An ounce of crisis prevention: corporate entities and overseers have been well served by following these prudent readiness measures.

• Author: Ferrara, Ralph C.
• Position: Legal Brief - Brief Article

WITH ENRON and related matters swirling about, it struck us as a good time to talk a bit more about corporate crises. Without commenting on Enron or any other matter in particular, we offer some thoughts on crisis management readiness. Experience may be the best teacher, but lessons often come at a terribly high price to those who live through crises. So we offer here a few prudent readiness measures borne of our travails and prior matters:

Establish Standing Management Teams for Dealing with Crises. Companies should maintain response teams or "competency cells" that correspond to the risks of their particular businesses (e.g., a government investigation, takeover, community disaster, the failure of a major business asset, employee relations). These teams should be interdisciplinary in composition and draw members from appropriate sectors of the company, such as its general counsel, chief financial officer and investor relations head. A working group list should be maintained for every team, listing detailed contact information for each member and any alternates. In addition, directors should be prepared to consider whether special reviews or other ad hoc committees need to be created and take action. Particularly in times of crisis, there should be no doubt as to who is responsible for each segment of the company's response effort.

Build and Maintain the Team's "Competence." A "competent" crisis management team must be prepared for the types of crises the company may face. Team members should be trained and assiduously follow material developments, as response plans cannot be allowed to go stale. The presence of a competent response team, and the benefits of its guidance, should enhance the company's ability to control events during crisis rather than be controlled by them.

Inculcate a Culture of Corporate Compliance. Setting the appropriate tone at the top often goes a long way in preserving the franchise. Developing and maintaining a sound code of conduct is central to this effort. The code should include the company's general aspirations and its specific prescriptions and proscriptions regarding securities trading, investments in competitors, external relations and harassment, among other things. It should also require all company employees to periodically attest to their compliance with its terms. Like all company policy materials, the code must be drafted...