Online Exclusive: Q&A with Stasia Kelly, counsel to DLA Piper’s White Collar, Corporate Crime and Investigations Practice.

It’s not much of a stretch to call 2010 the year of the corporate crisis. Toyota, BP, Johnson & Johnson, Goldman Sachs and HP–five very different major corporate players encompassing a wide range of industries–all confronted the same challenge: preserving their carefully crafted corporate images in the face of devastating publicity. From multiple product recalls to a massive oil spill to securities fraud charges to a C-suite scandal, crises of epic proportions dominated the news. Smaller image-breaking issues roiled other companies throughout corporate America.

The relentless news focus on these corporate calamities has put crisis preparation on the agenda of many legal departments. While crisis by definition is unpredictable, on the following pages veterans of corporate image battles describe proactive steps to mitigate damage in advance of a crisis. The challenge is finding time and resources to devote to crisis preparation in hard times–an investment that often seems deferrable when the business is problem-free.

“That is the heart of the problem,” says Stasia Kelly, of counsel at DLA Piper. Kelly endured her fair share of crises as general counsel of AIG, MCI WorldCom and Sears Roebuck & Co. “Companies that are cooking along fine are saying, ‘Why should I take the time to get ready for a crisis that will never exist?’ That is where companies become vulnerable. It may never happen, but if it does, you have lost a huge strategic advantage.”

Team Building

A fundamental step in crisis preparation is identifying the team that will manage any future crisis from inception to conclusion. The internal players differ from company to company, but typically include the senior management team, including the general counsel, and the heads of communications and human resources.

“One of the first things you have to do is get agreement from the CEO that this will be a team effort,” says Stasia Kelly, of counsel at DLA Piper. “Most CEOs want to be in charge–that’s why they are CEOs. They want to be the one calling the shots. But that might not be the right answer. A crisis might implicate the CEO–many of them do. The CEO must be willing to take advice from the members of his inner circle so he is not surprised when someone says, ‘Wait a minute, boss.’”

Because of the key roles they play in a crisis, leaders of the legal and communications departments should develop a relationship of trust and mutual respect before a crisis hits. The two sides often come at a crisis with differing agendas–the GC cautious about communicating anything lest it complicate ensuing legal or regulatory proceedings, and the PR director focused on mitigating brand damage by getting out the company’s messages fast and often. Many of today’s business-savvy GCs have a much greater appreciation of the importance of brand protection than their predecessors did. But mitigating any potential legal/PR tension before a crisis hits is key to a smooth crisis response.

“It is vital in any crisis situation that the legal team and the communications team are shoulder to shoulder,” says Rich Baer, general counsel of Qwest. “Every communication in a crisis may be examined in some proceeding in the future, so having the communication team and the legal team work closely together is imperative. Having said that, the legal team has to be incredibly responsive and sensitive to the demands being placed by the media. It is key to the success of the communication team that they be able to get information to the media before deadline.”

In Qwest’s case, communications and legal both report to Baer, who resolves any impasses, but that is not a common model. Nonetheless, when University of Miami Law School Associate Professor Michele DeStefano Beardslee interviewed S&P 500 general counsel on their role in PR, almost all reported having strong, daily relationships with their company’s PR professionals (see “Healthy Tension,” page 5).

“That was one of the most surprising findings, because the traditional view is that legal and PR functions only work together when there is a crisis,” Beardslee says. “But what I learned is that lawyers and PR people are working together all the time, not only to enhance the corporation’s reputation but to keep the relationship going so if a crisis does arise, it is seamless.”

At Ford Motor Co., General Counsel David Leitch says such an approach has diminished any need to escalate communications decisions to the senior management committee. If communications and legal disagree on what or how much information to release, “We work hard to reach a shared conclusion,” he says. “We put a big emphasis on working collaboratively to reach a conclusion that recognizes the interests of the different functions.”

Hiring Help

Even the largest corporations, with hundreds of lawyers and dozens of PR professionals on staff, have to look outside for help in managing a crisis.

“I think the single most important thing for general counsel in managing a crisis is the willingness to admit when a crisis hits that you don’t have all the answers and you may not have the people in-house to control the message and manage the situation,” says Stasia Kelly, of counsel at DLA Piper. “It is almost like companies learn this the hard way, and other companies never seem to learn from the experience of companies before them.”

Rich Baer, general counsel at Qwest, agrees that many companies with extensive crisis plans are caught flat footed when a crisis hits because they haven’t thought through who their go-to outside experts are.

“Generally in a bet-the-company-type crisis, you will need the help of outside lawyers as well as communications consultants and perhaps lobbyists,” Baer says. “Often the standard list of law firms is useless because they may be conflicted. Your usual outside communications firm may not have the expertise you need for the particular type of crisis.”

Chad Hummel, chair of the litigation division at Manatt, Phelps & Phillips, has handled several high profile cases, and advises having a shortlist of lawyers with several specialties, including litigators, disclosure experts and government litigation specialists. For crisis management PR advice, “I have the name of a specific person, and that’s the first call I make,” he says.

Baer advocates developing a relationship with outside experts before any crisis surfaces.

“Meeting with and developing a relationship with a couple of different outside consultants to whom you would go in a crisis is really integral to effective crisis management planning,” he says. “If you are in a crisis trying to figure out who to go to, you are at a real disadvantage. You have enough problems trying to deal with the crisis at hand. Trying to determine at the same time who to select, is brutally, brutally hard.”

And whether hiring outside help or drafting inside players, keep in mind that a crisis requires personality traits that thrive in a pressure cooker environment, with around-the-clock workdays and an atmosphere of constant change.

When he was drafted with a few hours notice to be chief operating officer of the Troubled Asset Relief Program (TARP), Howard Schweitzer, former GC of the Export-Import Bank and now a partner at Cozen O’Connor, put top priority on picking such a team.

“We looked for people willing to jump into a difficult situation who had character–risk takers with character,” he says. “You need people like that running point for you when a crisis blows up.”

Teasing Out Risk

Chances are if you hire a public relations firm or a law firm’s crisis management group to help you prepare for a crisis, they will start with an audit of your vulnerabilities.

Adam Goldberg and Joshua Galper, partners at Orrick, Herrington & Sutcliffe who help clients prepare for crises, point out that an audit by outside facilitators can surface issues the company may not have recognized as reputation risks, as well as issues they recognize but haven’t prepared for. That preparation can be followed by “prophylactic” measures–steps to defuse a potential problem that the company can point to as good faith efforts if it explodes nonetheless–as well as planning mitigation steps to take after the problem becomes public.

“A pre-crisis audit gives a company a way to manage the unknowable,” Galper says. “The idea is to tease out the pitfalls along the way that they may not have thought of because they are engaged in the day-to-day-business.”

Eileen O’Connor, counsel at McDermott Will & Emery, adds that following up an audit with a written record of compliance efforts can provide the basis for positive messages the company can convey at the outset of a crisis.

“At least people will know that this is a company that tried to do the right thing,” she says, “and it will buy you time and goodwill.”

Paul Gallagher, who co-chairs the crisis management practice at PR firm Burson-Marsteller, says legal plays a key role in identifying and addressing issues that could become nightmares. He adds that some of the biggest recent crises, such as BP and Toyota, “didn’t just happen overnight.”

“Even though the well cap broke at a certain point in time, there were safety issues within BP. … In Toyota’s case, there was a deteriorating situation within NHTSA which played an intensifying role in the crisis,” he says. “There is usually a history behind the crisis. The job of the legal team is compliance, and [the team is] often aware of problems in operations or personnel that could lead to a crisis.”

Howard Schweitzer, a partner at Cozen O’Connor, agrees that the general counsel plays a key role in the risk assessment phase of crisis preparation, but acknowledges it isn’t easy.

“GCs walk a bit of a fine line,” he says. “They can’t be seen as shutting down the business, but they are uniquely situated to force a serious look at the risk to the company on a periodic basis.”

Gallagher says an important part of crisis prevention is communicating the message, “If you see something, say something,” a sentiment echoed by Ford GC David Leitch.

“You can’t manage a secret,” Leitch says. “Having a culture where you don’t shoot the messenger is very important. You have to have an environment that makes it safe to bring issues to the group without laying blame at the foot of the person who is trying to get help.”

Following an audit, PR firms and law firms with PR specialists often design crisis scenario exercises, which give the company’s crisis team the opportunity to practice responses to a hypothetical crisis staged by the outside consultants. Gallagher says this exercise “holds up a mirror” so the participants can see the company’s strengths and weaknesses in reacting to a crisis.

The audit of issues also usually results in a crisis plan. Sometimes these are organized by potential crises, with tailored messages for each crisis situation developed for various audiences in advance. But Stasia Kelly, of counsel at DLA Piper, says a good crisis plan focuses on how you would contact and communicate with your key constituencies, regardless of what the crisis involves.

At the top of Kelly’s constituency list, in addition to the CEO and the senior leadership team, is the board of directors. “You never want to blindside the board of directors, so I always have someone in-house ready to communicate with the board, no matter where they are in the world,” Kelly says. “If they are at a cocktail party and someone says, ‘Did you see Bloomberg? It just came over the news that the company you are on the board of had one of its tankers blow up,’ that is not a good thing. It is just not good governance not to have them know what is going on.”

Kelly adds that a key but sometimes overlooked constituency is employees. “Employees are usually the last people to know what is going on, and that’s a shame,” she says. “You want to get to the employees because otherwise you lose huge amounts of productive time with them wondering who is in charge and what you are doing. Also involve the HR people because they will get questions and concerns.”

Other key constituencies that should factor in a crisis plan include regulators and legislators, community leaders, analysts and institutional investors.

Leitch points out that because crises may come from unexpected places and move in unexpected directions, even a great crisis plan isn’t necessarily going to save the day.

“Almost by definition, the crisis plan doesn’t prepare you for the crisis that hits you,” he says. “It’s like battle plans that don’t work when the shooting starts. You have to be nimble and adjust quickly.”

Additional Sidebars

Healthy Tension

In her study of the general counsel’s role in shaping PR strategy, published in the Georgetown Journal of Legal Ethics, University of Miami Law School Associate Professor Michele DeStefano Beardslee found that despite the collaborative relationship between most legal and PR departments, general counsel believe a “healthy tension” exists between the two.

“PR executives often want the corporation to quickly state it has not done anything wrong. But the lawyers want to conduct an internal investigation [before making a statement],” she wrote.

When push comes to shove in potentially high-visibility legal matters, lawyers typically have the upper hand, Beardslee found. The superior influence of legal is reinforced by organizational structure: While PR reports to legal in only 12 percent of the companies she studied, in two-thirds of the companies, the GC reports to the CEO but the head of PR doesn’t.

In addition, the general counsel she interviewed often viewed themselves as the final PR strategy decision makers. “It is possible, therefore, that the tension that so many general counsel interviewees referred to as ‘healthy’ may not actually be that healthy,” she wrote.

Managing Media

Never say ‘no comment.’

Crisis communications consultants say the 24-hour-news cycle necessitates “managing the message” by talking to the media from the moment a crisis breaks.

But in the early hours, you may not have enough facts to determine what you want to say publicly. Sometimes publicizing the facts could have negative consequences on future litigation or regulatory proceedings.

However, it’s often possible to buy time with a statement designed to put the company in the most favorable light, without divulging potentially damaging information. These “standby statements” can be prepared in advance, as part of the crisis plan. They should include steps the company took to fend off or mitigate the crisis and its commitment to fix the problem as quickly as possible. They should also express concern and compassion if the crisis has resulted in injuries or deaths.

Additionally, developing good media relationships when things are going well can pay off in times of crisis. If a company spokesperson has a friendly relationship with a reporter from an influential media outlet, briefing that reporter “on background,” may result in an accurate, balanced story based on not-for-attribution information. Other media are likely to base their own reporting on that story.

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