In any other context, the collapse of legendary Arthur Andersen in 2002 would have been the biggest lead story of the year. Against the backdrop of catastrophic frauds perpetrated by Ken Lay and his team at Enron, however, the fate of the energy company’s outside accountants was only the secondary story, however staggering in its own right.
The Andersen story simply did not have the sensationalistic elements that riveted public attention on Enron. No one suggested that Andersen was actively engaged in the kind of criminal behavior that made Enron a synonym for corruption, dishonesty, and greed.
Richard S. Levick
In the end, what brought the nearly century-old accountancy to its knees was the shredding of documents after the crisis began to unfold.
This commentary is excerpted from the book, The Communicators: Leadership in the Age of Crisis, by Richard S. Levick and Charles Slack (Watershed Press, 2010).
“Enron got what it deserved, but most of Andersen’s problems were probably manageable,” says Ty Cobb, a Washington lawyer specializing in white collar criminal defense cases. “Had they not destroyed documents, not assisted Enron in destroying documents, they probably would still be flourishing…. What Enron did was highly irregular. What Anderson did was, for the most part, routine until the moment they decided that it was okay to purge.”
All of which suggests that Andersen’s problems were not related to endemic corruption and venality, but to a serious communications and leadership gap. Somewhere along the line, managers inadequately trained in crisis response found themselves in the position of making split-second decisions with lasting consequences for themselves and the entire company. Years later Andersen is still one of the most famous, but certainly not the only case that dramatically underscores what leaders must do to prevent carelessness in situations where it matters most.
Legions of high-profile politicians and their aides have learned the meaning of the adage, “It’s not the crime, it’s the cover-up.” Indeed, they’ve learned it the hard way. Consider White House advisor Scooter Libby, convicted in 2007 for lying and obstructing justice in what ultimately proved to be a nonexistent criminal case. Cobb, partner at the D.C. law firm Hogan Lovells and a veteran counselor to some of the highest-profile figures in the political and corporate worlds, advises that the lesson is every bit as relevant for corporations as it is for public figures.
The ways in which your managers and employees respond in the early hours of a crisis can spell the difference between a manageable event and one that could send employees to prison and irrevocably damage the corporate brand. As such, your crisis response system needs to be finely honed and adapted for communications at every level of management and in every branch and location.
“Frankly, half of [corporate] investigations, give or take 20 percent, don’t go anywhere, other than a false statement charge or obstruction of justice charge based on statements that are made or documents that are destroyed in the first 24 hours,” Cobb says.
In most investigations of corporate crime, first impressions are impossible to shake off. Afterwards, you and your company must live with the fallout, good or bad. All the high-priced lawyers and sophisticated public relations campaigns in the world won’t be able to buy back those first 24 hours.
According to Cobb, there are two primary danger areas: lying or misleading investigators and destroying documents. Crisis preparation and crisis management demand ongoing practical training for employees at every level who might someday be in a position to talk to law enforcers or handle sensitive materials.
Say you run a manufacturing firm with factories scattered across the country. Investigators, learning of a possible crime or major infraction at one of the plants, arrive at the door bearing search warrants or subpoenas and asking questions. Meanwhile, back at headquarters, you’re still trying to sort out what’s going on and who the “relevant” employees actually are. At that moment, those very employees may well be making split-second decisions with lasting consequences.
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