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LEGAL ASPECTS OF CRISIS MANAGEMENT IN BUSINESS

INTRODUCTION

Crises are unavoidable in today’s unpredictable business world, and companies must be prepared to deal directly with problems. But when companies go through turbulent times, there are important legal considerations that go beyond business and reputational issues. In corporate governance, crisis management and companies face unexpected challenges and have to deal with legal issues. Crises can occur in a variety of forms, such as natural disasters, global pandemics, economic instability, cybersecurity breaches, financial crises, a bad PR campaign, or risks affecting public relations.

CRISIS MANAGEMENT & CHALLENGES

Addressing unexpected and serious issues affecting operations in a way that maintains business continuity is crisis management, like creating policies and steps to defend it, lessen the impact, and prevent it. Both an unanticipated occurrence and an unintended result of a known risk can lead to a crisis.

Regardless of the circumstances, a crisis necessitates decision-making to minimize harm to the organization. Depending on the situation, different possible harms may exist. However, a crisis can affect the loyalty of customers and brands, economic stability, safety, health, or the organization’s public image and brand value.[1][2]

Even though crisis management is essential for any organization, there are certain difficulties involved. The elements that present the greatest challenges include preserving business continuity in times of emergency, crisis-related anxiety and emotional support, deadline pressure, making well-informed choices, managing stakeholders, and efficient internal and external communication.

LEGAL MATTERS

As legal issues arise in crises, the law acknowledges that a safe and peaceful resolution is the primary goal in life-threatening situations. Assigning a legal advisor to the management team is advantageous.

For effectiveness, it is essential to comprehend potential legal risks. This entails closely examining every facet of business operations, including data protection policies, contractual obligations, and industry regulations. Identifying potential threats, analyzing, and taking a close look at the internal operations of the company are a few things to look at. Laws and business practices change over time and introduce new variables that can drastically affect an organization’s risk profile.

Crises are demanding and stressful, but there are legal challenges that can be overcome to ensure a safe and peaceful resolution of the situation. It is important to incorporate diverse legal concerns into their policy formulation, training initiatives, and operational decision-making processes.[3]

COMPLIANCE

While handling crises, adherence to rules and duties is essential. This necessitates developing a deep understanding of the local and international regulatory frameworks that the business must adhere to. Understanding the particular requirements of the prison system for each industry is crucial. Failure to comply may also have severe repercussions and damage one’s reputation, which could have a major effect on the ongoing viability of the business. A clear understanding of the implications of those legal guidelines for the company’s line of work is necessary to achieve regulatory adherence. Companies have a harder time keeping up during difficult times because of potentially disruptive events that they must control while making sure. Companies have a harder time keeping up during difficult times because of potentially disruptive events that they must control while making sure their response plans comply with existing regulations. There should be careful preparation supported by a thorough grasp of the various scenarios that are likely to occur during a crisis.[4]

MANAGEMENT PLAN

There is a legal, regulatory, or compliance-related component to almost every business crisis. A crisis can impact an organization in many ways and take different forms. A good plan should adhere to a set procedure, assist all significant stakeholders in the organisation, and lessen the crisis’s effects on the company.

Evaluating risk and developing a strategy for all potential risks. Examples include cyberattacks, employee data theft, client bankruptcy, power outages, fires supply chain terrorism, etc. While evaluating the potential consequences of a major crisis for the company, such as harm to personnel, lost sales, damage to the brand’s reputation, operational challenges, or legal issues, it is important to consider.

Making a plan is crucial after identifying the threats and their possible consequences. Ensure that the roles, contact information, and reporting lines of all parties involved in the management policy are up-to-date by reviewing them every six months. Regularly reviewing response procedures will enable staff members to quickly take action if a crisis arises within the company.

When a crisis arises, the organization should be prepared to implement its plan, alert the management group, and identify management and other relevant parties. Next, determine which teams to form, what information is needed to advance to the next stage, and what actions and communications need to be put in place. Take charge of the situation and define the scope of response by using data to confirm and comprehend what precisely transpired, determining the resources one must contain, resolving the crisis, and establishing a command and control structure so that responsibility can be taken for it and learn from it in the future. After that, the business can handle the crisis and its effects on the larger business in a more controlled manner.[5]

SOLUTIONS

No matter how big or small, even the well-run companies can become mired in an unforeseen crisis. Meeting the crisis head-on, managing public relations, speaking with the media, providing a public statement, offering customer support, developing a friendly advertising campaign, interacting with auditors, comprehending any potential legal issues, updating business plans and forecasts, and so on are some of the strategies or solutions that can help a company successfully defuse and resolve favourably.

When a crisis hits a business, the best approach to limit damage and keep the customer base trusting the company is to respond quickly, honestly, and completely with disclosure. But ultimately, sales should be recovered, along with credibility, customer trust, and a repaired public image, if principles are put into practice.

CASE REFERENCES

  • In 1982, when seven people died after consuming Tylenol capsules laced with cyanide, Johnson & Johnson was faced with a crisis. There was the implementation of new tamper-evident packaging and a massive product recall conducted, and then the company set the standard for the industry.[6]
  • In 2001, widespread accounting fraud and financial mismanagement contributed to Enron’s collapse. It resulted in the prosecution of executives and the dissolution of Arthur Andersen.
  • In 2010, an enormous environmental disaster and the deaths of eleven workers were caused by the Deepwater Horizon oil spill. BP was hit with legal challenges related to environmental regulations, workplace safety violations, and other issues that ultimately cost the company fines and settlements in billions of dollars.
  • The 2011 Japanese earthquake and tsunami caused significant disruptions to numerous companies’ supply chains, including Toyota. The carmaker had to deal with agreement issues with dealerships and suppliers.
  • In 2017, a significant data breach that affected Equifax resulted in the exposure of millions of customers’ data. The business faced various legal actions, public outrage, and regulatory investigations.

CONCLUSION

Crisis management requires an in-depth understanding of the correctional environment rather than simply mitigating immediate issues. By integrating legal consideration strategies, companies are better equipped to navigate uncertainty, protect their interests, and emerge stronger. Legal knowledge should be a cornerstone of crisis preparedness, allowing companies to face it with integrity and resilience. Every crisis offers an opportunity for growth and education. Upon resolution of a legal matter, reflect upon what went wrong, how it was resolved, and what could be done differently in the future. This contemplation can enhance the company’s plans and legal preparedness.

Author(s) Name: Manali Pokharna (M.K.E.S. College of Law, University of Mumbai)

Reference(s):

[1] Nick Barney, ‘Crisis Management’ (TechTarget) <https://www.techtarget.com/whatis/definition/crisis-management> accessed 5 February 2024

[2] Marc Davis, ‘6 Crisis Management Strategies for Business Owners’ (Investopedia, 28 January 2023 <https://www.investopedia.com/articles/financial-theory/10/crisis-management.asp > accessed 5 February 2024

[3] J Higginbotham, ‘Legal Issues in Crisis Management’, NCJRS, Law Enforcement Bulletin, Volume 63 Issue 6, June 1994

[4]Bryan Strawser, ‘Decoding Crisis Legal Considerations for Businesses’ (Bryghtpath, 6 September 2023) <https://bryghtpath.com/crisis-legal-considerations/> accessed 5 February 2024

[5]  The Centre for Legal Leadership, ‘The legal team’s role in crisis and post-crisis management’ (Thomson Reuters Practical Law) <https://uk.practicallaw.thomsonreuters.com/w-024-1745 transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed 5 February 2024

[6] Adam Figueroa, ‘Crisis Management Examples’ (Brandfolder, 27 September 2022) <https://brandfolder.com/resources/crisis-management/ > accessed 5 February 2024