A crisis hits and the internal kabuki dance begins. The CEO. The lawyers. The communicators. And as if scripted in advance, the drama frequently plays out in a predictable way.
The CEO wants to fight back against the unfair criticism. The lawyer, preparing for coming litigation, doesn’t want the CEO to say anything that could create additional risk. The communicator argues against circling the wagons and instead wants to engage the angry mob.
When the dance ends, the lawyer is often standing by the CEO’s side while the communicator grimaces from the sidelines. But why?
Debates about how to respond in a crisis often boil down to arguments about whether the "litigation risk" is greater than the "reputation risk." Looked at through the lens of behavioral science, it’s clear this is not a fair fight.
Humans are wired to find the arguments made by lawyers much more appealing. If communicators want to level the playing field, they need to make it easier for CEOs to compare the real risks of litigation with the costs of a damaged reputation.
In a crisis, a lawyers’ primary objective is clear and short-term: mitigate the costs you face today. The company faces certain litigation, they argue, and any statement can be considered an admission of responsibility. Saying nothing — or as little as possible — decreases the risks and costs of that litigation.
Communicators, however, often argue that the CEO must engage the media and the public to protect the company’s reputation. The company must show it understands the criticism even if it doesn’t agree with it. If you don’t communicate, you lose the trust of your customers. And that hurts business.
Here is why the legal arguments are more compelling.
First, humans are loss averse. Most people will feel a greater sense of loss from losing $100 than than the sense satisfaction they get winning $100. Crisis responses are portrayed as a gamble with errant statements creating a near-certain loss while effective comms statements have an uncertain potential for gain (or non-loss).
Humans feel more responsible for acts of commission than omission. By saying nothing, either literally or figuratively, CEOs have less agency over the way the issue plays out. Engaging the media, on the other hand, is an act of commission and is seen as riskier.
Humans also overestimate risks they can easily call to mind. People are more afraid of the smaller risk of plane crashes than the larger risk of car crashes, because we can easily recall an airline tragedy.
The risks and costs of a negative verdict in a lawsuit are also easily called to mind. Remember the McDonald’s hot coffee case? And lawyers can point to smoking gun emails to highlight the risks of saying the wrong thing.
But reputational risks are more complicated, less tangible, and therefore less available to our minds. As a result, they are underestimated.
Humans value present risks more than future risks. Litigation is a present-day risk even when lawsuits take years to resolve. When a crisis hits, CFOs immediately seek to put often huge litigation reserves on the balance sheet, and even more if they fear regulatory fines.
So litigation risks are present from day one. But reputation risks take weeks, months, or years to materialize. And because they are harder to quantify, they’re much less likely to immediately go on the balance sheet and so are undervalued.
Finally, humans prefer to do things that feel good, not things that feel bad. The lawyers ask us to acknowledge nothing. But communicators ask the CEO to be vulnerable and empathetic, something that is often very uncomfortable.
So there’s a battle between tangible, direct, immediate and easily accessible arguments that feel good against the intangible, indirect, long-term and hard-to-illustrate arguments that feel bad. It’s no wonder the communicator loses.
But now that we know the challenges, we can reframe our arguments.
First, make the reputation loss immediate and tangible. There are many examples of companies being punished by consumers and investors for failing to respond quickly and effectively. Also, in many cases CEO reputations are irreparably tarnished. Ask Tony Hayward of BP, John Stumpf at Wells Fargo, and Travis Kalanick at Uber, who all lost their jobs.
Second, quantify the risk. There is a growing body of work that shows the long-term impact of crises on corporate bottom lines. Litigation risks can pale in comparison to stock market risks (both immediate losses, lower P/E multiples, and lagging returns compared to peers), and revenue risks from switching. Companies like Chipotle, United, and others have experienced immediate and often sustained drops in stock prices and revenues.
Identify the leading indicators. In many industries, like airlines and banking, the costs of switching are high. Customers who live near a United hub, can’t easily switch to another airline. Changing a bank is a huge hassle.
When this is the case, you need to find other metrics. For example, how many people with easy choices are choosing your company in a given month. Identifying these metrics ahead of time to make reputation impact more tangible.
Also, challenge the premise. In my experience, it is exceedingly rare for a well-constructed CEO statement to be a determining factor in a litigation. When there is a comms litigation risk, it’s usually because someone said or wrote something that they never wanted to see the light of day. So when lawyers advise silence, ask them for examples of communications that created actual risk.
Finally, reframe your message. There is a big difference between showing empathy to consumers or others harmed by a situation and apologizing or accepting responsibility. In the heat of a crisis, CEOs and lawyers assume that any acknowledgement equals admission. Your job is to show them the difference.
All these steps are best taken ahead of the crisis. Crises are highly emotional and it’s very hard to integrate new lessons when you are in the moment. But by defining and socializing your view of reputation risk as part of your crisis planning, you will have a much more level playing field when it really matters.
Michael Maslansky, the CEO of maslansky + partners, can be reached at email@example.com.