Crisis Management
By Jose R. Rodriguez

Making it safe for people to do the right thing.

Crisis prevention has taken on greater urgency for management and boards as corporate crises, frequently self-inflicted, continue to make headlines. The deep and long-lasting reputational impact of self-inflicted crises — product quality, worker safety, sexual harassment, unethical sales practices, legal/regulatory compliance — has put a spotlight on crisis prevention, particularly the role of culture in crisis prevention.

How do corporate leaders assess the robustness of their crisis prevention and readiness efforts? The starting point is to make sure the fundamentals are in place, visible and working: tone at the top, an ethics and compliance program, whistle-blower hotline, employee training, and a robust risk management process. Then focus on the culture and incentives surrounding those mechanisms.

The overarching message from those board members and executives we interviewed for our lead director initiative white paper, "Crisis Prevention and Readiness," was to “make it safe for people to do the right thing.”

Beyond setting the tone and walking the talk, the CEO and senior management should create a culture that makes it safe for people to do the right thing. A company’s leadership, particularly the CEO, needs to be visible and approachable. “The goal is to create an open and comfortable atmosphere that encourages people to come forward and speak up — not just vertically but laterally — 360 degrees, really,” says one director. “You have to make it okay for people to ask questions, disagree and bring up difficult subjects. They need to feel empowered to speak up when they see problems, even if the problem isn’t fully formed yet.”

In making it safe for people to do the right thing, the directors and business leaders we interviewed stresses the following:

Be clear about the behaviors for which the company has zero tolerance. Companies typically have zero-tolerance policies for certain behaviors, such as violence, fraud, racial discrimination and sexual harassment, but there cannot be a zero-tolerance policy for everything. It is essential that companies get this right. How should a board and management team go about developing a zero-tolerance policy? What makes a zero-tolerance policy effective? The #MeToo movement provides some important lessons for boards as to how to establish absolute clarity regarding its zero-tolerance policy for harassment and abuse.

Create a culture of accountability. People pay attention to who gets hired, fired and promoted. There is no substitute for being objective about leadership, holding them accountable and paying for performance. It gives all employees a sense of what is expected and what is rewarded.

These issues are often more nuanced than simply reporting wrongdoing. As one director notes, “‘If you see something, say something’ is a useful mantra, but it doesn’t work if the power dynamic is wrong, or if there’s an implicit downside for speaking out.”

Emphasize values and purpose in the decision-making framework. Be clear that the company will stand behind employee decisions that are grounded in the company’s values. Also, recognize that corporate loyalty is less of a motivator than it once was. Millennials and other younger generations may care more about the larger purpose behind their work, which is values-based, not company-based.

Understand how employees are onboarded, core values are communicated, and expectations are set. What is the messaging that new hires hear first? How are values articulated and reinforced? Make sure new employees understand expectations and enable them to live up to those expectations with training and regular reminders. At a leadership level, one director says: “any senior-level hire should meet with the lead director — when they’re hired or departing from the company — to talk about the culture.”

Recognize the power of performance targets. “Most people want to do the right thing, but generally speaking, they will aim for the targets they’re given,” according to another interviewee. Leadership may have all the right intentions and ideas for putting balanced targets in place, but cascading that down through a large, extended and diverse organization is not easy to do. “You can end up with unintended consequences and behaviors that can lead to a crisis.”

Crises will happen. But a strong culture — closely monitored and driven by the right performance targets — may go a long way to averting crises that are self-inflicted and often long lasting.

Jose R. Rodriguez is leader of KPMG’s Audit Committee Institute.


2019 Third Quarter

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