Crisis management has evolved rapidly over the past two decades, mostly in reaction to events in financial services. Consulting firms have had to develop in-house capabilities and tools to help address client crises that can easily engulf their entire organization, regardless of where they start. Crises can come in many different forms, ranging from rogue traders to meteor strikes, but for the purposes of this report we will be focusing on three particular types of financial service crisis:
• Crises involving regulations. Lapses in regulatory compliance, intentional or otherwise, can have serious consequences for financial services companies, including the ultimate consequence—closure.
• Crisis involving technology failures. Since the 1990s financial services companies – infamously slow to adapt new technologies – began investing to upgrade their technology environments, creating an entire new layer of complexity to their organizations. Worse, the senior leaders of these companies (whose careers matured in an era before personal computers or the internet) often have only a vague grasp of these new technologies or how they work. The danger lies within – the chance that complex systems can go down, causing service disruptions on a global basis – and without, in the form of cyber attacks, data breaches and cyber espionage
• Crises involving fraud or ethics events. After the Enron case, regulators became very interested in fraud cases and enacted a series of anti-money laundering laws. Since the 2009 economic crisis, AML-KYC laws have also been applied to tax fraud and illegal tax havens on the part of both retail and corporate customers. These laws have driven not only serious investment in compliance areas but have also breached the vague idea of organizational culture and behavior.
Crisis management is more than a necessary evil; it is the mechanism that financial services companies need to put in place to convince all stakeholders that the organization is serious about its fiduciary responsibilities, its commitment to its customers, and its long-term relationship to both the broader financial ecosystem and the community.
No amount of preparation can ever completely mitigate all crises, so the onus is on financial services companies to prove that they are prepared. US regulators collected more than $251 billion in fines in 2014 from banks to prove the importance of being prepared. As a 2012 Aon and Oxford Metrica study found, a crisis can be extremely damaging to a company if handled improperly, but can actually improve both a company's reputation and shareholder value in very tangible terms if handled correctly.
Many still think of crisis management as having three basic components: investigate, formulate a plan, and remediate, but there are many more moving parts. These parts have traditionally been thought of as fairly exclusive spheres and each are represented by highly specialized boutiques. Increasingly, consulting firms find they need to expand their practice coverage across component links in the crisis management chain to resolve client crises. It is becoming more apparent how interconnected the many elements of crisis management are and stakeholders are demanding permanent solutions.
Who are the key stakeholders in a modern financial services organization? Regulators are at the forefront of clients' minds, with end-user customers not far behind, but the field rapidly expands when one thinks about all of the players who need to be brought on board to make any crisis solution work. This list now conventionally spans the entire organizational ecosystem, from the external customers who use services to the internal employees who are expected to execute on any solution and potentially absorb some of the consequences. Most financial services clients are just coming to grips with this widening list.
Stakeholder analysis at the beginning of a crisis is key: find out how they're behaving, who carries the greatest risk, and how to mitigate the risk posed by as well as carried by each stakeholder. This mapping of stakeholder interests, behaviors and risks will help the center plan its next moves.
But this stakeholder mapping will also create a communications path, telling senior leaders what information needs to go to whom and when. Communicating effectively and in a timely manner is also key and, while that may sound obvious, the instinct of far too many executives in a crisis is to withhold information, especially if they are relying on the advice of lawyers. Disclosing earlier rather than later can help make stakeholders feel the client is working on the problem and taking the right steps.
Appearances should not be neglected in the midst of crises as key stakeholders may abandon or turn against the client's efforts if they are not convinced their interests are being taken into account.
Indeed, one of the trends driving change in crisis management is a major shift in stakeholder expectations. They are far less forgiving in 2015 and will only cut the client some slack if they are kept engaged and informed. And this includes "the street" (where rumors run rampant) and other players (including competitors) in the financial services ecosystem. Their cooperation (or lack thereof) can be decisive for success.
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