The GCs guide to managing a corporate crisis

By Clarion
schedule5th Nov 24

Arguably, until the past five years, crisis management strategies and plans were often more theoretical than practical. However, the global pandemic, the war in Ukraine, and escalating trade tensions have demonstrated that, in today's complex and fast-paced business environment, crises are now an unavoidable reality. Whether triggered by external factors such as regulatory changes, public relations disasters, or internal issues such as fraud or operational failure, corporate crises can escalate quickly, threatening an organisation’s reputation, financial health, and even its survival.

In these moments, the role of General Counsel (GCs) and in-house legal teams is crucial. GCs are increasingly being thrust into a broader, more strategic arena, where their responsibilities extend to proactively identifying potential pressure points that could disrupt supply chains, cripple operations, or damage reputations. To navigate their organisation through such crises with minimal impact, GCs must draw on a diverse skill set beyond legal expertise, showcasing their strategic leadership and demonstrating their value in steering the company through turbulent times.

This blog explores the vital responsibilities of GCs and in-house legal teams when a crisis hits, outlining key steps to manage legal risks and protect the organisation.

What is a crisis?

A crisis can take on different meanings for different organisations, depending on their size and industry, which makes it difficult to define any one event as a crisis. However, certain common characteristics are often present in crisis situations. They tend to be:

  • sudden and often unexpected;
  • high-impact, shocking, and potentially traumatic;
  • significant in their potential legal or reputational consequences;
  • capable of causing major disruptions, particularly in the short term; and
  • able to challenge the fundamental viability of an organisation.

Here are some common examples of corporate crises that organisations may face:

  1. Financial crisis - A sudden financial downturn, bankruptcy, or severe liquidity issues that threaten the survival of the business. This could be caused by poor financial management, fraud, or broader economic instability.
  2. Reputational crisis - Negative publicity due to issues such as scandals, unethical practices, or product failures. For example, social media backlash, bad press, or public outrage over company actions, such as environmental damage or employee mistreatment.
  3. Legal and regulatory crisis - Involvement in significant litigation, regulatory fines, or investigations due to breaches of law or compliance failures. This could involve violating data privacy laws, corruption, or anti-competition regulations.
  4. Cybersecurity breach - A major data breach or cyberattack that compromises sensitive information, disrupts operations, and leads to potential legal and reputational repercussions.
  5. Product recall or safety issue - A significant product failure or safety issue that necessitates a product recall, leading to financial loss and reputational damage. This can happen in industries like automotive, food, or consumer goods.
  6. Operational crisis - Significant disruptions to business operations, such as natural disasters, supply chain breakdowns, or major technical failures. These events can halt production or delivery of services.
  7. Leadership or governance crisis - The sudden departure of key executives, leadership scandals, or internal disputes that create instability at the top levels of the organisation. This can shake investor confidence and disrupt operations.
  8. Environmental or health crisis - Situations like environmental pollution, hazardous waste leaks, or public health concerns can lead to severe regulatory consequences and reputational harm.

Building crisis resilience

Crisis resilience refers to an organisation's ability to not only withstand but also adapt and recover from unforeseen disruptive events. For GCs, building crisis resilience is about proactively preparing for these scenarios by developing robust risk management strategies, ensuring compliance, and fostering a culture of transparency and accountability across the organisation.

GCs play a crucial role in identifying potential vulnerabilities before they escalate and in guiding the company through crises with minimal damage. The goal is not just survival, but enabling the organisation to emerge stronger, more adaptive, and better positioned for future challenges. This long-term approach to crisis management positions GCs as strategic leaders, demonstrating their value beyond legal expertise by ensuring organisational resilience. Having the ability to act quickly and decisively is a critical skill for in-house legal teams. This may also involve approaching external counsel and third-party experts to ensure you have any blind spots covered.

Crisis preparation and management

Crisis preparation and management involves proactive measures to anticipate, mitigate, and respond effectively to disruptive events. The key to successful crisis management lies in preparation, developing comprehensive risk management frameworks, creating robust response plans, and conducting regular crisis simulations to test readiness.

During a crisis, swift and coordinated action is essential, with clear communication and strong leadership guiding decision-making. GCs and in-house legal teams play a vital role in this process by identifying potential legal and operational risks, advising on regulatory obligations, and helping to safeguard the organisation’s interests. Ultimately, thorough preparation helps minimise damage, supports faster recovery, and strengthens the organisation’s resilience to future challenges.

  1. Risk assessment - This initial stage involves identifying and assessing crisis risks that go beyond everyday compliance or regulatory concerns. These risks can be identified through research, reports, and interviews with key stakeholders across business functions. From this, you can create a crisis risk map and action plan, highlighting any gaps that need addressing.
  2. Planning - The next step is to prepare, implement, and communicate your crisis management plan. This plan provides a framework for responding to and recovering from crises, ensuring clear processes to save time and minimise impact. It also serves as a training and communication tool, helping to build and embed resilience within the organisation’s culture.
  3. Testing - Stress testing your crisis management plan is essential. It allows your strategic and operational teams to evaluate and refine your crisis response, ensuring preparedness for unexpected challenges.

If a GC needs support in creating or stress-testing a crisis management plan, external counsel can provide valuable expertise. External advisors bring fresh perspectives and specialised knowledge, helping to ensure the plan is robust, comprehensive, and legally sound.

How to handle a crisis effectively

Effectively handling a crisis requires swift, well-coordinated action guided by a clear crisis management plan. This involves assessing the situation, communicating transparently, and making informed decisions to mitigate risks. GCs play a key role by advising on legal and regulatory obligations while ensuring that the organisation’s response is aligned with long-term recovery goals.

  • Early detection and prevention

One of the most valuable roles of the in-house legal team is in pre-empting crises through risk management and early detection systems. GCs are responsible for ensuring that robust compliance programmes are in place to identify potential risks before they become full-blown crises. Regular audits, compliance checks, and keeping abreast of industry regulations are key to preventing incidents that can lead to crises.

  • Immediate response strategy

When a crisis erupts, the initial hours are critical. In-house legal teams must be prepared to spring into action immediately. This means having a well-rehearsed crisis response plan that aligns legal, operational, and communication strategies. The legal team’s role in this phase includes assessing the situation, ensuring compliance with regulatory obligations, and advising senior leadership on appropriate next steps.

Effective crisis communication is essential. Missteps in public statements or disclosures can amplify the crisis, leading to reputational damage or even legal action. GCs must work closely with PR teams to control the narrative, ensuring that all communications—internal and external—are legally sound and consistent. Additionally, the legal team must guide the executive team in making swift decisions while protecting the organisation from future liabilities.

  • Regulatory and litigation considerations

In many crises, regulatory bodies will need to be notified, and litigation may be on the horizon. GCs must manage these processes meticulously, ensuring that the company meets all regulatory reporting requirements in a timely manner. Failure to do so can result in fines, penalties, or reputational harm.

Litigation is also a significant concern. GCs must be prepared to engage with external counsel if necessary and work with internal teams to gather evidence, manage investigations, and build defences. It’s critical that all actions taken during the crisis are well-documented, as this will be essential in defending the company in future litigation or regulatory investigations.

  • Crisis governance and leadership

A key part of crisis management is leadership and governance. GCs often play a central role in establishing a crisis management team or leading efforts to coordinate cross-functional responses. This team should include representatives from legal, communications, IT, and other relevant departments. A strong governance framework helps streamline decision-making and ensures that all departments are working in tandem.

  • Recovery and learning

Once the immediate crisis has passed, the role of GCs and in-house legal teams doesn’t end. The recovery phase is just as important, as it’s an opportunity to strengthen the company’s legal frameworks and ensure that lessons are learned. GCs should lead post-crisis reviews to assess how the situation was handled, identify areas for improvement, and update legal and compliance protocols to prevent similar incidents in the future.

The critical role of GCs in crisis management

In the face of a corporate crisis, General Counsel and in-house legal teams are indispensable. From prevention and immediate response to recovery and future planning, their role is multi-faceted and essential for safeguarding the organisation’s legal standing and reputation. By maintaining a proactive stance, staying agile during crises, and continuously improving crisis response frameworks, GCs can help their companies not only survive crises but emerge stronger from them.

In the ever-changing corporate landscape, the importance of having a skilled and prepared in-house legal team cannot be overstated. For GCs, being ready for a crisis is not just about legal preparedness, it’s about leadership, strategy, and ensuring the company’s long-term success.

To discuss any of the points raised in this blog, please contact Paul Matthews, who can provide strategic and proactive advice on crisis management.

Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.

Chat with us!

Live Chat

Welcome to our microsite, please tell us your name, company and email to chat with a member of the team.