Allegations of corporate wrongdoing or criminal behaviour can damage a company’s reputation within hours. Incorrect management of a reputational crisis can lead to irreparable damage to the reputation of the company and its directors.
No company directors want to see their company’s name splashed across the front page of the newspaper for the wrong reasons, especially when it is linked to corporate wrongdoing or criminal behaviour. With the prevalence of 24-hour news and social media, a company’s hard-earned reputation built up over years can come toppling down in a matter of hours. If such a reputational crisis is dealt with incorrectly, irreparable damage may be caused to the company or its directors’ reputations.
There are several situations which might arise in the context of corporate crime:
1. An employee or director of the company has been arrested; 2. The company or an individual within it has been exposed for wrongdoing; or 3. The company or an individual within it has been the victim of a crime.
In the first instance, where an individual within the company has been arrested on suspicion of a crime, there is the potential for private information about the company or individual to be published. If such a story is reported, this could be extremely damaging to the company, which may well be tarred with the same brush as the individual. Of course, even if someone is arrested it does not necessarily mean that they are guilty; as a result, publishers may be in contempt of court by publishing an article if there is a substantial risk that the course of justice would be seriously prejudiced or impeded. Therefore, you should be taking firm action against anyone making allegations of wrongdoing on the basis of an arrest to stop the story before it has started.
The second situation – where the company or an individual within it has been exposed for criminal wrongdoing (for example, for fraud or price-fixing) – is extremely serious. If this happens, you need to ascertain quickly whether what the company is accused of is accurate. If not, it is important to publicly correct this as quickly as possible to stop a story from spreading further. If it is true, you will need to consider what is best for the company in the specific circumstances and consider the consequences of public commentary on any potential ongoing regulatory or criminal investigations.
Thirdly, sometimes we may find ourselves the victim of a crime, such as hacking or theft. This can be damaging to a company’s reputation where it impacts on customers or third parties; in particular where personal data has been stolen, and the privacy of individuals has been compromised. With consumers increasingly using social media to air their grievances about a company, such a story has the potential to spread rapidly and cause significant reputational damage. If such a breach of security occurs, it is important to work out whether the company had adequate security measures (though obviously this would ideally have been done before) and to minimise the damage as quickly as possible by curing the breach as far as possible and informing customers.
Where untrue allegations are published about a director or company, there may be a legal solution. Defamation law seeks to protect individuals and companies from the publication of false allegations which may harm their reputations. This is often a tricky balancing act for the court with the freedom of speech of the press.
In short, to succeed in a claim for defamation, a claimant has to show that the meaning of the words published is defamatory, and would lower their reputation in the minds of right-thinking members of the public. Since the Defamation Act 2013 came into force, it is much harder for a claimant to bring a defamation case, because it must show that it has suffered serious harm as a result of the allegations being published. For a company, this means serious financial loss, which can be hard to prove. Loss of contracts, a fall in share prices or sales may be a good place to start to prove financial loss.
There are several defences that may be applicable. For example, defendants will have a defence if the statement is substantially true, is in the public interest or is an were “honest comment” (i.e. an expression of opinion based on true facts).
Prevention is the best defence when dealing with reputational crises. You should make sure that directors are aware of everything that is going on within the company to avoid any nasty surprises. Time is also of the essence in these situations. It is sensible to assign certain employees the task of dealing with a PR crisis and brief them on what to do before it occurs, so that you can deal with the crisis as quickly and efficiently as possible. Similarly, it is advisable to engage a PR or defamation lawyer before any articles are published so that they can get to work straight away.
The best outcome is obviously to stop an article before it is published (i.e. after you have been asked for comment, which publishers should do). However, if that is not possible and allegations are published, it is important to limit the story being spread as far as is possible and make sure that any incorrect or misleading statements are removed or clarified by the publisher.