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Episode 154
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Practice Management and Business Skills Professional Skills
Beyond the Bottom Line: Why Shareholder Trust is the Real Corporate Currency
Law as stated: 11 September 2025
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This episode was published and is accurate as at this date.
Craig Badings, Partner at SenateSHJ, joins David to explore why trust is crucial in business, how companies often overlook it until a crisis hits and why building relationships with shareholders, employees and customers before trouble arises is key to protecting reputation and long-term value.
Practice Management and Business Skills
Professional Skills| What area(s) of law does this episode consider? | Shareholder and stakeholder relationship management. |
| Why is this topic relevant? | Trust is the most important thing in relationships, and business relationships are no exception. If shareholders don’t trust the leadership team, before you know it, confidence in the company takes a hit. But here’s the problem – too many companies wait until a crisis to start thinking about trust, and by then, it’s usually too late. APRA has been calling out the financial services sector for not being prepared for crises, but this applies to all publicly listed companies. The reality is, if you haven’t built trust before a crisis, you’re in for a rough time when one inevitably hits, and it’s not just about shareholders. The companies that really succeed are the ones that invest in relationships across the board – customers, employees, regulators, suppliers. Studies have shown that corporate reputation makes up a huge chunk of a company’s market value – in fact, reputation accounted for a whopping 28% for the market value of S&P 500 companies in the US in 2024, according to Echo Research. If businesses don’t focus on transparency and engagement, they’re putting themselves at risk. So the big question is, how do companies get this right? |
| What are the main points? |
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| What are the practical takeaways? |
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| Show notes | Macleod, Sandra, ‘Reputation Dividend Report’ (2024) Echo Research |
DT = David Turner; CB = Craig Badings; TH = Taylor Harding
| 00:00:00 | DT: | Hello and welcome to Hearsay the Legal Podcast, a CPD podcast that allows Australian lawyers to earn their CPD points on the go and at a time that suits them. I’m your host, David Turner. Hearsay the Legal Podcast is proudly supported by Lext Australia. Lext’s mission is to improve user experiences in the law and legal services, and Hearsay the Legal Podcast is how we’re improving the experience of CPD. Now, it’s a bit of a truism that trust is the most important thing in relationships of any kind, and business relationships are no exception. If shareholders don’t trust the leadership team in a company, before you know it, confidence in that company will take a hit. But here’s the problem, too many companies wait until a crisis begins to start thinking about trust, and by then it’s too late. The Australian Prudential Regulatory Authority (APRA) has been calling out the financial services sector for not being prepared for crises, but this applies really to every publicly listed company and maybe proprietary ones too. The reality is if you haven’t built trust before a crisis, you’re in for a rough time when one hits, and it’s not just about shareholders either. The companies that really succeed are the ones that invest in their relationships with stakeholders across the board, their customers, their employees, their regulators, their suppliers. Studies have shown that corporate reputation makes up a huge chunk of a company’s estimated market value. In fact, reputation accounted for a whopping 28% of the market value of S&P 500 companies in the US in 2024 according to Echo research. We’ll leave a link to that report in the show notes if you’re interested in the methodology. If businesses don’t focus on transparency and engagement, they’re putting themselves at risk. So the big question is. How do companies get this right? Joining us today to help us unpack this is Craig Badings, partner at Senate SHJ. Craig has 30 years of experience in crisis management, corporate reputation, and strategic communication. In addition to working with top companies in Australia and around the world, Craig’s also co-authored four books on thought leadership, including:
Craig, thank you so much for joining me on Hearsay. |
| 00:02:16 | CB: | Great to be here, David. |
| 00:02:17 | DT: | Now I mentioned APRA’s position on being prepared for a crisis. APRA’s been pushing companies, especially in the financial services sector, which they regulate to take crisis preparedness more seriously. Why do you think so many businesses don’t focus on this issue upfront? |
| 00:02:30 | CB: | It’s definitely improved. I’ve been in the industry now, 30 to 40 years. I’d have to say that a decade ago in Australia, it was pretty bleak and our research showed that. However, it has improved, but yet I’m always amazed at how many companies aren’t prepared. I’d have to put it down to a number of things, complacency over optimism, that “it can’t happen to me,” over confidence that they’re gonna be fine. And APRA came out with us following the Royal Banking Commission, and they’ve placed a lot of emphasis on companies, listed companies in particular. And while it was focused on the financial services industry primarily, you’re right to extend it across all companies. And fundamentally they’re saying. That there should be a much closer look at the culture of a company. In fact, if you look at the word ‘culture’ in the Hayne Royal Banking Commission report in Volume One, I think culture was mentioned 470 times. |
| 00:03:22 | DT: | Yeah. |
| 00:03:23 | CB: | So that would tell you something. And so now there’s a lot of emphasis on culture, and I’ll dig a bit deeper into that because that’s a bit of a blanket word. It’s the behaviours around that culture that are really key. |
| 00:03:33 | DT: | Absolutely. We often think of culture in these, kind of tangible artifacts, the corporate values on the screensaver or the top down aspects of culture, but as you say, culture is like an iceberg. It’s mostly under the surface, the unspoken, the assumed values and the behaviours that express them. It’s interesting to me, those factors that you described as contributing to this sort of lack of preparedness and kind of complacency, they’re very human traits, right? And when we think of these large, often publicly listed entities, we think of them as these classical economic actors. They act rationally, they do what’s in their interests. But these are very human traits that you’ve described and that I’m sure you’ve observed in a long career in crisis management. Tell me a bit about what you’ve seen over that time, your background in the area. |
| 00:04:19 | CB: | So I actually started out 40 years ago in this industry, and unfortunately I’ve seen the best and the worst. When I say the worst, it’s very sad. I’ve been involved particularly over the last decade and a number of crises, with multiple deaths. That’s always really tricky to deal with. And no aspersions here, but the way that people deal with that is very different because it’s incredibly confronting. So we need to differentiate between a crisis and an issue. An issue typically is something that’s not gonna stop the mainstream line operations of the business. A crisis on the other hand, literally can bring the business to a standstill. We’re the only firm in the world that has researched with data scientists, the financial impacts of a crisis, and fundamentally, if I look across the 312 companies we have on our Crisis Index 300 – and those are across, by the way, 27 stock exchanges around the world – on average, the share price drop is 35.2%. |
| 00:05:14 | DT: | Wow. |
| 00:05:14 | CB: | The earnings per share drop is 68.8%. But here’s the thing, of all those companies that we’ve tracked, the share price has taken on average 14 months to recover, over a third of the companies never recovered. |
| 00:05:26 | DT: | Wow. |
| 00:05:27 | CB: | Yeah. TIP: So Craig just mentioned the Crisis Index 300. The Crisis Index 300 is a tool that quantifies the financial impact of crises on publicly listed companies worldwide. Using real market data, it measures effects on key financial indicators such as share price, drop days to recovery, and earnings per share. The index analyses crises based on eight categories. These include cybercrime, environmental damage, product recalls, and workplace violence. It examines the impact on individual companies, industries, and stock exchanges to provide a comprehensive view of financial consequences. To ensure accuracy, the index isolates each crisis’ effects from broader market trends. The index accounts for industry-wide downturns to prevent skewed results. Companies are included if they’re publicly traded and have experienced a significant crisis within one of the defined categories. Each crisis is compared against a control group of five competitors from the same industry and stock market. So if we talk about crisis, and you know, I talked about complacency, overconfidence, one thing I didn’t add was that a lot of companies do have crisis manuals in place, but often when we look at them, they’re old. And I can tell you right now from experience that when a crisis happens, no one pulls out the 40 page doco and reads it. |
| 00:06:44 | DT: | Yeah, that’s right. |
| 00:06:45 | CB: | So we know that from bitter experience, I’ve been through, as I said, the best and the worst. From bitter experience, what we’ve done, we’ve put that onto an A3 spreadsheet so very quickly that crisis team can get up to speed. The ones who do well, typically they’ve run simulations, they’ve tested themselves, they trust each other to act properly and to do the job. The ones who do badly haven’t tested, the CEO, whoever runs the crisis team, takes control. The rest of the people wait for orders or are too scared to raise issues, and that’s where the secondary crisis appears, which is the company slated for not dealing with it well. |
| 00:07:21 | DT: | Yeah, it’s so interesting that you say that, that there might be a policy in place, a manual available, but you’re blowing the dust off the cover when you really need it. I think about my own practice, sometimes for startups I might prepare a shareholder’s agreement, advise on corporate governance, and there’s often dispute provisions in there that feel uncomfortable and awkward to talk about. And often you give the advice, “well, you’re not gonna run your company every day this way, right? We have this document, we’re gonna agree on a process, and then you’re gonna put it away and hopefully you never need to see it again.” But you’re right, there’s a limit to that, and especially at a given level of sophistication and size and cultural development. It can’t just be a thing you put in the drawer just in case. It does have to come out from time to time, and yeah, maybe you need to war game it. Just to make this distinction between crisis and issue a little vivid, if you were to pick out two media reported events, kind of in Australian corporate news in recent memory, can you give us one crisis and one issue? |
| 00:08:17 | CB: | I suppose the one that really comes to mind for me, the crisis one, was Ardent Leisure with Dreamworld when the ride flipped and four members of their family were killed. Tragic outcome, which highlighted a lack of process in terms of safety checks, et cetera. But there was a classic case of, there’s a question around, okay, so a company has a crisis, but can they exacerbate it by the way they act? And they did. There was an instance where they were having a press conference just after that to deal with the crisis and the CEO at the time when asked, “have you contacted the family?” said “yes,” and the journalist had the number of the family and once the CEO stopped answering the question and went on to other questions, the journalist texted the family, has the CEO contacted you? The answer was no. And two, three minutes later, the journalist put up their hand and said, “well, I’ve contacted them, and they said you didn’t.” So that creates a secondary crisis. In addition to that, it just so happened that they had their AGM two or three days after the accident and a bonus was awarded. Now I understand, obviously, you know, from a corporate point of view that’s prearranged, it’s set up already, but I say in the crisis, context is everything. And the context then at the time was you’ve had four deaths, do not award a bonus to the CEO in that context. Hold it back. So it’s incredible when you look at a crisis like that, how people can exacerbate it. Optus is another example with the cyber output, where a number was given and the number changed. They were then accused of not knowing what was going on or lying about the number. So you have these crises where the crisis is one thing, but the way they deal with it results in a bigger issue or bigger crisis for them. An issue typically would be a product recall. So there’s a product recall. Yes, there’s a halt in production for a while, but the company doesn’t go under, it doesn’t stop the operations because they’ve got other lines. They sort it out. The product gets sorted. They maybe apply new safety caps to the product, and it’s back on the shelves. Right, so that would be an issue. |
| 00:10:20 | DT: | It strikes me that there’s a difference, of course, in severity, but also in novelty in the sense that; an issue, we have a playbook for this, right? You take your product recall example. Well, that’s regrettable and expensive, but we know how to do a product recall and we’ll advertise that and make a public announcement and contact the customers to the extent we can and we’ll carry that through, and there’s a well settled approach to doing that. But when there is a crisis, like the Ardent Leisure example, multiple fatalities at a theme park, there’s no accepted playbook for that scenario. There’s a novelty and kind of a level of uncertainty or unknown, unknown in how you navigate that. |
| 00:10:59 | CB: | However, there is a philosophy about approach that is absolutely sacrosanct in these situations, and that’s where companies stuff up. Now, your audience are mainly lawyers, and we haven’t really talked about the law yet in crises, and this is where I want to bring that in. And what I mean by that is, let’s go back to the death situation. Human led response is absolutely philosophically the right thing to do. Human led, transparent, authentic. It’s incredible how many companies don’t subscribe to that when this happens. And very often it’s multiple layers that result in that, right? And one of the layers is legal saying, “you can’t apologise.” Well, that’s bollocks. Okay. It’s bollocks because there are laws in the states that allow you to apologise without being legally liable. It’s the way you apologise. That is key number one. Number two, very often, and this is a neurological thing, when any of us, and in this case the CEO or the exec team, is under incredible stress and pressure, our thinking goes from our prefrontal cortex, which is our rational thinking, to a tiny almond part shaped of the brain up here called the amygdala, which it’s our fight, flight, or freeze thinking, and that’s where we make crappy decisions, and I’ve seen it. Over the 40 years I’ve been in this trade, I’ve seen that happen time and again where the lead or the crisis lead or the crisis team is under such stress, and the stress could be weeks, months, by the way that they’re shot and their thinking is up in the fight, fight or freeze, and that’s where you make bad decisions. It’s not human led, it’s “let’s be safe, let’s be risk averse, let’s not be human.” And that goes out the window and that’s a classic error, and philosophically, that’s the wrong approach. |
| 00:12:38 | DT: | I suppose that also can be driven by self-interest. When I say that, I mean, we often use self-interest when we talk about corporate governance from incentives and remuneration and what we stand to gain. But in a crisis, we know, especially in the context of financial crises for companies, that there is a great deal to lose as a board member or an officer of the company. There’s personal liability for insolvent trading. There’s claims against directors. I imagine those sorts of issues to contemplate are common triggers for that lizard part of our brain to take over. |
| 00:13:13 | CB: | You’re absolutely right, and because those decisions are then fear led, “what happens if?” What’s my job gonna look like? What’s gonna happen to my bonus?” But it’s incredible how we don’t learn from corporate history. So if you look at two cases, two stories. One is Rio Tinto with the Juchen Gorge Caves that they blew up in Western Australia. They had four decisions there. They chose the decision that was ready. Shareholder primacy led, and by that I mean highest ore tonnage in the least amount of time, quickly make the most amount of money. In what pub test would you ever blow up 40,000 year old Aboriginal caves and that would pass muster? So, about three or four people lost their jobs and personal reputations were shot as a result of that, and I don’t know if you know this, but it took them 12 days from the day they blew up those caves, 12 days before they issued their first media release, said anything in public. Now, if that’s ever a case of hiding behind the law, finding the legal route out, running around between head office in London and Australia and trying to find a way to deal with it while the media filled the space and every activist group filled the space, if ever there was an example of how not to do it, that’s it. The other one is Thomas Cook in 2006, two kids died in Corfu. They had organised the holiday. It was a gas boiler that was carbon monoxide, and these two children died. They denied any responsibility for 10 years. An inquiry in 2015 found them negligent. And the CEO, the new CEO at the time said, “well, yes, for decades we’ve hidden behind legal cases, legal reasoning, why we shouldn’t claim responsibility. It has to change. We need to change.” And they did. The Greek authorities actually – they sentenced three people to jail time as a result of that case. So it’s all well and good to not act because you’re worried about your bonus or your job, but actually the long-term impact as history shows us is often worse, but people don’t think that way, because they fear led thinking and often look, I often work with lawyers and we’ve done some research into lawyers and crises, and I’ll share that with you, but later. But it’s quite interesting what their view is. |
| 00:15:14 | DT: | Yeah, I’m very interested to hear it, but I think what you’re describing there as well is just, we are very myopic. When we’re operating in that frame of thinking, very focused on the short term and when we’ve spoken to in-house lawyers on the show. But I think this equally applies to lawyers in private practice who are advising a board or a CEO directly, we often talk about not wanting to be the ‘department of no,’ right? Not wanting to be obstructive, that your role is to facilitate the creation of business value, not to find reasons why we can’t. And this is in a way, the other side of that coin. There’s a strict and unhelpful vision of the role of the legal advisor in this sort of crisis, which is to, well, minimise legal liability and the surface area for attack in the short term by, deny, and say less, and take this very formalistic, inhuman approach. But as you say, that can be productive of liability in the future and just doesn’t achieve the goals outside of the legal framework that we’re trying to achieve when we’re managing a crisis. So you, in the same way that you need to think about the organisation’s strategy and goals in a broader sense, when you are advising on opportunities, when you’re advising on crises as a legal advisor, you need to think in a similarly broad way, although you might be tempted to do otherwise. |
| 00:16:29 | CB: | Yeah, and there’s this little thing called stakeholders, right? The most important people to your business. Right? And they’re varied; they’re internal, they’re external. Their perception of the way you deal with a crisis is absolutely the key to everything you do around a crisis. They are, whether you remain in business or not, they are the ones who keep you floating. They’re the ones who will support you if you deal with them properly, but they’ll also quickly turn on you if you seem to be obfuscating or hiding the truth or being inauthentic or delaying and coming out with what’s happened. And I told you about some of the Crisis Index 300 findings. There is a significant financial cost to pay for not doing this properly, and that cost goes up dramatically if you are seen to be hiding the truth, if you’re seen to be slow in responding, if you’re seen to be lawyering up. In fact, Tony Jaques is a guy that I liaise with a lot. Tony writes a lot on issues in crisis and he’s got a wonderful phrase and he says “it’s sometimes better to humble up than lawyer up.” TIP: So Craig has just mentioned Tony Jaques. Dr. Tony Jaques is a leading expert in issue and crisis management. He has decades of experience consulting, teaching, and writing on the subject. He’s authored several books and has been widely published in top management journals. If you’re interested in reading any of his stuff, we’ll leave a link to his page in the show notes for this episode. I was on a panel, and I can’t name the company, but it’s a large management consultancy and they’ve got a large legal team, and the head of that legal team was there in the room. The panel comprised myself, the CEO had been on for 12 months from PTSD because there’d been a couple of deaths on the floor of the factory, and a lawyer, and at the end of the talk the head of legal stood up and said, “guys, I know from experience, sometimes it’s better for us lawyers to step back and let a crisis comms expert deal with it ’cause it’s a matter of reputation, not legal process.” And I thought that he summed that up beautifully. And there are a lot of lawyers I’ve worked with who get that. We also need to get it. As crisis comms consultants, we also need to understand legal process. We don’t understand it enough. I’ll be the first to admit that. We need to work better with lawyers. We need to talk to them before the crisis happens, not in the crisis. So we can understand each other’s point of view and come to a compromise in terms of how we deal with these things. |
| 00:18:52 | DT: | Yeah. We’ve talked about how taking this overly legalistic or overly focused on the legal implications or the liabilities. I want to go a bit deeper on this idea of a more proactive role for legal in concert with a crisis manager. What role can the legal team play proactively, because again, we’ve talked a lot about how we behave and how we respond in a crisis, but our topic for today is really how we create that bedrock of trust in advance so that when this crisis occurs, we’re standing on solid ground so that we have the trust and support of our stakeholders. Perhaps most importantly, in some cases, our shareholders. |
| 00:19:35 | CB: | That’s the rub right there. In the research we did, so we interviewed about 26 lawyers across six countries, this was quite a few years ago. We did it in concert with Tony Jakes. I’ve mentioned him before for a book that he was writing on crisis comms that formed one of the chapters of the book. And fundamentally, the lawyers said that the one thing that they understand that we do wells understanding the stakeholder, listening and engaging with the stakeholder. Now, earlier on, I talked about context being everything. If the context is such in the crisis that the stakeholder, whether it be the shareholders or your staff or your customers are demanding an explanation, why would you withhold that? Why would you put the stakeholder relationship at risk? That’s where your trust lies. Your trust doesn’t lie in the legal system. Your trust and the perception of you and your reputation lies with your stakeholders. So stakeholders are the primary audience in this and understanding their needs and being able to. Not pander to their needs, but address their needs in a manner that means that you respect them, that you show that you actually understand their needs and that you’re addressing it and you’re not mollycoddling them or treating them like second class citizens. That’s what you need to be doing. And sometimes when we take a too overly legalistic approach, that flies in the face of that. |
| 00:20:52 | DT: | Yeah. |
| 00:20:53 | CB: | In what world, when you’ve had a crisis, would you not at least communicate with your tier one stakeholders. There is no world where that doesn’t destroy trust. |
| 00:21:04 | DT: | Yeah, absolutely. And on that point of responding to, but not pandering to the needs and wants of your stakeholders. I mean, I think your story about Juchen Gorge is a great example that again, we’re talking about shareholders today as this very important stakeholder group. The interests, needs, and wants of our shareholders are no longer kind of this Milton Friedman esque, “well, maximize my dividend next quarter and my capital value long term.” We know that it’s a far broader picture than that. |
| 00:21:32 | CB: | We do, and shareholders are smart. They also understand that the company’s being judged and the value of that company is being judged across financial performance, ESG performance, the market and their products. Those areas and the leadership team, that’s what they’re investing in. If you are messing that up during an issue of crisis and you are devaluing your currency well, as I’ve shared with you, our crisis index shows that has significant financial impacts. No shareholder’s gonna be happy. So it needs a balance. |
| 00:22:04 | DT: | That’s a good point actually. There is actually no conflict between this idea of shareholder primacy and the broader interest of stakeholders, because as your data very clearly shows, there is a real, tangible cost to the shareholder of taking that narrow view of shareholder primacy. |
| 00:22:20 | CB: | Absolutely. And things have changed these days, right? The Milton Friedman esque sort of approach has changed. The world’s changed, as I said earlier. Context is everything. The context today is very different, and so we need to be conscious of that. So when it comes to stakeholders, in terms of that leadership team, it is absolutely their role to be engaging with them, listening to them, building trust with them, understanding their needs, understanding where the issues lie, mapping the risks. That’s a daily part of your role as a leader these days. It’s not something that the comms team does. It’s not something that marketing does. If you as a leader are not tapped into your audience, whether it be your shareholders or other stakeholders or even your internal team, you’ve lost control. You are no longer at the coalface. You’re operating in a vacuum, and fundamentally, when we look back at crises, it comes down to a failure in cultural behaviours that lead to the crisis. Why? Because they’ve not been managed properly. They don’t align with the values. I call it “Say, do.” In other words, what you’re doing, does it align with what you say in terms of your purpose or your values? And that’s often where we get the misalignment and the crisis results. Boeing is a classic example right there, saying something and doing something different. The 737 max that crashed, the two crashes. They say they had a safety first culture. Well, talk about flying in the face of that culture. What happened was, as we knew, the engineers kept saying, “we’re not ready. We’re not ready.” But because there were orders and because they had to fulfill those orders, it meant the bottom line. They went ahead and the result tragically was that hundreds died, right? There’s a classic case of a lack of alignment between your values and what you’re actually doing on the factory floor. |
| 00:24:00 | DT: | Yeah, absolutely. And I guess one artifact of that is what you choose to communicate with your stakeholders about outside of a crisis, right? You can say that you value your stakeholder relationships but then do what many companies, even publicly listed ones do when it comes to shareholder engagement, which is send them reports as required by the Corporations Act and the ASX listing rules about price, material information, and six monthly financial statements, and that’s about it, right? What can companies be doing, and I suppose, what can their legal advisors be doing to play a role in this? What can companies be doing to build those relationships with their investors, with their shareholders, with the market beyond the rote, beyond the required level of communication outside of a crisis? |
| 00:24:46 | CB: | Here are some things you can practically do. Firstly, how are you mapping your stakeholders? How are you tiering them in order of importance? Who owns those relationships? Who’s engaging with them? How are you listening to them? Do you have things in place like internal stakeholder audits, sense checking with your customers about how they feel about the brand? Do you understand them, their needs, and how those needs have changed, right? Do you understand how they feel about ESG, being under the pump right now, but do your customers actually care about that stuff and what are you doing about that stuff? So listening and engaging and mapping and understanding so you get the context, you understand the nuances. So that you are operating in an environment where you understand and you can address those issues, that’s absolutely key and it’s a living, ongoing process. It’s not something you do this year and then again next year, a year later. It’s ongoing. |
| 00:25:37 | DT: | Yeah, and as you say, you need to kind of have a framework around it, because if you’re not measuring how you’re doing it, if you’re doing it in this kind of idiosyncratic fashion, well, “we’re doing a lot, but we’re not sure exactly what,” then there’s no way to manage that. There’s no way to respond to feedback. |
| 00:25:50 | CB: | Yeah. I mean, I’ll give you an example. Again, no names mentioned, but a superannuation fund runs regular feedback and research with its members on numerous things to understand where they sit on certain issues, climate change, certain companies they’re investing in, et cetera, et cetera, that gives them a pulse of their member so that they can be in tune with what that member wants, or potentially issues that could arise. So if they see, for example, that 85% of the members are anti-investing in coal mining, clearly they’ve gotta then think about, do they then put the coal mining to a separate fund or not? So these are the sort of things that companies need to be thinking about and doing on a regular basis. And you know what? Your employees are a great gauge of whether what you say, is what you’re doing, and they will tell you very quickly if they believe that your actions and your behaviors match your values. Very quickly you’ll know. |
| 00:26:46 | DT: | Yeah, well that’s right. I suppose they’re a good sample size and then they have superior access to information about what it is that you do over any other stakeholder group. |
| 00:26:54 | CB: | Exactly. |
| 00:26:55 | DT: | There’s really no spinning your real operations for your employees. |
| 00:26:59 | CB: | No, there’s no spinning. And in fact, it’s a fantastic flag. It’s almost like a traffic light system in a way. Green and red. We’ve got the research that we do, which really flags potential issues where there’s a lack of alignment to that, and it’s like that traffic light system. If things start going amber, that potentially in that one area could result in a crisis down the track if you don’t deal with it now. So for example, if on a factory floor there are workaround strategies going on around safety, the team on the floor will quickly tell you in an anonymous survey if they’re concerned about that. That could stop a potential death or product recall right there if you get in early. |
| 00:27:37 | DT: | Yeah. |
| 00:27:37 | CB: | It’s amazing how many crises I’ve been involved in, where they go, “how did this happen? How did we not know?” Well, I know how they didn’t know because the culture is such that, “no, don’t report it up the line. We’ll deal with it,” or, “we’re training,” or whatever it may be. That’s how it happened, because they weren’t in touch. |
| 00:27:54 | DT: | Yeah, that’s right. And I suppose a lot of the time these early weak signals can get lost in the data if you’re not looking for them. You know, the way you report on this sort of thing, when you do it as a postmortem, it seems obvious, right? |
| 00:28:05 | CB: | Often. Hindsight’s great. |
| 00:28:07 | DT: | Because you’re looking for the source of a catastrophe, but when you are maybe collecting exactly the same data in a forward looking way, it’s hard to organise that in a way that tells the story, right? |
| 00:28:18 | CB: | It is, and it’s the risk lens you apply. I’m gonna give you the seven areas of culture where the crises happen. I’m gonna use an example to illustrate it. |
| 00:28:23 | DT: | Please. |
| 00:28:23 | CB: | Okay. The first one is shareholder primacy versus stakeholder primacy. Rio Tinto was the case we talked about. The second one is not acting on something or an aversion to risk. The parliamentary sexual harassment case with Brittany Higgins and then it all came out, that’s a classic case of that. The third one is a lack of governance. So the banks during the Royal Commission, the Aged Care Royal Commission – absolute example of a lack of governance. The fourth one is gaps in supervision or monitoring or reporting. Classic case of that – the BP Texas oil refinery explosion when 16 people died. The fifth one is unofficial shortcuts. Ardent Leisure, Dreamworld, we’ve talked about that one. The sixth is blame culture. So this ‘us versus them’ sort of approach. Example I actually worked on, this was over a decade ago, Cochlear, the bionic ear implant company, when they wanted individual contracts with their workers at a time when the unions wanted EBAs. That was that ‘us versus them.’ And then the seventh is poor training. So a great example of that is, I don’t know if you remember during Covid in Melbourne, when they had the hotel quarantine system and those security guards who were meant to deal with that. They weren’t trained. They had no idea about Covid, they didn’t know how to deal with it. Classic case of that. TIP: So throughout this episode, Craig mentioned a number of examples that have happened in real cases that display both good and bad shareholder management. We’ll collate all of those and include them in the show notes if you’d like to take a look at any of them further. So Craig’s also just mentioned a few different causes of crises. These come from an article written by Dr. Tony Jaques, and that one’s called ‘Issue Management and Crisis Management: An integrated, non-linear relational construct.’ We’ll leave a link to that in the show notes for this episode, but Tony highlights the main categories of causes of crises being:
In that article, Tony Jaques takes us through the ongoing debate about issue management and crisis management. While experts have generally agreed on what constitutes an issue or a crisis, applying these definitions in practice has been a challenge. An issue is essentially a developing problem that could impact an organisation, while a crisis is a sudden high impact event that threatens an organisation’s survival. The difficulty comes in defining how these two fields operate. Crisis management is often seen as reactive, so dealing with problems as they escalate, while issue management is considered more proactive, so identifying risks before they turn into crises. However, Jaques argues that this distinction is too simplistic. Crisis management, like issue management, should be viewed as both strategic and tactical. It involves not just response efforts but also prevention and preparedness. Dividing these concepts isn’t enough. He says we need to understand how they actually work in real world management. Jaques also introduces the concept of disaster management as a more holistic framework where different elements, so prevention, response and recovery overlap and work together rather than occurring in sequence. Borrowing from this, he proposes a relational model of crisis management, where issue management and crisis management are interconnected rather than separate disciplines. He argues that managing crises isn’t just about having response plans, it involves addressing root causes like poor maintenance, leadership failures and weak corporate culture. Ultimately, Jaques believes that organisations should see crisis and issue management as an integrated continuous process rather than as distinct and isolated functions. So those seven areas are what I lump under culture, because they all are behaviours that come off the back of the culture of the company that we know then result in the crisis. |
| 00:31:59 | DT: | Because I suppose your culture either accepts or permits, or even encourages, for example, taking a shortcut that isn’t in the manual, but everyone accepts that around you. If you’re a new employee on the factory floor and everyone’s saying, “yeah, yeah, that’s what the safety manual says, but we all just do it this way.” |
| 00:32:16 | CB: | That’s exactly what happens. |
| 00:32:17 | DT: | Yeah. |
| 00:32:17 | CB: | And in fact, with Rio, that’s a great example. They legally were not in the wrong, by the way. Legally, they had every right to do what they did, but that law was from 1940 something. They now changed the law. But that’s an example of; often what you legally have the right to do is not necessarily what is the right thing to do. |
| 00:32:36 | DT: | Yeah. Can is not should. |
| 00:32:37 | CB: | Correct. And we call that the risk gap, and that’s typically where your risk lies, where you go, “well, we’ve got every right in the world to do this.” “Okay, that’s great. Has the public not moved? Is the context not different? That actually, if you do do that, you’re gonna have a huge backlash and you’re gonna have a crisis in your hands. |
| 00:32:55 | DT: | We’ve spoken already about the role that leadership plays in responding to a crisis and setting the company up to be resilient in one. We’ve spoken about some of the ways leadership can get it wrong as well as the Ardent Leisure example. The one that immediately came to mind when we were talking about it for me was a certain, I think about this as an example of an issue becoming a crisis, really an interview with a certain supermarket CEO walking off and walking away from the interview, which became a much larger story than the current affairs program itself. |
| 00:33:23 | CB: | It’s a great example actually. |
| 00:33:25 | DT: | We know how they can get it wrong. What are some examples of getting it right? |
| 00:33:29 | CB: | You know what? One of my all time favorite examples, it’s not an Australian one, unfortunately, it’s in the UK. So it was KFC, and what happened was they switched chicken supplies and for three days 97 stores in the UK had no chicken. Now, KFC with no chicken? Go figure. |
| 00:33:47 | DT: | Yeah, it’s a bit of a punchline, isn’t it? |
| 00:33:48 | CB: | Yeah, and they took the most wonderful tongue in cheek, humorous approach. So they changed ‘KFC’ to ‘we FC K’d up’ and they were humble in apology, they were self-deprecating. But the interesting thing was there, that it was totally in line with their brand and what their brand stood for and the way they advertise and the way they market. So there was a great alignment. It wasn’t out of context. It wasn’t like, “what on earth are they doing?” If that had been a BHP, for example, or a mining company, you go, “come on.” That would’ve resulted in the secondary issue, right? But because it was them and because of the way they approached it, it was the most wonderfully humorous, self-deprecating approach I’ve ever seen. It was great. |
| 00:34:32 | DT: | And I guess also perfectly matching the kind of tone and severity of crisis itself in the sense that a really grave, somber, earnest apology in that scenario would’ve felt a little inauthentic itself because at the end of the day, no one’s died from their lack of fried chicken. And so kind of perfectly finding the right pitch for that probably helped a great deal. You can’t have that same tongue in cheek approach for every crisis, but I think it speaks to finding the right tone, not just the most self serious. |
| 00:35:04 | CB: | Exactly, and let’s look at the opposite of that. Another example, CrowdStrike, you know, with the Microsoft outage where all the, you had the blue screen last year. So they actually dealt with that crisis really well, funnily enough. However, a few days later, they sent their customers a $10 Uber voucher. Now, come on, $10 for the pain and all this, you know, you’ve gone through? I mean, they didn’t need to do that. They did it, it didn’t go down well. It created a secondary issue for them. |
| 00:35:30 | DT: | They would’ve been better off not doing it, right? |
| 00:35:31 | CB: | Correct. They would’ve been better off not doing it. What you don’t want to do in a crisis is give the crisis secondary oxygen or fuel on another issue that then feeds it further, and that’s what they did. They unwittingly fed that and prolonged the coverage in a negative way. But actually that dealt with the crisis quite well. |
| 00:35:48 | DT: | That example is sort of analogous to that study about living near a nuclear power plant. Do you remember this one? I think it was conducted in Sweden or Finland, maybe, that some people would be happy to live near a nuclear power plant, uncompensated because it meant clean, abundant energy for the country. It felt like a noble sacrifice to do it. But if you offered to pay them, then their willingness to live next to a nuclear power plant went down. You know, it’s almost like putting a price on it, cheapens it. |
| 00:36:14 | CB: | It’s interesting. I didn’t know about that one, but I can understand the human psychology behind that. |
| 00:36:19 | DT: | One thing that strikes me about our conversation about both the good and the bad examples of CEOs and other leaders responding and being the human face of a crisis, is that it seems really characterised by the pace and cadence of our media cycle in the sense that a gesture or a phrase or a gaff can be very harmful and maybe just as harmful, kind of the secondary source of oxygen for a crisis as the substantive issue that caused them to be in the spotlight in the first place. And sometimes we complain or lament this characteristic in our politics as well, that we have this kind of politics of gaffes, that it’s about what silly thing someone said this week, rather than what substantive policies and ideas they have for the country or for the government. That kind of gaff focused response to measuring how well a company handles a crisis must present a lot of secondary risks for leaders, right? Because the well-intentioned response can still be a dangerous one if it’s presented hastily or clumsily. |
| 00:37:24 | CB: | You’re spot on. And look, there’s hundreds of examples, right? You’ve given one already. The key here is preparation, okay, and it’s remarkable how many crisis teams don’t prepare properly. They don’t run simulations. They don’t media coach the CEO properly for crisis situations. The gotcha moment, as we would call it, is what media loves, right? There’s a fantastic gotcha moment with Tony Abbott when he was OM when there’d been a soldier killed in Afghanistan. He was caught on a webcam in Afghanistan saying, “oh, well I suppose shit happens,” and then was confronted at Parliament and Canberra by a journalist to say, you know, “you said that, what do you say now?” and there was that horrible 23 second silence when he just nodded at the journalist and the journalist said, “Tony, you’re not saying anything.” And Lori Oaks then gave a summary of what he could have done and could have said, and Lori Oaks nailed it, but it comes back to this fight, flight, or freeze thing, is that very often under those sort of stressful situations, people go to that place where they make a gaff and it does create the secondary issue. So no amount of preparation can get you ready for that potential freeze moment. Unfortunately, yeah, you can prepare, but sometimes it happens. The best CEOs I’ve seen in a crisis do a number of things. Well, the first thing they do well is the pre-preparation. They draw their teams. They create trust in the team that people are ready and prepared to take decisions and do things and that the CEO or the crisis lead is not the blockage for every decision, because speed in a crisis is key. And by the way, when we ran a workshop for 12 CEOs who’d undergone a crisis in Melbourne a few years ago, the question was to them, “what surprised you most about the crisis?” Every one of those 12 CEOs said, “we could not believe how it took us away from the running the normal day to day of business operations.” Now, when you’ve got a simulation going, that’s what you prepare for. We often say to the team, “okay, so who’s taking your role as production manager? Who’s taking your role as the HR person? Do you have a seconder? And who are they? And do they know what to do?” “Ah, no, we hadn’t thought of that.” That’s why I say I can actually bring a business to standstill. |
| 00:39:25 | DT: | Yeah, that will sound very familiar to a lot of our listeners who are litigators. You often give the advice “you don’t realise if you choose to go to court about this just how much time that will take, just how long this will distract you from more useful things that you could be doing with your time.” |
| 00:39:41 | CB: | Correct. And so coming back to this point about the gotcha moment being the secondary issue. The more you can prepare, the more you can train those spokespeople, the better off you’re gonna be. But there may be times when what we do is we hold the spokesperson back and all we do is issue statements. But if you’re gonna do that you need to be on top of things and you need to be transparent. So here about three years ago, we researched about 75 heads of comms and executives who’d been through a crisis, and we asked them of all the crises you’ve seen, what were the three things that people did badly? And no guessing what they were. Lack of transparency, number one. Number two, lack of awareness and empathy for the situation and the people involved. And number three, lack of speed or failure to be proactive. That was it, right? And this is where the legal and comms thing battles a bit in our research with those lawyers, what they said about us was we were too quick to respond, too speedy and therefore mistakes are made. And what we say about legal is stakeholders are expecting you to respond. Let’s find common ground, let’s agree what we can do, because otherwise the stakeholders are gonna be up in arms. And so that’s where legal and comms needs to work a little bit more collaboratively together. TIP: So Craig just mentioned some SenateSHJ research. You can find that in their ‘Reputation Reality’ report from 2020. According to SenateSHJ reputation has never been more important, but managing it has become more challenging than ever. It’s not just about what an organisation says, it’s about what it does and how it connects with the people who matter most. In today’s fast moving world where anyone can voice their opinion, online reputation is a high stakes risk, and it requires careful management. SenateSJH’s report highlights that corporate reputation is now considered harder to manage than any other form of risk. Three key factors stand out as the biggest threats during a crisis. First, a lack of transparency. The second, a failure to show awareness and empathy. And thirdly, an inability to act quickly and proactively. These shortcomings can severely damage both organizational and personal reputations. The report also points to several reasons for this growing challenge; the rapid pace of change, stricter regulations, customer activism and the power of social media all play a role. Companies are also facing pressure to prioritise culture and ethical governance alongside profits. |
| 00:42:00 | DT: | It sounds like there’s a lot of really delicate trade-offs or balancing acts, I suppose are more accurate, in preparing for something like this in the sense that, well, you need to prepare for your media response, but not overly prepare because you don’t wanna be inauthentic, but you have to respond quickly, but not so quickly that you make a mistake. And so there’s a lot of trade-offs, I suppose. You’re always going to take a risk on one of those considerations in favour of another. Do you have any thoughts on how you make those settings or choose that configuration for a given crisis or a given company? |
| 00:42:33 | CB: | I’m going to lead with a story on that. The best example I’ve seen, I was working with this education group and they had more of an issue than a crisis, I have to admit, but I’ve never seen this happen before. There was a table of about 10 people and it was pressurized. We needed to get stuff out quickly. The CEO took the time and went around to each person at the table, “what do you think?” “David, what do you think?” “What’s your view and what’s the risk in that? And why? Why do you say that?” And he calmly and in a very measured way, got everybody’s piece of advice from myself to legal, to HR, to compliance to product. And then he said, “guys, I’ve listened to all of you. My view is the following. How does that sound?” And we looked at it and we went, “yeah, that could actually work.” And then somebody put their hand up and said, “but what about this?” And somebody else said, “well, what about that?” And he said, “fair enough. Let’s take that into account and let’s balance that accordingly.” That example for me was probably the best example of arriving at the right decision. Why? Because he kept his thinking in the prefrontal cortex rational. He got everybody’s inputs. He wasn’t forcing a decision. He wasn’t overly reliant on me or the legal advice. It was a balanced approach. The risk lens was across all areas. I very seldom see that happen, by the way. |
| 00:43:45 | DT: | Well, I think there’s a conventional wisdom or a received wisdom that that’s not always a good approach. What I’m hearing is completely counter to the data. We often hear this refrain, business is not a democracy, and I think our kind of personality cults in particular businesses can reinforce that where founders or charismatic CEOs have an autocratic or are expected to take a kind of autocratic approach of, “well, I’ll listen to advice, but it’s my decision and it’s my problem to solve.” It sounds like with all of these trade-offs and all of the different fields of advice that need to be taken into account in managing a crisis, there really is a kind of democratic, or at least a consultative dimension to making a decision in that environment. |
| 00:44:29 | CB: | There is and there isn’t. What I didn’t say was there were a couple of views where you said, “well, I don’t think that’s gonna give us the right outcome,” and we debated some of them, and there were some strong arguments. I omitted to say that it wasn’t that democratic. I’m going to give you another story to illustrate exactly what you’ve just said. I was in a war room with a crisis and the CEO took a very autocratic approach and I tried to push back. I got cut down and after the meeting I said, “could I have a word with you?” And we walked into his office. There was a guy, say his name was John. I said, “John,” – and I knew he had a family. He had two teenage kids and a wife – “when you go home tonight and you tell your wife about the decision you’re making with regards to this decision and your kids, how do you think they’re gonna feel about that decision?” Look, I was taking a massive risk, but I knew him and he stopped and I thought, “oh my God, here I go. I’m gonna get scooted out of his office,” and he didn’t say anything for about three, four seconds. And he looked at me and he went, “you know what, Craig? I’d never thought of it that way. You’re absolutely right. I need to rethink this.” And he did, and we arrived halfway between it. But it was because he wasn’t taking a human-led response. I needed to break that. I needed to break his thinking, that actually it was a crappy decision. |
| 00:45:38 | DT: | Yeah but going back to the culture and the role that plays in setting up the environment in which decisions are made, was that only possible because it was in private? Because if you have a culture where the CEO makes the decisions as an autocrat and it’s not allowed to challenge those decisions or to speak out against them in an open forum, you couldn’t have challenged him in the war room. You had to do that in private, right? We’re mainly talking today about shareholders as a stakeholder in this sort of a situation, but that’s an example of the culture that empowers or disempowers your senior executives as a stakeholder or your advisors as a stakeholder. |
| 00:46:15 | CB: | It does, and disempowerment in the crisis team is the kiss of death. We ran the simulation for a large organisation two years ago. There was somebody who had something really important to add. So the way we run simulations is that you may receive an email, only you, about a certain piece of information that’s critical to the simulation and to the outcome. And this person tried to say, “hey, I’ve got this information,” and the CO just wouldn’t let them speak. The CO was so focused on going down the path that she wanted to go that this person for literally 15, 20 minutes, couldn’t get a word in edgeways, but it was actually critical to the outcome and the decision making. And so disempowerment in the team, what we saw in that team was, you could notice this in the room visibly notice how people slumped and realised that they were disempowered, that they weren’t being listened to, that their advice was worth naught. And guess what? It’s never great for that team. It’s never great for the outcome. So I’ve seen it in real life, and I saw two years ago in a simulation, the CEO I told you about who listened to everybody and then made a decision. He discounted some of the advice, but that was his decision. |
| 00:47:23 | DT: | Yeah, and I suppose he heard it first. |
| 00:47:25 | CB: | But he listened and heard it. It was about listening and taking into account all views to arrive at a balanced outcome. |
| 00:47:31 | DT: | Yeah. Craig, we’re nearly out of time, but before I let you go – I know, it’s gone really quickly. |
| 00:47:34 | CB: | That’s ridiculous. |
| 00:47:36 | DT: | I like to end every episode with a question for our listeners who are students who might be new to the profession, this kind of role being in the room for a crisis, this major event that can make or break a company, can be really exciting as an advisor – it could be daunting as well, but it can be very exciting – and a lot of our listeners who are more experienced lawyers will recognise a lot of what you’ve said and they’ll take away a lot for how to diagnose what’s happening in a room and how to temper or adjust their own advice to match the culture of the company and the nature of the crisis, and hopefully work more collaboratively with the comms team. But a lot of our younger listeners, they’ll think, “this sounds amazing, this sounds exciting, this sounds important, but I’m not gonna get access to that room for so long. I’m gonna be outside of the room with the senior executives and the senior advisors and the people in the tent, or a long time in my career,” and maybe that’s not the case, and I hope they get exposure in these exciting sort of matters, but for those listeners who are new to their profession, but who wanna build their skills in this area, even if they don’t get to be in the room where it’s happening, right? What can they be doing now to upskill so that when they are one day in that role, they’re well equipped to do it? |
| 00:48:49 | CB: | I think there are two things, right? The one is – it sounds really simple – ask to be in the room. I mean, if the senior partner leading this has left you out, say, “could I sit in? I’m not gonna contribute. I’d like to sit in to learn.” If you get knocked back, fair enough. But if you don’t ask, you’re not gonna get it, right? Number one, so ask to be in the room. |
| 00:49:07 | DT: | Absolutely. |
| 00:49:08 | CB: | If you get knocked back, the second piece of advice I give is read. Read about all the crises that are happening. Read about what went wrong, why it went wrong. Understand the nuances involved in that crisis and aligned with that. So there’s this thing called curiosity, right? Always remain curious. So reading is one thing about curiosity. The other thing about curiosity, go and have a coffee with the partner who leads in crisis. Say you wanna have a coffee to chat. I know their time is precious, but if you say to them, “I really want to learn about some of the stuff that you’ve done,” I can tell you right now, most people our age, because you know I’ve been around a while, we are happy to give back. And for those who are not happy to give back, well, come on, do yourself a favour, give back a bit. But go and have a coffee with the partner. Bbut prepare. Prepare questions, ask some stuff, find out a bit more. The more curious you are, the more you’re gonna learn. And when you get into that room, guess what? You’re going to have stuff to draw on. |
| 00:50:02 | DT: | Absolutely. And look for my part, I wouldn’t say no to either of those things, right? I’d never say no to someone wanting to be in the room to observe or to ask me questions. And you’re right, in our conversation today, we’ve talked about so many examples of past crises, and I think that’s because when you’re dealing with a novel situation, when you’re dealing with something uncertain and unknown, often the best thing we can do is reason by analogy. So it’s really important to have this toolkit or armory of historical examples where we can say, “well, I’ve never been in this situation before, but is this more like Ardent Leisure or is this more like Woolworths or is this more like KFC? And I can not have an exact playbook for this, like I might for the rote product recall, but I do have an analogy for this and I can work from there.” And that’s something that you can build up even as a junior lawyer. |
| 00:50:48 | CB: | You can. However, no crisis is the same. The context is different. The people are different. The response is different. Given that, come back to those three things, the failure crisis stuff, they weren’t transparent, they weren’t authentic, they lacked awareness or empathy, and they lacked speed. And so that’s the playbook. You need to address those. Tthe nuances and the context are always different. |
| 00:51:11 | DT: | If there’s one generalisable bit of advice about a crisis, it sounds like it might be that the response has to be human. |
| 00:51:19 | CB: | Always. Human-led first, always. |
| 00:51:22 | DT: | Fantastic. Craig, thank you so much for joining me today on Hearsay. |
| 00:51:25 | CB: | Lovely to be here. |
| 00:51:36 | TH: | As always, you’ve been listening to Hearsay the Legal Podcast. We’d like to thank our guest today, Craig Badings, for coming on the show. Now if you’re looking for more leadership and business skills content, you should go and check out our episode with Patrick Hanrahan. That one is episode 126, and it’s called ‘Legal Brains With Business Braun: How Lawyers Can Adopt a CEO Mindset’. If you’re an Australian legal practitioner, you can claim one continuing professional development point for listening to this episode. Now, as you know, whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest this episode entitles you to claim either a professional skills point or a practice management and business skills point. For more information on claiming and tracking your points, head on over to the Hearsay website. Hearsay the Legal Podcast is brought to you by Lext Australia, a legal technology company that makes the law easier to access and easier to practice, and that includes your CPD. Now, before you go, we’d like to ask you a favoru, listeners. If you’re enjoying Hearsay the Legal Podcast, please consider leaving us a Google review. It helps other listeners find us and ultimately that keeps us in business. Thanks for listening, and we’ll see you on the next episode of Hearsay. |
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