The #MeToo and #TimesUp movements provide a salutary backdrop to the cases of inappropriate behaviour that have rocked the corporate world on both sides of the Tasman and share a common trait with reputational risk – they are a classic example of crisis contagion.
Crisis contagion is where an issue in one organisation quickly spreads across sectors becoming an industry, national, or even global outrage.
This happened in the motor industry with the VW emissions scandal; it’s happening in the US around gun controls post yet another school shooting; it’s ongoing in the Australian energy sector around electricity pricing; the New Zealand legal fraternity; and it is playing out currently for the financial services and banking sector with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry established in 2017 by the Australian government.
The questions for every executive team, CEO, communications head and chief risk officer are, of all the crises swirling around the commercial world, which do you feel confident to ignore, which do you take notice of, and which do you actively prepare for and how?
In all of the above there were clear warning signs. The emergence of latent industry problems potentially carry with them serious, long-term trust and reputational consequences. All typically incubate over time with numerous warning flags along the way.
So why don’t managers see them coming? Why don’t they prepare? What is your business doing right now about potential issues your sector may face down the track?
Almost all crisis contagion cases can be pinned to culture and across one or more of the following five areas:
- Lack of governance – allowing slippages in standards to the extent they became acceptable or they were ignored
- Gaps in supervision and how processes are monitored and reported – breeding a culture of ‘getting away with it’ or under-reporting of issues, or worse still, lack of reporting entirely
- Unofficial ‘work-around' strategies – short cuts around things like under-staffing or unrealistic deadlines / schedules or avoidance of the system or overcomplicated processes, etc.
- Blame cultures – a ‘them vs us’ attitude between staff and management
- Poor training and staff development.
- The failure of an organisation to respond to foreseeable and predictable risks not only calls into question the competence of management, but places the brand and personal reputations of management at heightened risk.
In SenateSHJ’s latest Reputation Reality report, 46 per cent of Australian and 28 per cent of New Zealand companies surveyed identified ethics and social governance as major triggers for reputational risk. And given the decreasing trust in organisations and governments the world over, it was interesting to note integrity ranked overwhelmingly as the key driver of reputation across New Zealand (76 per cent) and Australia (54 per cent).
In its report: Conduct: Are you in? It’s everyone’s responsibility, Deloitte makes the point that conduct-related scrutiny is increasing, bolstered by community concerns and cultural sentiments and “the expectation that an organisation – across all levels – behaves, acts and conducts itself appropriately at all times”. To manage this, says the report, means organisations need to look at their entire trust ecosystem to understand and protect the pillars of brand and reputation.
But it’s not all doom and gloom. Resident in all of this is also an opportunity for organisations which position themselves as conduct leaders.
How do companies gauge the risk of crisis contagion from another player in their sector?
Laufer and Wang in their paper: Guilty by association: The risk of crisis contagion, suggest companies look at four factors: country of origin, industry, organisational type, and positioning strategy. They say the more factors companies have in common with a stricken organisation, the more likely they will be similarly affected.
Other ways to gauge the potential for contagion within your sector include:
- Monitoring news and social media to determine whether the public views the issue / crisis as isolated or industrywide
- Asking your stakeholders if they care and why
- Monitoring customer complaints (if you are a customer-facing organisation) as well as consumer action groups
- Keeping a watch on and engaging with regulators
- Monitoring political debate
- Conducting exit interviews with staff with a specific section on conduct and culture.
- Overlaying all of this is the role management plays in engendering a culture of openness and early reporting across every level of the organisation. A lot of time and pain can be saved by organisations who have processes in place for identifying potential issues / crises and how to escalate them. At the core of this is culture – a culture where it’s OK to raise issues, it’s OK to admit mistakes. Most importantly, it’s a culture where it’s definitely not OK to cover things up or delay reporting even the smallest issue, concern or breach.
What proactive steps have you taken to search for and identify conduct vulnerabilities across your organisation, and what is the potential cost if you haven’t?
The way we do business, and the values which are considered acceptable today, may not meet community expectations tomorrow. It’s why businesses need to have systems and processes in place to ensure they monitor and understand all vulnerabilities and opportunities which impact their social license to operate.