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Learning the lessons from corporate crises

Corporate crises are not new, but the recent financial crisis and the Deepwater Horizon oil spill has highlighted the general public’s increasing awareness and interest in such crises. The financial and political consequences of failures in Corporate Responsibility can affect the very survival of a company.

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Increasing societal expectations of business behaviour mean that companies, shareholders and stakeholders face a real challenge in responding to these expectations and putting plans in place to prevent, manage and mitigate potential future crises.

In order to meet public and consumer demands, companies may have to adopt higher and more extensive safety, environmental and social operating standards than those required by law. They then need to address the difficult job of ensuring their actions match their words and do so on an on-going basis.

This commitment to higher standards will require a broader shift in thinking by multiple stakeholders from a focus on short-term ‘profit maximisation’ to sustained ‘profit optimisation.’ Taking a longer term view of investments and stock market value will allow the inclusion of the true costs of the impact on the environment and society and help the company attach an appropriate priority to these costs.

Bigger organisations, changing consumer expectations and an increasing link between the environment and business may not be effectively addressed by traditional approaches to risk management. A new approach to risk strategy and management must also be considered if companies are to deal with very different kinds of risks they now encounter.

Many companies are now operating in a more complex corporate environment. This means close attention needs to be paid to ensuring common values are instilled across joint ventures, strategic alliances, extended global supply chains, as well as in any mergers and acquisitions. The early evidence from Deepwater Horizon shows that the lack of clear ownership by any of the organisations involved were contributory factors to the disaster.

Ensuring that businesses meet the highest standards of behaviour is also a task for regulators and governments. One of the problems highlighted in recent crises, not least the financial crisis, is that those who should be overseeing risky activity look the other way. There is a dangerous and erroneous assumption that someone, somewhere, in the wider system is evaluating risks and deeming them acceptable. These bodies also need to review their approaches to regulating higher risk activities.

Today’s corporate crises are largely a result of a mixture of company failures, poor regulation, bad industry practices, and unsustainable demand from consumers. This means that the responsibility for maintaining the highest environmental and safety standards goes beyond individual businesses, though they have much to do to improve what they do. Consumers, regulators, governments and businesses all need to focus on doing more to reduce the risk of future corporate crises.

To attend our event ‘Enough responsibility to go around: lessons in corporate responsibilities’ co-hosted with Cranfield School of Management, please contact us now.

To find out more about how PA can help your organisation in its corporate responsibility and sustainability ambitions, please contact us now.