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INSIGHT: Financial Crisis—Six Lessons Learned for Legal Counsel

Feb. 14, 2019, 9:01 AM

During the financial crisis, many Wall Street institutions came under scrutiny from a variety of corners—Congress, the Department of Justice, state attorneys general, the Securities and Exchange Commission and other domestic and international agencies, and the plaintiffs’ bar.

For both in-house and outside counsel, numerous practice pointers emanate from that experience, and we set forth below some highlights.

Build Relationships Before You Need Them

Educating officials and their respective staff is essential. Whether explaining esoteric financial instruments or topics like data privacy, sharing information about how a business operates, its public good, and any tensions with existing or proposed law will be critical for officials to make informed decisions.

The company is even better served if it can build relationships and rapport with key decisionmakers during calmer times in advance of a crisis. Neither the company nor the official is placed in a good position by having to come up to speed in the midst of political pressure and public glare.

Indeed, educating an official about the industry and key issues in advance sets up possible win-win scenarios if the official can step into a leadership role to address concerns that arise in the government and the press.

Craft Solutions That Your Adversary Can Tout

Many companies are outgunned when dealing with government officials who have significant resources and a public soapbox. While companies may challenge government investigations, hearings, or claims—and sometimes prevail—a path to success often involves conciliation and compromise.

We have found that a company can better cope with a solution if it helps fashion it rather than having an outcome thrust upon it at the end of a political or legal process.

For example, providing a government official with an early opportunity to announce a resolution may incentivize that official to be open to compromises and place the company in a better posture to negotiate the terms of any reforms or penalty. Likewise, joining with other industry participants in a proposed settlement may lessen the risk to any one company of business or reputational harm.

Be Willing to Push Back

While some intrinsic truth lies in the saying “you can’t fight city hall,” tactical benefits (if not success) often can come from taking steps to defend forcefully against government claims. The goal is to obtain the best outcome possible, but opportunities can be lost if the rush to resolution proceeds without due consideration of the factual and legal merits of the company’s position.

For example, when confronted with a defense raising a novel or unsettled legal issue, the government may have an incentive to avoid a judicial ruling and the potential creation of negative precedent. Likewise, the government may be loath to have a spotlight on facts that could embarrass its principals.

In addition, the passage of time during an investigation or lawsuit may allow for turnover among supervising officials, opening the door somewhat to new officials less personally invested in the outcome and more receptive to a less severe disposition.

Manage the Entire Landscape

Don’t lose the forest for the trees when confronting multiple investigations and lawsuits emanating from a variety of public and private entities domestically and abroad. This is particularly important when seeking resolution of these varied matters.

Admissions in a settlement with the government may be seized upon by private litigants in an effort to survive dismissal motions. Injunctive relief or reforms entered in one matter may be inconsistent with those on the negotiating table in another.

And, finally, the settlement payment in one matter may effectively create a floor for future settlements. Care should be taken to look at the litigation portfolio holistically and to sequence or group any resolutions with a careful and thoughtful approach.

Hone Your Communications Strategy

Reporters write stories with or without a company’s involvement, so, better for the company to engage than stand silent. Subject to confidentiality limitations, such participation can include educating the press on background about a business or topic, providing quotes, and/or referring a reporter to others for additional information.

Proactively offering exclusives regarding upcoming company announcements and actions can strengthen relationships with the press and provide opportunities to shape public opinion. Even where an anticipated story will paint the company in a negative light, contributing a quote by an appropriate spokesperson is generally preferable to a “no comment.”

Keep Your House in Order

When confronted with a crisis, regardless of the nature of the underlying alleged failure, the risk of a repeat slipup must be minimized. Protecting the company might include enhanced compliance, the addition or replacement of personnel, or technical enhancements in addition to a variety of other steps.

A crisis is not a time to sit back on old ways but to move boldly ahead with improvements. Potential violations of policy or law must be investigated most vigilantly, and the “message from the top” must be loud and clear—the company places a priority on integrity and compliance.

In sum, a company must respond proactively and dynamically when addressing the challenges of multiple government investigations and litigations. Beyond legal case management, considerations must encompass political and press dynamics, as well as audiences such as shareholders and customers. A multifaceted strategy, revisited continually, should be implemented to achieve the best resolutions possible.

Author Information

Adam H. Schuman is a partner in the New York office of Perkins Coie and previously was Chief Legal Officer of Standard & Poor’s Ratings Services. Schuman also served as an Assistant U.S. Attorney in the Eastern District of New York and as Special Counsel for Public Integrity in the New York State Governor’s Office.

Prasanth R. Akkapeddi is Deputy General Counsel-Controversies at the Kraft Heinz Co. Prior to that role, he was Associate General Counsel at S&P Global and the McGraw-Hill Companies, as well as an attorney with Gibson, Dunn & Crutcher LLP in New York.