Meltdown in Minutes

Photograph by Alana Dimou

MELTDOWN IN MINUTES

Preventing and responding to a crisis which can be fuelled by social media is now a critical matter for leaders. 

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INDUSTRY: COMMUNICATIONS In the last year alone, Australian companies have seen millions of dollars wiped off their value as large scale and heavily publicised crises and scandals have plagued business.

The crises are fuelled by social media, which has driven public scrutiny to an all-time high. However, experts warn that companies are failing to plan for a crisis and are in danger of being caught out.

Many companies’ crisis plans are based on the compliance approach of 15 years ago. Very few businesses have a fit-for-purpose crisis strategy for the current environment, PwC US partner and Global Crisis Centre coordinator Sloane Menkes says.

In the next decade crisis management will just be part of standard business operations. It’s inevitable.

Sloane Menkes

Menkes says 15 years ago companies were only just starting to understand what it means to be compliant. “Compliance is now something that is built into what businesses do every single day, it’s just part of doing business,” she says.

 “Crisis management is heading in the same direction. In the next decade, crisis management will just be a standard part of a business’s operations.” Menkes says the first mistake many companies make is being too slow to admit they are in the grip of a crisis. “Defining a crisis is very difficult,” she says. “We ask clients to think of the top-four ways their business could be disrupted. This varies between businesses and industries.”

Executives, she says, are often jolted into preparing a crisis plan when they see a competitor going through a crisis.

“The impetus is coming from the fear of financial loss and employee morale and reputation,” she says. “A brand means everything.

And a brand can be destroyed very quickly in the eyes of consumers and regulators when a crisis hits.”

Menkes says there are a number of types of crisis events to prepare for, including financial, legal, operational, people (covering terrorism, natural disaster, injury/death) technological and human capital.

As the world becomes more connected, the frequency of crises is expected to increase. According to PwC research in CEO Pulse, 65 per cent of CEOs globally claim they have experienced at least one crisis in the past three years.

More than half have gone through two or more crises during that time, and 15 per cent say they’ve experienced five or more crises in the last three years.

And the issue isn’t going away, with 30 per cent of CEOs predicting they will face more than one crisis in the next three years compared with just 16 per cent who think they’ll face less.

In 2015, cybercrime alone was estimated to cost businesses globally $375 billion, up from $3 billion in 2013.

The 10-year average for insured losses from natural catastrophes is $194 billion and this doesn’t take into account the cost of fraud, corruption, pandemics, labour disputes or other events that an organisation might face.

In September, PwC Australia launched its local arm of the Global Crisis Centre, aimed at helping companies prepare, respond and recover from crisis events. The Centre offers not only an off-site space for clients should a crisis occur, but brings together experts from PwC Australia’s Risk, Consulting, Legal, Cyber, Forensics and CMO Advisory business units. It also can draw on experts from its international network, given that many crises have cross-border implications, such as the Volkswagen emissions scandal.

PwC Australia Global Crisis Centre Lead Partner Rick Crethar says adverse events are more frequent and their impact is larger.

“What used to be a premise of ‘it will never happen to me’, is no longer valid,” he says.

“The CEO and the chair of the board are the owners of the brand and reputation. In Australia the corporate psyche remains that prevention is not better than cure. In a capital constrained world, companies focus on spending money on positive parts of the business as opposed to looking at the risks and spending to mitigate them.”

Crethar says realistic and real-time simulations are becoming a key element of crisis preparation.

“Being able to see what will happen to your organisation when things go wrong is a very effective way of seeing just how bad it could be,” he says. “It helps companies see gaps in their resilience. Part of being resilient is having that trust with stakeholders - whether it be investors, the government, regulators or the community. Resilience is defined as the ability for the organisation to respond to something bad, but secondly to respond and be better than before. It’s the adapt, survive, thrive  concept.”

Creathar says crisis plans need to be simple so companies can envisage where the impacts will be felt in the stakeholder community and community more broadly. “So you’re not just on the front foot with immediate stakeholders; you need to think how the government or regulators might intervene,” he says. Social media, he says, has also changed the landscape, with public scrutiny at an all-time high.

Crethar says the BHP Samarco dam disaster in Brazil was an example of a company handling a crisis well and minimising brand damage, with CEO Andrew MacKenzie flying straight to the scene, offering support to families of victims, contro-
lling the situation and message and ultimately relinquishing his bonus.

He says one example which has had serious ramifications is Ardent Leisure, when four people died on a theme park ride at Dreamworld. In addition to the tragic loss of life, the crisis saw the share price drop 22 per cent in one day, a government inquiry established and CEO Deborah Thomas stepping down within months of the event. PwC partner Malcolm Shackell says in his experience the Australian corporate landscape is extremely reactive. “So when crises occur, there is little planning around them, which means at the end of the day they are just reacting to events as they occur rather than being able to get back on the front foot,” he says.

“Sometimes that works out OK, but most of the time they aren’t able to get ahead of the issues.

International companies are a little better than Australian companies at planning because they acknowledge the inevitability of a crisis occurring. Most organisations are convinced nothing bad is going to happen to them, so until quite recently they’ve been comfortable with dealing with it if and when it occurs.

But in a social media-fuelled world, this approach is no longer sustainable.” Shackell says Qantas has been very good at crisis management, adopting an approach that a crisis could occur any day.

“They have thought out the worse-case scenario and they plan for it,” he says.

Shackell says planning and appropriately responding to a crisis can minimise the financial loss and, if done well, companies can actually come out the other side in a better position.

The Press is a publication by PwC Australia, aimed at sharing expertise,capturing insights and working together to solve important problems.

This article first appeared in Edition 3 of The Press
By Lucille Keen, Senior Reporter, The Press

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