly is the gold standard.  It better positions the organization to respond efficiently and avoid the organization’s mishandling of the crisis from becoming the story. 

To hear the full Fraud Eats Strategy podcast episode with Pat Fitzgerald and Rachel Rosenblatt,  click here.  

Note: The postings on this site are my own and do not necessarily represent White Collar Forensic’s positions, strategies or opinions.

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