Most of us admire and would be happy to be employed by a company which stands behind its employees when they're under fire, providing legal and moral support, ensuring that they don't feel alone or isolated just because they're being publicly criticized. But can loyalty blind a company to the fact that, over time, it is bound to have some employees who are actually guilty of behavior which does not merit unconditional ongoing allegiance? With disastrous consequences for that firm and its other employees? The answer is "yes," and this is one such case. I wish I could say it was the only one of which I knew. Names and facts have been altered as necessary to preserve confidentiality.
[The Situation]
Clearwater Consulting is a very prominent engineering firm with offices worldwide. It has a reputation as a conservative, "we take care of our people for life" organization. Professional employees either use the firm as a launching point for careers elsewhere or stay with Clearwater for careers of 20-30 years, retiring with generous annuities. Professional employees are very seldom discharged for cause -- they seem either to be a "fit" for the corporate culture or go elsewhere voluntarily.
While all major engineering firms are periodically accused of improper or inadequate delivery of services, a troubling trend developed for Clearwater's Atlanta office, albeit unnoticed except in hindsight. One senior principal based in Atlanta, Jerry Smith, was the head of a team accused, in 1990, of faulty work prior to construction of a major commercial real estate development, resulting in the need for very expensive remedial action. There were some extenuating circumstances, including the involvement of other engineering firms. In response to an investigation by State authorities, and facing a civil lawsuit, Clearwater agreed to a settlement without accepting any formal blame. In 1995, and again in 1998, Jerry Smith was involved in all-too-similar situations involving other clients, yet the internal fault-finding apparatus continued to conclude that external circumstances beyond the principal's control were responsible for the mishaps.
However, the 1998 case sparked both civil and criminal investigations by the State Attorney General. Clearwater prudently brought in expert outside legal counsel, whose internal inquiries led them to believe that Jerry Smith and certain of his team members had -- either by omission or commission -- engaged in activities for which they and the firm would likely be considered liable. Certainly civilly, probably criminally.
At first announcement of the AG's investigation, Clearwater's management, for many months, made strong pronouncements denying any wrongdoing,leaning heavily on their its long-term reputation. When the local media realized and reported that Mr. Smith had been involved in previous, similar cases, Clearwater attacked the media's conclusions based again on its reputation, while refusing to actually discuss the details of the case. But the "trial by media" was clearly being lost and, privately, outside legal counsel tried to get management to understand and believe that the trial by jury would not likely go well either. Yet, based on its tradition of standing by employees, Clearwater appeared completely intent on what seemed to be "mass denial" of the situation's reality.
A crisis communications consultant was asked for his opinion. His response was "if wrong has been done, do the least-damaging mea culpa that would be believed and offer to make financial or other restitution as necessary to get the case quickly behind you." And, he advised, "if you believe, with a high degree of certainly, that one or more employees has committed a serious civil or possibly criminal act, distance yourself from any such employee by means of leaves of absence or, if conditions warrant, stronger personnel action."
He tried to point out the difference between blind loyalty and appropriate support. Blind loyalty meant assuming innocence no matter what. Appropriate support, in the wake of the new internal findings, meant creating a little distance to assure the public, clients, prospects and the Attorney General that the company isn't foolish enough to believe that no employee can make mistakes of this magnitude. He pointed out, also, that the company's stance, if eventually contradicted by facts revealed in court, could result in (a) clients concluding that the firm intentionally engaged in a cover-up and (b) staff members concluding that they would receive company support NO MATTER HOW BADLY they managed a job.
Clearwater's top decision makers did appear to understand the potential consequences. However, the consultant was basically told that there was no way the firm would consider anything but unqualified support of Mr. Smith and his team.
[The Consequences]
In Atlanta, some clients stopped renewing their contracts and some prospects were known to have been lost due to the negative publicity. Worse, other offices of Clearwater received inquiries they could not answer except via general statements developed in Atlanta and vague assurances that everything was going to be OK in the long run.
This was all before resolution of the legal case. After more than a year, with the AG privately presenting Clearwater with more and more damning evidence (some of which leaked to the press), Clearwater plead guilty to civil offenses and paid a huge fine, receiving sanctions and long-term conditions on its Georgia operation. Jerry Smith retired abruptly, as did one of his senior team members, both being barred from practice in Georgia thereafter.
Clearwater lost untold many millions of dollars in business and suffered long-term damage to its reputation. It's not bankrupt. Its reputation will eventually regain its former luster, if it has learned from this experience. But it did not have to be this damaged.
Jonathan Bernstein is president of Bernstein Crisis Management, Inc. (BCM), www.bernsteincrisismanagement.com, providing crisis
prevention, response, planning and training services. The BCM website has more than 500 articles on crisis management available free to
visitors.
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