In recent interviews, Facebook CEO, Mark Zuckerberg, acknowledged they knew as early as 2015 that Cambridge Analytica’s misuse of 50 million users’ data represented a major “breach of trust.”
Facebook also knew this would likely have serious legal, financial, and reputational consequences.
Yet, it wasn’t until Facebook found itself backed firmly into a corner and drained of more than $50 billion in market capital that it finally acknowledged what everyone already knew.
And the company said it had begun “taking steps to ensure this doesn’t happen again.”
In the face of such obvious evidence of crisis, why didn’t Facebook act sooner?
Or while there was still a shred of a chance they might be seen as something other than a villain?
It’s Not Just Facebook…
Similarly, what led dozens of entertainment companies to seemingly sweep allegations of sexual misconduct by executives under the rug on a routine basis?
Also backed into a corner, they only came clean after the #MeToo movement, in which emboldened and heavily lawyered alleged victims forced their hand.
Or consider the case of a global auto parts manufacturer.
Their customer affairs department saw an unexplained increase in calls about a product which was failing in an unusual way, often with deadly consequences.
In the dealer relations department, distributors were reporting similar issues and demanding to know what to tell their customers.
Meanwhile, in the legal department, company lawyers were learning that an overseas subsidiary had been served with a product liability suit and was about to pull the trigger on a local product recall.
It took an enterprising journalist overseas to connect the dots and set off a global crisis that ensnared some of the company’s largest customers.
Viewed from above, the warning signs of crisis were everywhere, in all three cases.
But at ground level, alarm bells remained silent.
Why?
Company Culture Plays an Important Role
In the case of the auto parts company, one problem was managers were walled off in functional silos and blind to what was occurring elsewhere.
They saw the issues immediately in front of them, but had no way to interpret them or recognize them as symptoms of a much larger problem.
In the rare situation where they did sense something was amiss, they did nothing.
They believed pulling the alarm lever was some other department’s responsibility.
But in all three cases, there was an even bigger and more deeply rooted roadblock: company culture.
Very simply, none of the three companies’ cultures were sufficiently sensitive to risk.
And more importantly, to the critical interrelationship between how organizations identify and deal with risks, and their reputations and market valuations.
The sad truth is most reputational problems are self-inflicted.
They are not the result of forces or events outside the company, but of action or inaction within the company.
The problems occur because people make decisions without fully considering the risk.
Or even because they fail to sense and respond to issues early on before they coalesce into full-blown crises.
Create a Risk-sensitive Culture
Having a well-thought-out crisis plan is essential, but it only goes so far.
A better plan is to develop a culture in which people at all levels focus on managing risks and preventing crises from happening in the first place.
Creating an effective, risk-sensitive culture means fostering an environment in which employees instinctively look for and analyze risks as part of their day-to-day work.
They can then account for those risks in their decision-making.
In a risk-sensitive culture, employees clearly understand the importance of acknowledging and managing risks.
These employees believe they’re integral parts of a larger risk management system.
Therefore, this serves as motivation to actively protect the organization’s reputation and welfare.
But, risk-sensitive cultures don’t just happen.
Here are three keys to getting things moving in the right direction:
Communicate Clear Expectations and Guidelines
Ensure employees know what the company expects of them when it comes to safeguarding reputation.
And provide training so they understand what to look for and what to do when they see a potential problem, whether it falls in their area of responsibility or elsewhere.
In a strong risk-sensitive culture, employees take ownership of their risks, as well as those of their colleagues.
They understand the process for escalating issues when necessary.
They also understand the potential long-term costs—reputational and otherwise—of not doing so.
Risk Management Plays an Integral Part
Let’s face it, no one likes to acknowledge the chance a big project could go off the rails.
At a minimum, provide employees with a simple question-based framework to guide their thinking through risks presented by a particular decision, action or policy change, and whether it needs further scrutiny before being implemented.
Require managers to subject larger projects to a comprehensive and documented risk assessment process as a condition of budget approval.
This is a good way to ensure risks, especially easily preventable ones, don’t receive short shrift.
Model Sound Risk Management Behaviors
Train managers to serve as risk management role models by being available, approachable, and supportive when potential problems surface.
Their focus should be on properly addressing identified issues.
They should not be focusing on minimizing the situation, pointing fingers or covering tracks.
The time to analyze what happened, why, and who or what was responsible comes later.
Publicly recognize success and the people involved, and have those people reinforce best practices and sound risk management behaviors.
It is also beneficial to use failure as an opportunity for the organization to learn and continually refine internal systems, practices, and training.
Assess Risks and Avoid Problems
Use these key guidelines to develop a plan and position your business to assess risk and avoid problems.
By creating and cultivating a risk-sensitive culture, your organization will be able to proactively deal with issues.
In turn, a healthy company culture allows employees to feel more invested. They share a better sense of responsibility and greater pride.
And everyone benefits, top to bottom.