Recently, The Koblentz Group has been involved in a number of crisis situations and we have a few thoughts on the way to best deal with these sensitive matters.
Let’s start with Toyota, the poster child of the moment.
Toyota’s board and its leadership face a monumental challenge of minimizing damage to its current and future enterprise value while attempting to re-win customer trust. It shows how important it is to be up front about an issue, and to communicate, so that stakeholders believe that you are doing more than covering up or fluffing off the matter. You must have their best interest in mind and demonstrate it.
Toyota is not the first, nor will it be the last, to deal with high value problem resolutions.
Many CEOs and their boards are caught virtually unprepared to deal with these complex curve balls.
The reality is that most boards are grappling with identifying and monitoring a complexity of risks that are hard to define, and it is even more difficult to ascertain the full impact if such risks become reality. Too often, CEOs are reluctant to truly share these risks with their boards. In fact, many CEOs don’t appreciate the risk elements of their businesses, as they are too far away from the details, that are often the devils, when things turn sour. That is why many boards, with which we work, have insisted on a beefed up internal audit function and have created a new corporate role known as the chief risk officer, sometimes reporting directly to them. And yet, that is still not enough of a safeguard.
Since there is no simple way to handle the unforeseen and no way to assure the future, we have seen company after company face the music of unhappy shareholders and stakeholders. How the company’s Board and its CEO takes control of the situation as it arises generally determines the speed at which the “incident” will be placed in the past. Above all, when credibility is called into question, swift, carefully planned action, however painful, is the only prescription. Arrest the problem and move forward.
Our view is, regardless of the “crisis” or “situation”, boards and their CEOs should have a process in place to address effectively these “one off” situations even though we recognize each company has its own distinct corporate DNA.
So, if you are a leader or board member, here is what we suggest.
First, don’t be caught with your pants down! Be prepared to act quickly on the unknown. Gather facts, assess the many dimensions of the challenge to be addressed, and act with clarity and precision.
In Toyota’s case, clearly, they acted slowly and secretively. Only after prodding and pressure did Toyota begin to “come clean.” Toyota’s handling will cost billions, its brand equity has been significantly diminished, and it has lost the mindshare it has sought to win for decades.
Second, know where to go to seek situational advice when these challenges arise. Have a team of advisors who specialize and have deep experience in “special matters” ready to step in. Having been asked to advise others in such a situation recently, we experienced first hand the positive impact of high valued advice. When a crisis hits, “shopping” for support will take valuable time. In sum, there is an economic value in establishing a “quick to action” resolution process with the best advisors.
Third, be prepared to make adjustments as you resolve the problem at hand. More times than not, as a problem unfolds, it will morph and new issues will arise. Flexibility, while holding steady on how these “jack in the box” pop ups are addressed, will help you win back lost trust.
In the end, your credibility and integrity are at stake. Your customers, suppliers, employees and shareholders will be watching. And most will be skeptical. You must prove that you are serious and working diligently to restore their faith.
Lastly, never bury your corporate head in the sand with the hope that the storm will pass with minimal effort and little aftermath. Ask any executive or board member that has endured a corporate crisis, and they will opine that rebuilding corporate trust is extraordinarily important and exceedingly difficult without an extraordinary effort, expense, and strategic distractions. It will cost more if you fail to act precisely, with open communication of your intention to make things right.
Let’s watch Toyota and see how they perform.