Wednesday, March 14, 2007

When Crisis Hits Think Like KPMG, Not Arthur Andersen

KPMG’s near-fatal crisis involving the sale of allegedly illegal tax shelters provides a case study in crisis management. A front-page story in the Wall Street Journal takes readers inside the decision-making process as executives determined the best strategy for averting criminal indictment. Indictment—not conviction mind you—led to the mass exodus of Arthur Andersen clients as well as partners, and, ultimately, the accounting firm’s demise. The Journal story reveals how KPMG managed to keep its partners, clients, and, at the time of this entry, its doors open. (Client civil litigation looms.)

Unlike Andersen, KPMG executives—including a former federal judge—opted for a fall-on-the-sword strategy in front of the Justice Department. This strategy does have potential pitfalls, which also are described in the Journal story.

Most executives, I believe, think of the potential for a crisis as a low-probability, high-impact event. In fact, if executives take five minutes to list potential vulnerabilities that could sink their company, I believe the list would lead them to a different conclusion. The probability of crisis in any business is high. The probability of survival is low without being prepared and understanding how to deal with the different stakeholders during a crisis.

A few points to consider—with your attorneys and public relations counsel present—if faced with a crisis:

  • Dump the bad news: tell it all at once.
  • Admit wrong doing and apologize.
  • Fix the wrong.
  • Communicate plans to avoid it happening again.
  • Execute on those plans.
  • Provide stakeholders with progress reports along the way.

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