This article is an extract from GTDT Market Intelligence Crisis Management 2023Click here for the full guide.

Christa Band is a partner in the litigation department at Linklaters LLP in London. She has over 25 years’ experience as a litigation partner, advising banks, financial services institutions and corporates on all aspects of contentious work, much of which is multi-jurisdictional. She manages parallel proceedings for clients in regulatory, civil and criminal contexts. She has helped clients navigate a number of crises in different sectors and contexts.

1 The word ‘crisis’ carries with it the notion of the sudden and unexpected. What can a business do in advance of a crisis striking to ensure that it is best prepared to navigate it?

Well-managed businesses are continually reviewing their governance, systems, procedures, training and culture to minimise the risk of a crisis happening in the first place. However, even the best run companies are subject to crises and need to prepare for that eventuality.

The precise way in which a crisis unfolds, and its timing, may be hard to predict but careful preparation enables a company to translate ‘crisis’ into ‘situation being dealt with’.

That preparation should start with legal risk mapping. This is an exercise in identifying the sort of risks to which the business is exposed and assessing the impact and seriousness of the potential consequences were they to do so. It is a topic that a company should keep under regular review as risk profiles change and develop over time.

There is no substitute for discussion and sharing ideas. Colleagues within the business should be used as a sounding board, and companies should regularly pick the brains of their external advisers. The chief technology officer’s view of the risk environment will differ from that of the head of HR and from that of the chief financial officer. Here, perhaps more than anywhere else, diversity of experience and approach is vital if the company is to form a rounded view of the risks it faces. This offers the company choices in terms of risk mitigation. However, it is also essential preparation: when a crisis happens, the business will cope much better with it if the element of surprise is reduced. Having thought through consequences in advance will enable greater clarity of decision-making and a more efficient and confident response.

Things that a board would be well advised to have thought through in advance include:

  • The identification of an internal team that is well-placed to guide the company through the unfolding events. Setting the right ‘tone from the top’ will be a key part of the company’s mitigation strategy and senior level engagement is vital. The internal team is likely to include the general counsel, the chief risk officer and others who may be important because of their particular role or expertise, for example the head of HR or the chief technology officer. Depending on how the relevant events have arisen, it may be important to have alternates for some roles so that no one is put in a position of having to review their own work.
  • Similarly, a list of potential external advisers needs to be readily to hand. The company will usually need a multidisciplinary team of external advisers including lawyers, accountants, data specialists and PR advisers, and that team has to be pulled together in a hurry. General counsel know how to contact relevant advisers at any time; but those details need to be available to others if the general counsel is not around when the crisis first presents itself.
  • With a number of moving parts and often many people involved, having clear lines of communication is really important but not always easily achieved. Clarity is needed as to who can make decisions as to what issues, recognising that decisions often have to be made quickly. While it is not realistic to have all this determined in advance, as it may need to reflect the particular facts, the company can identify who would undertake the chief of staff role, and top of that person’s to-do list should be a plan for communication and reporting.
  • Potential stakeholders should be identified as part of the planning process. They will include employees, customers, investors, lenders, regulators, insurers and others depending on the crisis. Their interests will vary depending on the facts that have given rise to the particular problem. To state the obvious: joined-up thinking between those liaising with the various stakeholders will be vital.
  • Some companies have first-hand experience of dealing with a crisis. Where they have, it should prompt a ‘lessons learned’ analysis, and those lessons should be built into the crisis planning for the future.
  • For all companies, there is learning and experience that can be gathered, kept up to date and shared and on which training (including dry runs) should be given as appropriate. Particular topics include:
    • dawn raids (as per the relevant regulatory regimes);
    • cyberattacks;
    • protestors and picketing;
    • natural disasters and security threats affecting the business premises and staff;
    • media: media training for senior management is good preparation for a crisis. The company’s approach to social media needs to be kept up to date, including through guidance to employees;
    • the company’s policies, and the general law, in relation to access to employees’ emails and other electronically held data; and
    • business resilience plans should be in place and up to date.

Note that employees who need to be familiar with these issues will vary. Receptionists and security guards need to know whom to call and what to do if there is a dawn raid or protesters turn up at company premises.

  • The first 24 hours of a crisis are crucial. Navigating this early period carefully and with good preparation will instil confidence in staff, regulators and other key stakeholders. Not everything can be scripted in advance, but what a company can do is to have a written plan for those initial hours – extending into the first couple of days. The exercise of committing this ‘First 24 hours’ plan to paper should ensure that no important aspect is overlooked in the inevitable disruption as events unfold in real time. Documents it is sensible to hold alongside the ‘First 24 hours’ plan include a corporate structure chart, details of internal reporting lines, the company’s ‘values statement’ or equivalent, the employee handbook and IT policies and the insurance policies.
  • Although some crises hit businesses without warning, the genesis of others can be spotted. A careful eye should be kept on issues that are minor at present but that, were they to escalate, could cause a serious problem, whether economically or reputationally. This includes complaints or disputes that seem minor on their face but which, if successful, would be available to a larger group.
  • If it seems to senior management that a crisis is brewing, either for the particular company or the relevant sector, it can be very helpful to have the communications team collate recent media coverage so that it is readily to hand.

Careful, thorough, up-to-date preparation will pay dividends if – when – a crisis strikes. Having done a good deal of thinking in advance will enable the company to develop the most effective strategy for dealing with the crisis.

2 Some crises affect a business in unpredictable ways; others arise from well-recognised, though unwelcome, risks. What key themes underlie the risk management analysis in your jurisdiction? How might this analysis evolve over time, in light of any emerging or potential future risks?

How and where a company operates shapes the legal risks it faces. However, some key themes are common across all businesses. It is, in a sense, artificial to divide these up since they are interlinked and can arise in combination. With that caveat, current themes include:

  • Data: since the acquisition, holding and management of data is something that pretty much every company does, and since technology is susceptible to glitches – from malfunctions to cyberattacks – and human beings are never immune from leaving documents on a train, data forms the basis of many crises. Those whose data are affected are increasingly able not just to complain to the regulators but also to bring claims for compensation. The English courts have recently made the process for bringing those claims somewhat more challenging, but the risk remains. The reputational consequences of a failure to protect data are potentially very damaging, and regulatory fines can be seriously high.
  • ESG: the ‘environmental, social and governance’ agenda is in focus for a whole range of stakeholders, and their scrutiny can be intense. Companies are increasingly held to account for what they may have done in the past, their perceived current contribution to climate change and whether their plans for the future do enough to move the company forward to the net zero goal and match what they have told investors and customers. Stakeholders can and do use legal challenges to pursue the change agenda. These rely on the existing law, but there is also pressure on companies to meet ‘soft law’ standards not found in a statute, rulebook or precedent.
  • Product liability: the faulty or defective product that either malfunctions or that, worse still, harms the consumer, is a well-recognised source of a crisis. However, increasingly, product liability includes not simply a product’s physical attributes but what a company has told the market about the product and its qualities. This can be closely tied to ESG issues.
  • Corporate culture, compliance and whistle-blowing: a crisis that emerges through a whistle-blower’s report entails particular challenges. These crises are real and difficult to navigate but often not so much concerned with legal liability as they are with reputation management and identification and implementation of cultural changes.
  • Geopolitical changes: the seismic changes that the world has experienced over the past two years will underpin legal risk for the near future. Supply chains are disrupted and market dislocation results in failure to perform contracts and increased costs of borrowing. Close monitoring of sanctions and other fast paced legal developments is essential.
  • Natural disasters: these come in many shapes and forms. Almost every business will have had its planning for such an event tested through the covid-19 pandemic.
  • Litigation funding and a focus on claimants: the huge and rapid growth of litigation funding in the UK means that the scale and scope of a crisis and its potential to cause economic harm to a company has been dramatically increased. Here, legal merit does not automatically dictate legal risk. Claimants know that even claims of uncertain legal merit may have a commercial settlement value. Not every crisis will result in group litigation, but claimant law firms advertise extensively for potential claimants to join a group in what is promoted as risk-free, cost-free litigation.

3 In a crisis, stakeholder expectations of a continuing narrative and explanation are high and the interests of various groups are not necessarily aligned. How does a business meet varying expectations of what to say and when to say it? How does a business maintain an open narrative while best minimising legal risk?

When a crisis strikes, remaining silent is rarely an option. A company will be expected to tell stakeholders as soon as it possibly can what has happened and what its plans are for tackling it. That expectation does not take into account the fact that what has actually happened may not yet be clear. As much time can be spent on the communications strategy as on other aspects of managing the crisis, and it can present some genuine and difficult questions.

Defining the crisis so as to be able to describe it and state what the company is dealing with is a key first step. This sounds obvious, but the exercise can be challenging. Part of this exercise entails the discipline of noting ‘what do we know, what do we not yet know?’ Even though the parameters will not necessarily be clear at the outset, and it may not be appropriate to share all details, clarity of thought about what is going on is a necessary precondition to accurate and effective communication.

Thereafter, it is important to recognise what the company’s communications strategy can achieve, and what the inherent limitations are:

  • The business has to engage with stakeholders and very often the media too. An effective communications strategy can go a long way towards protecting the company’s reputation and instilling confidence in stakeholders.
  • The business will never be able to go as far as any single set of stakeholders would wish. Reconciling everyone’s appetite for information is rarely possible.
  • There may be irreconcilable conflicts between the needs of some stakeholders. What is reassuring to investors may be interpreted negatively by employees.
  • Anything said by the company in relation to the crisis has an impact on its legal risk profile. The two key points in that respect are that the company should avoid making statements that would in a legal context be seen as an admission and that privilege should be preserved wherever it can be.

Bearing those principles in mind, points that are universal in terms of the communications strategy include:

  • Accuracy: it goes without saying that anything that a business does say should be accurate. The challenges in this context are that facts may be uncertain and unfolding fast, and the facts such as they are known may be unpalatable. External lawyers can be helpful in kicking the tyres of intended statements and testing whether there is a solid foundation for statements.
  • The audience: the sort of caveats that make perfect sense to lawyers are likely not to be understood in the way that they are intended by a non-legal audience. The language chosen needs to work in multiple contexts.
  • Publicity: any statement made should be assumed to be publicly available immediately.
  • The identity of the spokesperson: there is often understandable pressure for a senior member of management to answer questions. Where this is done it calls for very thorough preparation.
  • Communications strategy: there is often considerable pressure to give assurances in the early stages: ‘no jobs will be affected’; ‘no one has done anything wrong’; etc. The communications strategy has to navigate giving comfort where it can but avoid making promises that may not be capable of being kept.
  • Apologies: the topic of apologies comes up often. An apology can be a key part of the company’s mitigation. An apology also risks making the problem worse if it is seen as caveated or insincere. Timing is important here: an apology should not be made until it is clear what the company is apologising for; but the impression that the apology has had to be dragged out of the company lessens its impact.
  • Liability profile: it is absolutely right that the company should seek not to make a difficult problem worse through its communications strategy. Legal risk can be exacerbated through ill-advised admissions or loss of privilege. But the approach here has to recognise the realities of the particular situation. Mitigation of the consequences for the future needs to take into account the liability profile of what has happened. It is not possible to lay down hard and fast rules in advance of particular facts (other than that the benefit of insurance cover must be preserved wherever available).

4 Many crises are critical because they involve the potential for widespread civil liability and many claimants. What challenges arise in the resolution of multi-party claims and how does a defendant determine its strategy to meet them?

It is not an attempt to duck this question to say that every multi-party claim requires a bespoke approach. It is often helpful to think about that tailor-made defence strategy in three phases which we refer to as ‘define, refine, resolve’.

The first stage focuses on defining the issues. What are the claims really about? How many people are affected and are they identifiable? Are other parties potentially liable? How confident is the company of the factual narrative? What further work needs to be done to complete the picture?

The second stage aims to refine the litigation. Claimant law firms try to build the largest book of claims possible. There may be scope to refine, reduce or subdivide the class through careful analysis of the criteria used to build it. All too often, claims are marketed by claimant law firms before the legal basis for the claims has been properly interrogated. Issues can be refined by early applications to the court. It may be possible to challenge the form of proceedings chosen by the claimants, which can reduce or limit the claim at an early stage and limit its attractiveness to funders. Jurisdictional challenges should also be considered where they are available and tactically sound. An important aspect of refining the claim focuses on value. Claimants, and litigation funders, are often given an optimistic view on potential recoveries, and that narrative needs regrounding.

The whole defence strategy leads to the third phase: resolving the claims. There are many techniques that a defendant can use to promote settlement, and these depend on an appreciation of the funding model and the structural dynamics of the funded litigation. The claimants’ motivations for pursuing the claims are important: the nature of the rights affected and the impact on claimants’ lives, the claimants’ connection to the defendant, the claimants’ emotional and financial investment in the claims and their likely desire for measures other than the purely financial, for example, an apology.

In devising the right strategy, defence lawyers need to keep an open mind. Litigation is not the only, or sometimes best, way to resolve collective claims. Alternative dispute resolution mechanisms and redress and compensation schemes can work well as part of the bespoke approach and suit the interests of all parties.

Resolving good claims fairly and efficiently is a key in corporate rehabilitation. Once established, the defence strategy needs to be communicated to key stakeholders (including insurers) to secure their buy-in. The strategy always remains under review.

5 Alongside managing the crisis is the imperative to maintain ‘business as usual’. How can lawyers help to establish what went wrong and minimise the impact of those issues on the underlying business?

Maintaining business as usual through what are likely to be highly unusual circumstances is obviously critical for the business’s own ongoing health. The first way in which lawyers can help with what is in large part a commercial challenge is by ensuring that members of the management team have the time that they need to commit to the ongoing business. Lawyers can, through structuring their work and interaction with the company, ease the time burden that a crisis inevitably imposes on management. It is tempting to think, in the immediate aftermath of a crisis, that everyone needs to be involved in everything. This is rarely true and comes at a price in terms of diverting resources from the actual operations of the company.

Lawyers will also be focused on establishing, as quickly as possible, what has gone wrong and advising on the legal impact. Every crisis necessitates a carefully scoped and implemented investigation. Lawyers need to work with the commercial side of the business to design an investigation that will be thorough, proportionate and focus on the right issues. Thereafter, lawyers should be able to take the burden of implementing that investigation away from the business. Regular updates from the investigation team to the internal crisis response team should enable the team to determine what needs to be passed on to commercial colleagues so that they can consider its impact on operations.

Minimising the impact on the business calls for an understanding of how business practices contributed – if at all – to the problem in the first place. Lawyers help support the business in this context by identifying what changes may be needed so that the business can comply with the general law and any applicable regulatory regime. Implementing change for the future enables the business to lower its risk of similar problems recurring. Advising on the speed of change necessary is part of the role of the legal team – from the instant product recall to longer-term changes recommended to keep up with best practice.

The Inside Track

What traits, skills and experience do you think are critical for a lawyer advising on crisis management?

A crisis management lawyer needs to be able to:

  • Inspire confidence. When people are understandably uncertain about the implications of events, lawyers need to show that there is a clear strategy and things are under control.
  • Prioritise. This means resisting the temptation to think that everything must be done all at once and super-fast. Triaging issues needs careful judgment.
  • Think laterally. Issues in a crisis are multidimensional. Lawyers need to assess how a decision in one context may play out in another.

These skills are built from experience: from having seen different problems, with different facts and different clients.

In your opinion, what expertise, attitudes, behaviours and practices characterise an effective legal team charged with crisis management?

Managing a crisis usually entails a large, often multidisciplinary team, possibly in more than one jurisdiction. Every team member has to get on with colleagues and work collaboratively and cooperatively. The foundation for that is good communication.

Determining the right level of information to enable team members to work effectively is a skill in itself. Everyone needs to have sufficient detail so that they understand their contribution and how it fits the broader strategy. But not everyone can do everything, and an efficient team has demarcations. Bringing individual contributions together to further the strategy is the role of those leading crisis management teams.

What do you personally find most rewarding and most challenging about advising in this area?

Helping a company navigate its way through a crisis is like no other sort of legal work. These situations can be hugely stressful for the business – on a corporate and often also a personal level. I work with management to shape and implement a strategy to allow it to mitigate the effects of the crisis, look after its people and get back to normal as quickly as possible. The personal dimension is a much greater factor than in most commercial litigation. It is the multi-faceted nature of the issues which I find makes supporting a company through them challenging and rewarding in equal measure.