January 25, 2012

Avoid These Seven Traits that Will Sink Your Risk Management Program!


>During a recent webinar on the topic of managing corporate crises, consultant Jim Lukaszewski identified seven behaviors that spell trouble when it comes to crisis management. In a different context, we can adapt these headings and apply them to the realm of product liability. Being aware of these pitfalls is the first step to overcoming them, and a milestone toward building a strong corporate risk management.

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During a recent webinar on the topic of managing corporate crises, consultant Jim Lukaszewski identified seven behaviors that spell trouble when it comes to crisis management. In a different context, we can adapt these headings and apply them to the realm of product liability. While the headings are adapted from Lukaszewski, the application to corporate product challenges are mine.

Denial is not just a river in Egypt. Among management teams, this often manifests in comments such as,

  • “We didn’t do anything wrong …”
  • “Our products are the best …”
  • “None of our competitors incorporate those features in their products …”
  • “We’ve never paid that much before on a claim …”

C-suite execs may react to a serious product liability claim by denying that there is a problem. They may deny that a claim has any merit. They may insist that the company could have designed a product differently, incorporating heightened safety factors. They may deny that prior notices of adverse consumer outcomes constituted any kind of notice of a developing safety problem.

This is not to say that executive teams should reflexively be alarmist. Over-reaction has its own perils. The latter, however, is rarely the biggest risk or most typical corporate reaction to product meltdowns. More often, corporate group-think can lead management teams to marginalize the significance of an incipient product liability problem. This can blind companies to the reality of what they are facing and forestall needed steps to address problems.

Victim Confusion
In a product liability claim, who is the victim? A jury often sees the injured plaintiff as a victim. By the time the case goes to court, you typically have a consumer who suffered an adverse outcome associated with a product. The manufacturer may be perceived as a big, out-of-state corporation. Chances are, it provides no local employment.

That doesn’t necessarily mean the product was defective, but few plaintiff attorneys will let a case get to a jury unless they feel they can make at least a prima facie case for defect. However, many C-suite staff have a tough time wrapping their heads around this reality. They may think that they are the victims.

They feel victimized because they have been sued, in their eyes sued unjustly. They feel victimized due to the money they must spend, either directly or indirectly, to defend the claim and possibly even to settle. They feel victimized by the amount of time they must spend huddled with lawyers and the insurance company on defending the claim, time that could be better used running their business.

Rest assured, no jury or jurors will view the targeted corporation as the victim. No matter how sympathetic, no matter how worthwhile the company’s efforts have been, they often see a corporation versus an injured patient. Viewing the corporation as the victim can blind executives to the genuine dangers of a court and courtroom setting, creating the risk of substantial financial penalties.

Nowhere in the dictionary will you find this word, but it nevertheless aptly captures the macho mindset of some management teams. Symptoms of this ailment include:

  • Determination to “roll the dice” at trial even when the downside risk is significant
  • Hiring an expensive and high-profile law firm, thinking that this by itself will cause the plaintiff and opposing attorney to cower in fear and abandon a claim
  • Inflated sense of legal invulnerability
  • Marginalizing consumer injuries or mishaps because the outcome was “statistically insignificant”

Just before the battle of Little Big Horn, General George Custer may have surveyed the Western Sioux Nation arrayed against him and thought, “We have them just where we want them!” If so, he suffered from an early form of Testosterosis. Management teams don’t fight literal battles, but they fight business battles on many fronts, one of them being the courtroom. Overweening confidence blended with a macho posturing of “teaching the plaintiff a lesson” can result in Little Big Horn-type litigation debacles. “Macho Man” was a catchy Village People disco tune from the late 1970’s. It is not a productive stance, however, when it comes to managing the risks of litigation.

“We made the best product, better than anyone else. How dare they sue us! That attorney must be an absolute idiot! Probably an ambulance-chaser. Another frivolous lawsuit. We will take them to court and crush them. They don’t stand a chance against us, because we are the market leader and our products save lives. I cannot imagine that any jury would ever believe that our product malfunctioned or contained a defect.”

Unfortunately, hubris can seep into corporate board rooms. Some companies have a tough time imagining perspectives outside of the boardroom. There is, however, a difference between boardroom reality and courtroom reality. Just look at outcomes like the O.J. Simpson or Casey Anthony trials. Executives may harbor naïve faith in their product excellence and, perhaps more importantly, the weight that jurors in a product liability trial will give to that perception. Unfortunately, corporations may not rank high in the pantheon of public trust. Consumers are conditioned to hear about scandals and misadventures and may punish any corporate representative who comes across as being arrogant and overconfident.

Some companies and management teams feel compelled to find scapegoats in the wake of a product mis-step. Product safety and product liability debacles are no exception. Rather than asking, “What went wrong — and what can we do to prevent this again?” the question becomes, “Who can we blame?” It is more consoling to think that the problem is a “bad egg” rather than admit that processes and procedures merit improvement.

It is easier to fire an employee than to undertake the hard work of making systemic changes. So, blame the Quality Assurance Director or fire the Vice President of Quality Control. Moreover, shoot the messenger if someone blows the whistle on quality issues or potential patient safety concerns. Personalizing the product problem is more reassuring, (mis)leading management teams to think that having the right people in place addresses the problem. To be sure, it is vital to have the right people in place. However, the right people must be matched with having sound product quality and patient safety procedures.

A symptom of this trait is to hunker down and ignore the media aspect of a product liability crisis. Maybe the media storm will blow over. Perhaps the corporate response to media is, “We will not try this case in the press” or, worse still, “No comment.” Well-meaning attorneys may coach firms to be tight-lipped, saying nothing to the media. As well-intentioned as the advice is, it may be misguided. Nowadays, skeptical consumers tend to equate “No comment” with “I am guilty.” Companies need a well conceived media plan. This should be part of any crisis management contingency preparation program. The battle for market share and stock price is not only waged in courtrooms, but in the arena of goodwill and public opinion.

Whine Parties
“Woe is me! Why do we have to deal with this lawsuit? It isn’t fair that our good name is getting dragged through the mud. I resent the amount of time and resources that I have to spend dealing with the defense attorney, with the insurance company, and with the court system. I wish I could just make it all go away. Isn’t that what the defense attorney is for, to make it all go away?”

Years ago, Saturday Night Live had a recurring comedy skit involving a married couple, Doug and Wendy Whiner. All of their lines they spoke in a nasal, whiny tone. Sadly, some Doug’s and Wendy’s inhabit corporate offices, wringing their hands and lamenting the injustice of it all instead of focusing efforts and energies into making better products and dealing with the hand they have been dealt.

In his iconic book, The Seven Habits of Highly Effective People, author Stephen Covey identifies traits that position people for long term success. View the preceding list as, “Seven Habits of Highly Ineffective Risk Management Programs.” Being aware of these pitfalls is the first step to overcoming them, and a milestone toward building a strong corporate risk management.

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