Can empathy reduce the probability or impact of crisis?

Topics Companies | NCLT | IPOs

While flipping through the newspapers something unusual caught my eye: “NCLT orders insolvency proceedings against Aviva Life Insurance”.  I hadn’t heard of any major controversy around the company, hence was shocked to know about this development. On reading the details, I discovered that there was a dispute of around Rs 27 lakh with the Apeejay Trust, which had leased its Mumbai-based commercial premise to the company. The trust reported the matter to the National Company Law Tribunal (NCLT) and eventually insolvency proceedings were ordered. This piece of information set me thinking. Keeping business differences and the probable reasons for the dispute aside (especially as I have access to only publicly available information), this episode seems unheard of. Both the disputed amount and the outcome seem to be at extremes.

 

This reaffirmed my belief that the risk landscape of corporates worldwide is undergoing a complete transformation and it is pertinent for them to be mindful of this transformation. Otherwise, the price is being paid in the form of reputational loss along with extreme business implications. Even in the case of Aviva Life Insurance, possibly the final outcome may not be as grave as it seems yet the apprehensions developed in the interim in the minds of various stakeholders will cause a significant loss to the company’s reputation. Thus, it is time that the corporates have a detailed understanding of this changing landscape and make crisis management an important part of their strategy document.

 

Another telling example is the recent development when WeWork IPO was stalled. WeWork was considered among the most valued start-ups. But now the situation has completely reversed. The gaps identified through the financial submission of IPO documents highlighted huge discrepancies. When this information became public, investors became more cautious and deeper investigations threw up an ugly picture. The founder CEO was ousted and the new leadership team was in place. Its biggest investor, Softbank, has now taken the centre stage and is implementing various measures to bring the company back on track. But, the loss of reputation is not reversible. Tighter regulatory scrutiny has become a reality and companies can no longer get away with books and records that are not up to the standards. The speed with which information travels now, no one including regulators has ample time to explain their side of the story. Hence abundant caution has become a norm, which while undoubtedly has it's own merits, has also added new dimensions to business risks that were missing earlier.

 

In addition to business risks, empowering provisions like whistleblower policy, Prevention of Sexual Harassment Act, appeal to NCLT cannot be ignored. Earlier it was a known fact that if an individual or even a group of individuals were fighting against an organisation, the power equation mismatched. However, now scenario is changing with the world digitally connected and individuals voicing their opinion through their own social media platforms. The power of one cannot be ignored.

 

For instance, the famous case of racial discrimination Starbucks faced in April 2018 when in one of its stores in Philadelphia two black men were arrested while waiting for a friend. They were taken in police custody and held for hours before they were released without being charged. What could have been otherwise a local episode soon became global. Social media lit up, pointing out how white people were treated differently in similar circumstances. Many past incidents were raked up and Starbucks was labelled as a biased organisation. Being a global B2C company this was a huge challenge for the company. It immediately accepted the responsibility, apologised and took quite a few corrective actions that proved effective in showcasing their genuineness. A letter from the chief executive officer to employees and customers was posted online. They closed 8,000 stores worldwide for a day to provide racial bias training for their 1,75,000 employees. While this caused the company an estimated loss of business of more than $12 million, it helped the company gain a positive association.

 

These challenges and anecdotes clearly point towards the changing trend. Contours of risks are changing and more importantly, moving towards human emotion driven risks. All the cases mentioned above are outcomes of human behaviour guided by emotion. The need to forge the numbers or keep financial records sub-par, the impatience to the path of success, the ego to not treat fellow human beings as one or the lack of agility to adhere to regulatory requirements and so much more. Each of these is an outcome of human emotion or intention. In fact, simple cases where a customer gets irked at the company is not because his or her issue was not solved but due to the tone that the service executive adopted. Similarly, during lay-offs, the tone or the message that the organisation adopts is extremely critical for the employees to not get emotionally affected and bad mouth the company. Companies have to recognise this. In this world of digital solutions and virtual connects, emotions are taking a back seat. And that is exactly what is sowing the seeds of potential crises. The recent apology of Vodafone CEO, Nicholas Read is another classic example that highlights the significance of an organisation’s ability to distinguish between the issue and the emotions and sensitivities associated with it.

 

Is this transforming corporate risk landscape all that complicated to manage? Not really. Picking out the emerging risks and listing them, planning in advance for a quick response and packing empathy in your response are the three must-dos to protect your reputation in this viral world.

 

The author is founder, Eminence, a reputation management company



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