Preparing for the Unprecedented: Some Tips for Crisis Planning

On April 1, 2014, Financial Profiles sponsored a special event in Los Angeles, jointly hosted by the Southern California Chapter of the National Association of Corporate Directors (NACD) and the local chapter of the National Investor Relations Institute (NIRI).

Well attended by more than 100 directors and investor relations professionals, the event featured a keynote interview by M. Christian Mitchell, Chairman of the NACD Southern California, with Michael O. Johnson, Chairman and CEO of Herbalife. Over the past 17 months, Herbalife has experienced a number of unprecedented and unexpected circumstances, including actions by a shareholder activist whose billion dollar bet against the company led to an FTC investigation and an unrelated resignation by its audit firm. Mr. Johnson imparted valuable insight to the audience about the practical implications of dealing with a crisis situation, including the following tips for planning and communications:

Put in place a bulletproof crisis plan even if you aren’t expecting a crisis. Once a crisis hits, it’s almost impossible to make up for lost time.

Control the message by telling your own story. Develop a set of key messages that are focused on the big picture and stick to them. Avoid the temptation to make the story about the details that are unraveling daily.

Step up communications with all stakeholders. Building confidence in your company and product/service during a crisis requires more frequent communication with all constituents – the Board, employees, customers, distributors, shareholders, and the press. Consider the audiences that matter and find the best methods to effectively reach them. These may range from daily calls with the Board to social media campaigns to reach diverse stakeholders.

Stay focused on business performance. The distraction caused by a crisis can result in deteriorating business performance if you let it. One way to make sure the CEO has time to manage the crisis is to increase key executives’ responsibilities for managing day-to-day business operations.

Don’t wait for a crisis to identify and cultivate key influencers in the press and investment community. The press loves a negative story and there is never any shortage of press coverage in a crisis. It’s good practice and worth the effort to take the time to build relationships with reporters and analysts who could be supporters of your company long before a crisis emerges.

Investor Relations is never more important than in times of crisis. Communication with investors becomes more frequent and more personal, and the CEO needs to play a greater role in communicating with shareholders. In a crisis situation, a company’s shareholder base can dramatically change in a very short time period. The IRO may need to build an entirely new program for communicating with the new shareholder base, with greater focus on educating investors and analysts on the story and the business model. Keep it simple. Explain the numbers, but make sure to also articulate the ethics and ethos of your company.

In closing, Mr. Johnson commented that company leaders need to demonstrate leadership, even when facing unprecedented challenges – people are counting on you.