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Running to the Crisis

If a company’s corporate and legal culture instinctively runs away from a crisis—instead of determining if and how it should respond—it’s likely that the problem will expand significantly.

By Richard S. Levick and Christopher G. Caldwell

When federal agents recently staged over-night raids at 61 Wal-Mart department stores and rounded up some 300 illegal immigrants working there as cleanup crews, the corporation’s lawyers awoke to their most dreaded nightmare: a potential legal crisis and an immediate media frenzy. A rule of thumb in the 21st century: There is always a media frenzy when a “star”—in this case, the world’s biggest retailer—is perceived as being in trouble with the law.

Today, no one is exempt from potential crisis. The collapse of Arthur Andersen LLP following the Enron scandal and Martha Stewart are cases in point. Andersen initially ignored the warning signs and lost leverage immediately by not recognizing that it had a bet-the-company crisis on its hands. By the time it got its media act together—and when it did, Andersen did so much right on this score—it was proxy season. So when the Big Five firm lost some big-name accounts, including Delta Air Lines, the press presented the defections as terminal symptoms of Andersen’s problems.

In Martha Stewart’s case, her adamant denials of any wrong doing in insider stock trading have come back to haunt her. The subsequent conviction of a close friend whose company stock Stewart sold just before it nosedived has further damaged her reputation and her case in the court of public opinion. A key lesson: When appropriate, an early deal with prosecutors (even when the client is innocent) can be far less expensive, in terms of legal fees, market share, stock prices, and damaging media exposure, than a long, drawn out fight in the courtroom and on the evening news.

When your client is dealing with a bad situation—whether it is an event that leads to potential civil liability or potential criminal charges—the conventional advice from lawyers has been that “no news is good news.” Put differently, some lawyers have stated that their preferred method of dealing with the press is to “tell them nothing, and tell it to them slowly.” At the other end of the spectrum are public relations professionals, who are accused of having only one piece of advice for clients: “Get it all out, and get it out immediately.”

As with most things in life, the best course of action typically lies somewhere in between and must be decided based on the situation at hand.

In most high-profile and high-stakes litigation, the decision about whether to present your client’s case in the court of public opinion is taken out of your hands (as it was in the Wal-Mart case), either because the media is already reporting the story or they soon will be. Once the matter gets to the press, silence is usually no longer an option.

Notwithstanding the Fifth Amendment, corporations (and high-level managers and celebrities) are almost always considered to be guilty until proven innocent in the eyes of the public. In a pre-Enron DaimlerChrysler survey, more than 60 percent of Americans equated a corporate “no comment” with “I’m guilty.” The numbers have only gotten worse since Enron. Bad press about corporate misconduct can have an immediate and significant financial impact on a company’s bottom line, and the lawyer’s typical practice of saying nothing simply does not serve the client’s best interests.

Perhaps schooled by an ongoing sex discrimination case against it, Wal-Mart chose immediately to be perceived as acting responsibly—all the while distancing itself from the illegal immigrants themselves. Rather than a “no comment,” Wal-Mart’s spokespeople quickly said that the company was cooperating fully with the federal investigation and insisted that those arrested were all employed by outside contractors, not by Wal-Mart.

It remains to be seen how the case will play out in the press as the investigation goes forth, leading perhaps to the courts. Whether or not Wal-Mart executives knew of the illegal workers before the raids, it seems clear that their legal team was prepared for just such a media Mayday. And while few companies have the marquee attraction of a Wal-Mart, all of them should know how to minimize a media crisis.

So what can we learn from the Wal-Mart experience?

The first step is to not wait for the crisis to occur. Lawyers do not need to have public relations skills, but they do need to have enough appreciation and understanding of media to recognize the early warning signs of a media crisis. Do not wait for the client to flag the issue. When you see the winds of media interest begin to form, advise your client to prepare, well before the first reporter calls. Being a great lawyer is about winning. Being a great in-house counsel is about protecting the brand. Winning a case at the expense of damage to the brand is no win at all.

That is why it is crucial—within the first hours of the signs of trouble—for your PR and legal teams to meet and to take immediate steps (see “First Steps Toward Avoiding a Media May-day,” this page). However, the single most important thing that you can do is have a corporate and legal culture that runs to the crisis, to determine if and how the company should respond, rather than one that runs away from it, and usually, as a result, expands the problem significantly.

Wal-Mart has spent millions of advertising dollars to create the image of a friendly, fun place to shop where the consumer is paramount and prices are kept low. The last thing it wants to be associated with is a sweatshop where illegal immigrants are scrubbing floors for a pittance.

Wal-Mart spokespeople did a good job initially of reinforcing the company’s “good guy” image. But the smile on the happy face will quickly disappear if it later comes out that company executives did, indeed, know of the illegal workers toiling in their stores, regardless of who’s paying them. If that happens, then neither price slashing nor a corporate mea culpa will, by themselves, save Wal-Mart from a media (and perhaps legal) disaster.

Attorney Richard S. Levick is president of Levick Strategic Communications and can be reached at rlevick@levick.com. Christopher G. Caldwell is an attorney with Caldwell, Leslie, Newcombe and Pettit and can be reached at caldwell@clnp.com.