Damage Control

When controversial filmmaker Michael Moore marched two Columbine High School shooting victims into Kmart's corporate headquarters demanding refunds for the bullets still lodged in their bodies, executives had to think fast.

"He came in and said 'I am not leaving until you do something about firearms,'" said Michelle Gluck, who was Kmart's associate GC at the time of Moore's visit and is now executive vice president and general counsel of Land?? 1/2 America Financial Group Inc. "Kmart's CEO made a decision on the spot to discontinue selling ammunition."

Participants at a recent Martindale-Hubbell forum titled "Damage Control:

Corporate Counsel's Role in Containing and Resolving Corporate Crises," shared similar tales of horror and the steps in-house counsel can take to resolve or prevent crises. Forum participants advised that when ambushed with the unexpected, having a strategy in place and being adept at rolling with the punches is pivotal to a successful outcome.

"There's no room for rigidity in dealing with a crisis," said Deborah McMurray, forum facilitator and CEO of Content Pilot, a provider of content-management platforms for law firm Web sites. "What you think is going to work and may have worked last time very likely won't work the next time."

Whether the crisis is Michael Moore, a hurricane or an executive arrested for a DUI in Guatemala, participants agreed that companywide processes to deal with unexpected events as well as a proactive strategy to identify coming risks are the keys to successful damage control.

Sneak Attack

While executives can anticipate and prepare for some crises, oftentimes it's the unexpected ones that create the worst headaches. For Jay Clemens, eBay's vice president and deputy GC, expecting the unexpected has become routine.

On his first day at eBay, Clemens immediately began fielding phone calls from U.S. and international government officials who demanded to know why eBay users were listing dangerous or prohibited items for sale on the site.

Clemens regularly deals with calls from around the globe, questioning items listed on the site that are either culturally offensive or illegal in certain countries. While many of the calls simply ask that the items be removed from the site, foreign law enforcement officials sometimes take the matter a step further and actually arrest an eBay employee for regulatory violations.

When this happens, Clemens has an internal task force of legal, government relations and PR experts he can dispatch to discuss the issue with regulators and assist the employee.

"One of the key things is knowing which employees to send to work on the crisis," Clemens said. "A lot of the times the best people are those who fly by the seat of their pants and have a high emotional intelligence."

In addition to having a solid internal team, it's imperative to have close connections on the ground in any countries in which a crisis situation might erupt.

Local connections were critical for Thomas Kim, Reuters America's vice president and principal legal counsel, to stay in control of a volatile situation in Iraq. In the span of one year, U.S. military in Iraq killed one Reuters journalist and sent three others to Abu Ghraib. Kim had to deal with the Iraqi justice system, the U.S. military justice system and the press.

"You need people whom you can drop into a situation to identify all the different channels where success might be achieved," Kim said. By establishing relationships with key military personnel, Kim and his colleagues were able to better manage the process of aiding the Reuters employees.

Sometimes the best skills to confront unforeseeable crises are innate and can't be learned. And sometimes a triumphant resolution is just plain luck. But when evidence points to future problems, counsel have no excuse not to put prophylactic measures in place.

Watching the Radar

When Gluck joined LandAmerica, she didn't know an overhaul of the insurance industry was lurking around the corner. Just months after she joined the company in 2004, Eliot Spitzer declared war on the insurance industry.

"Companies with insurance in their names had a high likelihood of receiving an inquiry from the New York Attorney General," Gluck said. "And we did."

When regulators began to change their focus from captive reinsurance to industry pricing, she braced for the worst. "I put a team together three months in advance to get them up to speed because I knew it was coming," Gluck said. "It was just a matter of when."

While Spitzer's inquiries pushed some of LandAmerica's competitors into huge settlements almost immediately, LandAmerica's advance planning allowed company officials to explain their practices and eventually resulted in the company settling the claims for $4.5 million--substantially less than First American Title Insurance Co.'s $20 million settlement or Fidelity's $13.5 million settlement.

Brian Allen, counsel and director of government affairs for the National Automatic Merchandising Association (NAMA), a trade organization of vending machine owners, agrees that proactive action is key to crisis management.

When the "obesity epidemic" began making front-page news, state and federal legislators followed with an onslaught of proposals calling for the elimination of vending machines in schools. Allen needed to act.

He began a rigorous education and research process. He educated association members about the issue and put together an "action kit," containing statistical research about obesity as well as informative handouts to give to the media and concerned parents.

These kits have proved beneficial. When school boards discuss changes to vending machine policies, a NAMA member can go to the meeting and represent the company, with the information in tow. Allen also hired a PR firm to disseminate the positive information. The response plan succeeded, and most of the legislative proposals failed to become law.

Be Creative

Whether the company has time to proactively prepare for a crisis or gets blindsided by an unexpected threat to its products or operations, the elements of a successful crisis response are the same--think creatively and get organized.

If the company's nightmares become reality, the GC plays a key role in making sure staff is in recovery mode rather than panic mode. This means counsel must think ahead about whom to call and what to do if a crisis erupts.

"You want to have an organized and cohesive strategy for dealing with a crisis, and some of that's legal and some of it's tactical and some of it's press," Kim said. "But if you try to do it in isolation, or if you have individual executives going off in different directions, it's very counterproductive for everyone."

Staff Writer

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