It’s almost inevitable that at some point in your business, you’re going to face a crisis. PwC’s 2019 Global Crisis Survey of 2,084 senior executives in 43 countries found that 69 per cent of businesses had experienced a crisis in the past five years, and 95 per cent expect to experience a crisis in the future.
What do businesses mean when they call something a crisis? It can be an incident that disrupts your operations, impacts cash flow or revenue or hurts your reputation. Other common crises are technological, humanitarian, legal or relating to human capital. The worst crises may involve more than one of these disruptions.
Since crises are inevitable, it makes sense to prepare. But how do you do that, and is every crisis worth responding to?
How to handle a reputational crisis
A reputational crisis can cause widespread damage to a company. Part of the reason is that it has a domino effect on other aspects of the business.
The PwC report showed that among those who’d experienced a reputational crisis, 24 per cent found it led to at least one subsequent reputational crisis; 20 per cent saw it lead to an ethical misconduct situation, and 14 per cent saw a leadership change.
“Reputational risk can pose a threat to the survival of the biggest and best-run companies and has the potential to wipe out millions or billions of dollars in market capitalisation or potential revenues,” says crisis media and communication consultant Nadine Drummond of Brawta Communications. “A diminished reputation impacts your ability to build and expand your business, and so the management of reputational risk is paramount.”
The key is to act quickly and set the ego aside. “If business leaders have not mastered the art of the ‘ego death’ during their careers, they will not have the emotional intelligence to move quickly to recover from or avert a crisis even if they employ a recovery strategy,” Drummond says.
She explains ego death as taking responsibility, and something executives sometimes fail to do:
“For many unchecked ego-driven executives, when a crisis arrives, they shift responsibility or fault to others, claiming the situation was the ‘regrettable actions of employees’ or blaming the customer.”
How to handle an operational crisis
An operational crisis is anything that disrupts day-to-day business, like losing a key client or being affected by a natural disaster or a global pandemic.
Erik Engstrom, an entrepreneur with a background in risk and business continuity management for Fortune 500 companies, says one approach is to put alternative scenarios in place. For example, many restaurants have turned to outdoor seating to help deal with crowd restrictions resulting from COVID-19.
Some crises catch businesses by surprise. Engstrom says that since facing a problem is almost inevitable, it’s better to create a future plan:
“The core concept of business continuity is what do I need to protect? What do I need to conduct? What do I need to charge, and what do I need to replenish?”
In other words, think about what you need to stay in business. Engstrom says there are often short-term alternatives, like temporarily operating from somewhere else or finding a different way to contact customers and handle bookings and payments.
How to handle a financial crisis
In handling a financial crisis, communication with employees is crucial. For example, some companies spoke openly about their employees’ economic situation and invited those who could take temporary pay cuts. In some cases, the CEOs took pay cuts and helped retain valued employees for when business picked up.
But where possible, it’s wise to prepare in advance and take advantage of insurance protections. “Work within an insured infrastructure — use bank systems with insured third-party services,” says Engstrom.
He also advises businesses to protect against liquidity problems by dividing their capital among multiple financial institutions. “Don’t allow a single agency or person to have all of your eggs in one basket,” he says. This approach means that companies won’t suddenly find themselves entirely without funds if something happens with one financial institution.
When is it too late?
Is there a point at which it doesn’t make sense to deal with a crisis? For Engstrom, this decision is about cash flow and dealing fairly with employees.
“As a risk consultant, if you were to say, what are my parameters [for not dealing with a crisis], it would be when you have 30 days of payroll left,” he says. “The last thing you want to do is to have to tell an employee that you cannot pay their payroll, with less than a month’s notice.”
Engstrom adds that when you don’t have enough funds left to continue the business, it’s best to come clean.
While handling a crisis can tax business owners to the limit, there is one piece of good news – 42 per cent of companies emerge stronger after weathering a crisis, and they’re better prepared for the next one they’ll face, according to PwC.