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Industry News  Crisis Management Filing action can harm reputation |
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Filing action can harm reputation
Print - FPinfomart - National Post - Wednesday June 18th, 2008
When Tim Hortons Inc. was hit with a $2-billion class-action suit last week by two disgruntled franchise holders who accused the company of turning it from a "fresh-baked" goods store to one serving "microwaved products" in alleged violation of its franchise agreement, the doughnut icon quickly fired back its own Timbit volley.
Within hours of being contacted for comment by the lone media organization then currently aware of the lawsuit, which seeks to represent more than 1,200 franchisees, Tim Hortons went on the offensive and issued a press release denouncing the claim to the world.
"Tim Hortons believes the statement of claim is frivolous and completely without merit. The company intends to vigorously defend itself in this matter."
It buttressed its position by noting that its Franchise Advisory Board, composed of elected storeowners, had also seen the claim and told the company it "doesn't reflect the opinion of the vast majority of franchisees."
Welcome to the world of high-stakes litigation, where a company's reputation can be tested with the mere filing of a court document. It's not just lawsuits, however, that put companies on the spot. Everything from a product recall to workplace accidents and executive malfeasance expose businesses to reputational risks and, possible lawsuits, or even police and regulatory scrutiny.
Factor in such new technologies as the Web and hungry media that operate globally on a 24/7 basis, and companies are more exposed now than ever before to crisis litigation, lawyers say.
"The media has taken a far greater interest in recent years in legal matters and that creates a lot more reputational issues for business," said Markus Koehnen, a litigator at the law firm McMillan.
When it comes to corporate Canada dealing with crisis litigation, Barry Leon, a lawyer at Torys in Toronto, said it's "becoming more on the radar screen and it certainly should be."
He said globally, large corporations are becoming "very sophisticated in the way they look for potential crises and plan to deal with them."
For the past year, Mssrs. Koehnen and Leon have been working with about 20 other Canadian lawyers helping the International Bar Association's litigation committee plan its annual conference, which takes place in Toronto tomorrow and Friday.
This year, the topic centres on "crisis litigation" and the role that lawyers play in helping companies cope. More than 170 litigators from 33 countries are descending on the city to participate and Behind the Bar canvassed some of the Canadian contingent to get their thoughts and views on what corporate Canada needs to do better to prepare for that inevitable day when crisis litigation takes its toll.
Simply determining what constitutes crisis litigation is a challenge. Companies sue and are sued everyday, for everything from slips and falls to failing to pay invoices or wrongfully terminating people.
Normally, that's not considered the type of litigation that p uts a company into crisis, though it can be if it's the CEO the board fired or the failure to pay an invoice relates to insolvency.
Rather, Mr. Leon said, crisis litigation is usually considered "a situation which is out of the ordinary course of the company's disputes, problems or issues. The hallmarks of it are something that occurs that at its worse threatens the company's existence or has the potential to seriously damage its reputation."
It's usually an event that has "serious financial consequences" to the company, he added.
Mr. Koehnen said "there are ways of anticipating a crisis. Different businesses are subject to different types of risk."
For example, he noted, an airport or airline could anticipate that it would one day be involved in a plane crash. In the food industry, salmonella and tainted products can throw a company into chaos. For manufacturers, it's a defective part and product recall that creates havoc.
"If you can anticipate it, then you know it's coming," Mr. Koehnen said
Ira Nishisato, a litigator at Borden Ladner Gervais, said "consumer awareness and activism" and "greater regulatory activism" are also playing a role.
"There's a significant increase in crises affecting large corporations and litigation and regulatory proceedings flow from crises."
Lawyers say the stage for crisis litigation is set early in a company, long before it becomes public, and it's the result of decisions made by management and employees during the course of business.
Take product recalls. Gavin MacKenzie, a lawyer at Heenan Blaikie, said "make sure you do your testing and don't rush products to market."
Ensure the company conducts appropriate legal and compliance audits at regular intervals.
Christine Carron, a lawyer at Ogilvy Renault, said "what's driving crisis litigation is the conversion of technology and globalization."
"You no longer need to expend time and energy going abroad to do business."
It means part of a company's manufacturing or supply chain can be coming from countries such as China, India or other emerging markets where best practices might differ.
It also exposes a company's confidential information to a wider range of parties and increases the chance of it being improperly disclosed.
"To the extent possible, you need to adapt measures that will minimize those risks and plan for what the company is going to do if that risk materializes," she said.
That means putting in place a team to deal with any crisis well in advance of it happening. "Having a well-mapped consultation and communication plan in place can make all the difference in the world," said Sonia Bjorkquist, a litigator with Osler Hoskin&Harcourt.
John Callaghan, a lawyer at Gowlings, said good communication expertise and legal savvy are critical to surviving a case of crisis litigation. "It's the blend of the two that is the hallmark of good crisis management.
"The lawyer's job when first brought into it is to calm the waters and put a rational scope around it."
However, companies should ensure they adds the right talent to the team to address the crisis. If it's a regulatory investigation, then make sure people from the relevant parts of the company dealing with those matters are central to the crisis-management team.
"Depending on what the crisis is, lawyers often play the co-ordinating role," Mr. Callaghan said. "It's important that you get out in front of things. The worse thing you can have in a crisis is the left hand not knowing what the right hand is doing."
Once the team is in place, it's time to start communicating.
Ms. Bjorkquist said "the most important thing when a crisis arrives is effective communication with all constituents of the corporation."
For example, Mr. Koehnen noted, "The board should be involved immediately."
Ms. Bjorkquist added "employees are sometimes left out of the loop. They can be among the best managers if they're given the right information."
Other constituents include customers, shareholders, business partners, suppliers, regulators and bankers.
The media will also need to be dealt with. "Pick one person to be the spokesman as best as possible for the company," said David Conklin, a lawyer at Goodmans.
He added if the crisis involves allegations of wrongdoing, "isolate the people responsible and take them out of the matter."
What a company says publicly in a crisis is critical and can set the stage for a successful resolution, lawyers say.
This is where tension can arise between legal team and the public relations experts.
Mr. MacKenzie warned that "the litigation strategy and the communications strategy will often be at odds."
For example, "admissions against interest might void liability insurance policies and will be admissible in evidence."
That's why it's important to map out an appropriate response that considers the impact of any statement across the entire organization.
It doesn't mean a company has to come off as coldhearted. "You can be sympathetic to those who suffer harm," he noted.
And in some cases, Ms. Bjorkquist said an apology "is necessary because it addresses the wrong and may deflate the situation."
But each case is different and that's why preparation, advanced planning and taking preventive measures are critical to managing a crisis.
Remember, said Mr. Conklin, "the best crisis management involves a crisis no one has heard of."
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