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The collapse of Arthur Andersen LLP affected lives and destroyed reputations on a global scale. Today, no one is exempt from potential crisis in what’s become an increasingly stringent compliance environment.
Now, in-house counsel, as much as any outside auditors, find themselves to be potential defendants in the court of public opinion—a court that demands altogether different survival skills from the ones learned in law school. The fact that you and your company might be innocent of any wrongdoing is wholly irrelevant.
Lessons learned from the Andersen situation abound for any lawyer charged with ensuring a corporate bill of good health. There are the overt lessons about staying out of the quicksand in the first place, about dotting every i and crossing every t when reporting to the SEC, and about innovating new oversight procedures amid rapid global growth.
There are also lessons learned in crisis management—a daunting curriculum when you consider that Andersen actually had a sound approach to its crisis, at least from a media-management perspective. We know of few better models for how to set up and manage a crisis team. Yet a marketing budget of $100 million per year, an expert internal crisis team, and a preponderance of ethical, honest employees could not save Andersen. The inexorable caveat is that some crises are terminal, either because the company is guilty of unforgivable transgressions, or because no matter how well advised the media response, there are times when no one will believe anything the corporation says.
Best-Laid Plans
A shocking number of corporations do not have a crisis team or plan. Most litigators do not even know when to tell their clients that a case may become high profile and that media prophylaxis is required. For in-house counsel, one immediate lesson pertains directly to the retention of outside counsel. Insist that your lawyers, and especially your litigators, have some demonstrable talent in media management —or at least the sensitivity to know when to call for help.
Andersen was a cornucopia of best practices. The crisis team was nationally based in the firm’s Chicago headquarters and its Washington, D.C., office. It had expertise in public relations, legal issues, and lobbying. It communicated around the clock with smaller Andersen teams in London and Hong Kong, who in turn communicated with the media in their own time zones to ensure a consistent message.
When the Enron disaster struck, the Andersen pros immediately drew up a list of priority publications to which they would speak directly, and dedicated their website to provide information to others. Andersen was ready for the media deluge.
The team was able to respond directly to rampant speculation and send the message that the indictment was “a gross abuse of government power.” It ran effective attack advertisements, built highly visible grassroots teams, and enlisted an unimpeachable spokesperson, former Federal Reserve Board Chairman Paul Volker. It would be hard to find a better example of the importance of starting early with a media crisis plan. Andersen fought its “holding action” well, and the media team leveraged every message.
The problem was that no one was listening.
Fatal Errors
Andersen also had terrible timing —in part its own doing, because it did not recognize the enormity of the problem soon enough—and the story hit the news during proxy season. When Delta and a few other corporate clients publicly fired Andersen, the press presented the defections as terminal symptoms of Andersen’s problems. Only 5 percent of Andersen’s client base bolted when those doomsday stories first appeared, but the bad press encouraged a further client exodus.
One weakness in Andersen’s strategy is especially relevant to in-house counsel: Andersen relied too heavily on a presumption of legal innocence. A better strategy might be to rest your case on a simple admission of fault and an acceptance of responsibility.
While a public confession of any sort may well be legally untenable in the last analysis, the public will be waiting for just that. For lawyers, the art of crisis management is all about accepting responsibility without exposing the company to additional civil and criminal liability. Remember, the verdict in the media can affect the company’s destiny as tangibly as a jury.
Andersen, convinced of its own innocence, failed to address the bigger picture. It did not develop that one great overarching message about itself and was forced into a defensive position. Even as the Enron scandal was unfolding, Andersen could have, and should have, created opportunities to portray itself as the protector of our financial reporting system, not its destroyer.
To be sure, Andersen had great odds against it—like that nasty bit about shredding. Shredding isn’t just illegal. From a media standpoint, it’s visual. Audiences judge news in pictures and put those pictures into simple, broad categories of right versus wrong. Andersen’s shredding stories made us envision desperate accountants destroying documents in dimly lit offices.
The war was over when that word picture hit the newsstand and Andersen failed to counter with a positive image of equal force.
The Mop-Up Campaign
Once the war was effectively over, Andersen’s media team fought its “rear action” well: It used targeted media placements to help preserve individual reputations and maximize the value of the remnant Andersen business units in order to fetch the best prices from buyers or to create merger opportunities with other firms. Andersen achieved an auction mentality for its business units and avoided a fire sale.
At the end of the day, many believe Andersen’s first mistake was irreparable: It failed to take responsibility. It didn’t cut its public relations losses and move on.
If you are going to fight back, at least maximize your chances. Make public perception your touchstone, not reality.
Richard S. Levick is president of Levick Strategic Communications. E-mail him at rlevick@levick.com.
Larry Smith is director of strategy at Levick Strategic Communications and the author of Inside/Outside: How Businesses Buy Legal Services. E-mail him at lsmith@levick.com.
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