Reed Smith Client Alert

Authors: Nicholas Rock Richard M. Gunn

Introduction

The term "emergency" can encompass a wide range of events, including on and off shore casualty incidents, such as fire, explosion and collision, environmental disasters, the impact of sanctions and/or significant geopolitical events, regulatory investigations, major health and safety incidents, natural disasters and major counterparty bankruptcy or other financial collapse.
Emergencies, whether they be high profile public events or small and relatively self-contained issues, are unfortunately a fact of business life. Whatever the nature and scale of a corporate emergency, they will all tend to share some of the same characteristics: unwelcome diversion of management time, business interruption, the potential for corporate liability and damage to reputation – but also an opportunity to learn lessons and strengthen the business for the future.
Accordingly, preparing for emergencies is not a sign of weakness, rather it demonstrates a company’s ability to accept and deal with challenges and its commitment to maintaining the continuity of normal business operations instead of becoming caught up in the surrounding chaos.

Drawing on our experience of dealing with a wide range of energy and natural resources sector emergency situations, this article suggests certain "best practice" approaches from the perspective of an external or in-house lawyer when facing an emergency situation by looking at the ways in which a company should prepare for an emergency before it happens, the steps that should be taken while the situation is ongoing, and how the aftermath of an emergency should be used as an opportunity for development.

Emergency response – the key features

Preparation and planning

A company that is well prepared for an emergency will have already created internal emergency response plans and teams in order to try to anticipate any situation that may occur. To pro-actively prepare for an emergency, all companies should consider implementing the following:

  • A realistic emergency response plan, which can be implemented quickly and effectively. Having a plan in place will help to reduce the confusion that may otherwise take over during an emergency and, importantly, reduce the amount of stress and uncertainty for everyone involved. The plan should include information regarding potential emergency situations, strategies and tactics for dealing with an emergency, information as to who may be affected by an emergency and the identification of who is to enact and lead the emergency response plan.
  • A comprehensive emergency communication plan (which may be part of the overall emergency response plan). This will make it clear how to communicate properly both externally and internally once an emergency occurs in order to keep the disseminated information accurate and consistent. This should include a system for the notification of interested parties, such as customers, the public, employees, shareholders and insurers, the identification of any emergency communication team members and spokespeople and general approved messages for use during different emergencies. Dedicated lines or group email addresses may be considered useful. Before an emergency occurs, the emergency communication team should ascertain target audiences, prepare the tools with which to communicate and draft outline messages which can be sent out upon the occurrence of an emergency, whilst recognizing that this will, by definition, be an organic process which will need to adapt to fit the particular emergency scenario faced. In our experience it is vital that a company’s legal team are involved here – working as a team with the client’s internal and/or external PR consultants – to ensure all messaging is consistent with the emerging facts and the company’s legal risk mitigation/defense strategy.

Drills

There is no sense in carefully drafting and developing a set of emergency response plans and procedures if no-one understands or has practiced how they are to be implemented once an emergency occurs. Employees must be carefully selected and properly trained in their authority and procedures so that they are secure and confident in what must be done should they be faced with an emergency, either with or without guidance from external emergency response advisors. Drills should be conducted on a global basis, and any lessons learned should be shared and incorporated into the emergency response procedures going forward. As the saying goes: plans are useless, planning is essential.

Review and Revision

Emergency response documents and procedures should not be items that are drafted and then left to become outdated and irrelevant. They should be "living", working documents that are tested and revised over time (usually at least every 12 months) to ensure that their implementation provides maximum effect and that they are continuously developing, just as the company, the market and the global situation develops. Emergency "procedures" that require calls to be made to staff no longer with the organization or external lawyers who have moved firms are an all too common experience.

Leadership and coordination

An emergency response plan is only as good as the people who implement it. The creation of an appropriately sized, well-trained and prepared emergency response team is therefore of vital importance. Such a team should be in charge of handling all decisions about the developments in any situation and must coordinate organizational efforts and communications.
Strong leadership is, of course, vital in reducing the turmoil and reasserting order and control following an emergency situation. Leadership should be visible both internally and externally, and procedures should be put in place to filter information to senior management so that they are at all times fully apprised of the situation.

A legal team has a similarly vital (but not necessarily dominant) role. This team will be well-placed to consider and influence the best possible outcomes. A legal team can provide key analysis of contractual and other rights and liabilities, respond to external investigators and implement a strategic approach and cross-disciplinary team coordination. An emergency will commonly require input from a variety of external professionals, and the legal team can make decisions on the requirement for such support and who is best-placed to provide it and then supervise its production. Of course, a legal team will also be able to provide a "shield" of privilege where possible in respect of communications that take place after the emergency occurs.

Subject to jurisdiction specific privilege laws

External counsel can provide "bench strength" and additional expertise and experience, by taking the pressure away from internal resources in order to enable business continuity, whilst contributing the benefits of its strategic global reach. Further, external lawyers will act and make decisions with the aid of clear and dispassionate judgment, which will be an invaluable attribute in times of stress and uncertainty. For this reason, a company’s normal "go-to" external legal advisers may or may not be the right choice to provide external emergency response support – care and strategic attention should be paid when determining whether lawyers with a detailed knowledge of you, your business and the landscape within which your business operates, or lawyers who can guide you objectively through a crisis scenario, would be more appropriate to your own emergency response strategy.

Rapid, strategic and effective response

The Need for Speed Emergency response procedures are designed so that a company is able to seize the initiative and be proactive rather than reactive when a situation occurs.
The first response should be to ensure that the situation is brought under control insofar as possible, that any public safety concerns are rapidly resolved, and that all of the facts are quickly gathered. It can be useful to consider the "worst case" scenario and act on that basis: in this way a company will not be caught out by unexpected developments and may even be pleasantly surprised when the fallout is not as great as had been anticipated. This need for rapid response is increasingly important in today’s world of 24 hour news feeds and, in particular, in a world where (sometimes unwitting) dissemination of information through social media is common place. These factors further serve to emphasize the need for advanced planning.
The legal team should be instructed to analyze the situation, provide advice, and to make a record of progress and key decisions made. They will understand the importance of preserving remedies on a global basis, and will be aware of applicable contractual or statutory time limits and any jurisdictional or cross-border issues. Notice may have to be given to counterparties, insurers and other parties upon the occurrence of a particular emergency, and internal investigations will often have to be undertaken, through the review of documents and the interviewing of witnesses.

However, it is important not to prioritize speed over accuracy, nor use the need for accuracy as an excuse for for inaction. While a company must respond quickly to an emergency situation, it is equally important that it does not fall into the traps of making "snap" decisions or providing an inaccurate explanation of the issue to the public, its employees or its counterparties. Be aware of time limits and the need to act fast in today’s multi-media world, but do not lose sight of the need to fully analyze the situation. The emergency response team must retain a long-term perspective: the company’s reaction to the emergency will be considered and analyzed both internally and externally once the emergency is resolved, and the way in which the emergency has been handled will reflect upon the organization and abilities of the company itself.

Perception Management

Prompt, open and honest communication, to customers and investors, the public, media and any other interested parties, is key. This will ensure the consistency and accuracy of the messages received and will demonstrate that a company’s overriding concern is the wider effects of any emergency (and not just the effect on its balance sheet). Taking responsibility for the problem, when appropriate, is often an extremely effective method of managing public perception of a company in times of emergency. Updates to a company’s web page and the use of social media sites may, in today’s world, be the quickest and most effective means of disseminating a message. The most carefully crafted response is worth less if it is not given to the right audience in the right way.

All external statements should be checked by the legal team. This includes statements to shareholders and the stock market, the press and social media, regulators and governmental agencies, customers, counterparties, insurers, potential civil litigants and company web pages.
It is important, however, not to focus entirely on the external world and by doing so lose sight of internal perceptions. Internal relations should be made a top priority in any emergency, and a company should make sure that an explanation of the situation, and the steps being taken to deal with it, is provided directly and consistently to all employees. Employees should not learn of new information via the media. Instead, they should be briefed about company press statements prior to release and provided with the opportunity to ask questions. Employees are, after all, the "ambassadors" of any company, and if they are aware of the company’s policy on talking to the media and are comfortable with their understanding of the situation they can better articulate the message and support the company’s efforts to resolve the situation.

Revision and reflection

After the event, it will be time to implement the lessons learned. The team involved should debrief, review and reflect as soon as possible after the emergency and revise the emergency response plan as appropriate. Terms in contracts or insurance policies which have caused problems during an emergency should be reviewed and renegotiated if possible.

Of course, such steps are taken with the aim of preventing similar emergencies from occurring, or of further diminishing the effect of any future emergency. However, it is also important that a company is able to demonstrate to its customers, the public and to its employees that action is being taken to make things right and to prevent the same situation from occurring again.

There are many questions that should be asked when taking stock after an emergency, but in response terms the following three may provide useful guidance on the key areas to focus upon:

  1. Was the emergency itself handled quickly and effectively and, if not, why not?
  2. Did the communications efforts work according to plan?
  3. What is the perception/image of the company now? And how is this different, if at all, from before the emergency?

In order for the emergency response efforts to be considered effective, the actual damage should be less than the anticipated damage. Although disasters can rarely be prevented, analyzing the situation will provide a company with valuable lessons that will reduce its vulnerability to similar emergencies in the future, or which may mean that it can avoid repetition of the incident entirely.

Conclusions

No company relishes the prospect of an emergency, and no matter how well prepared it is, there will undoubtedly be some stress and uncertainty when an emergency situation arises. However, following the above "best practices" will enable a company to retain control of the situation and prevent unnecessary damage or disruption from occurring. While emergencies may be inevitable, unfortunate consequences need not be. There are plenty of real-life examples of where the consequences of a crisis have far outweighed what might have happened if the response had not been mismanaged. However, there are also well-documented examples of companies who have emerged from a potential crisis stronger than before both in terms of their exposure to risk and preparedness for emergencies, and their public perception and share price.

Client Alert 13-328