Mills & Reeve partners James Fry and Mark Davison brought their expertise from the perspective of commercial transactions and dispute resolution, joined by Bridgemoore’s Lynne Trowbridge and Janet Morgan. Bridgemoore is a specialist communications consultancy working with UK and global organisations to help leaders and teams achieve their business objectives through integrated strategic marketing, communications and proactive reputation management.
Drivers of reputational risk
The discussion (available here) focused on the challenges that are encountered by businesses in the sector, strategies to address them, and most importantly, what you can do to prepare.
James started the session with five core areas as potential drivers of reputational risk:
- Regulatory risk in this complex, highly regulated industry.
- Global supply chains, and the prospect of supply chain disruption. Your activities may be reliant on a few key third party suppliers.
- Ethics and brand. Unforeseen situations around corruption or unethical behaviour by employees or partners, and ESG compliance challenges can seriously harm your business reputation.
- Product safety issues and product failures.
- Failures of security around your information and data, including cyberthreats and privacy breaches.
How well prepared are businesses to meet these challenges? The temptation is to “focus on the day job”, and deal with issues like these as and when they arise. Experience suggests, however, that early planning and thought is well worth the investment.
Building a reputation and planning ahead
Lynne developed the concept of thinking globally and holistically. The task at hand is to build a reputation throughout the growth cycle of the company, in a changing and challenging environment. This involves thinking ahead and planning for the issues and concerns that might arise. Janet highlighted the tight timeframes that often apply around a developing news story. You may not have the luxury of more than a few hours to respond, for example to a journalist writing a story, and so preparation is essential. It is very difficult to deal with a crisis that lands on your doorstep with no notice. Work done in advance to assemble an appropriate team, and agree what may be a fairly general holding statement, can buy you vital time to assess the situation.
Mark’s view, as a dispute resolution specialist, also emphasised preparation, but with an added twist. He stressed the need to ensure internal investigations are protected by legal or litigation privilege as you consider next steps to make sure they do not become disclosable documents. Regular review of your commercial partnerships can also help to fend off disputes before they escalate. And if something starts to go wrong you’ll do well to involve your legal advisers before communicating externally to avoid undermining your position.
Increasingly, contracts make use of arbitration clauses rather than leaving dispute resolution to the courts. Arbitration means issues can then be thrashed out behind closed doors rather than in public through the courts, avoiding unnecessary reputational harm.
The session explored two example scenarios, with panellists providing their expert input on how these might be managed.
Case study one – failure of a phase III trial
A biotech SME has a lead asset that is partnered exclusively with a large pharma company. Milestone payments and exit options are built in at several stages of development. A pivotal phase III trial fails due to adverse effects (increased risk of stroke). The pharma partner indicates that it no longer wishes to develop the product, and takes the option to hand back the asset. We now have no milestone payment and no development partner. The future of the product is uncertain.
This is the point where we reach for our crisis management comms plan. Early steps would include gathering information about the issues, to understand the contractual position and learn more about the trial failure. Understanding the problem would include assessing points of exposure under the agreement, for example around indemnities, along with a holistic review of the impact on other programmes, such as those deploying the same platform technology.
Pre-planning for different outcomes, with a draft press release prepared for each scenario, provides a valuable toolkit. This can also facilitate a full exploration of the possible issues ahead of time, and planning for who will be responsible for communication to each group of stakeholders in a coordinated way. While messaging will need to be consistent, it will also need to be tailored for each audience (non-specialist investors, staff groups etc).
If a legal claim is made by either side, make sure the investigation is done under legal advice to avoid "dirty linen" being presented in court. Monitor your partner’s external comms - is there anything defamatory being said that needs countering?
In a situation like this, there could be a substantial difference between the impact on the two sides of the partnership. Only one might be publicly listed, for example, and the significance of the issue to each may vary. Developing a relationship between the two partners’ communications functions throughout the relationship can be extremely valuable, to enable coordination of messaging in a crisis. Communications professionals tend to enjoy the opportunity to engage with one another and build an effective relationship, and this can even be structured into the formal agreement.
What the comms teams on both sides will aim to do, if they can, is to look for the wins on both sides.
Case study two – dispute with a supplier
A mid-sized pharmaceuticals manufacturer has engaged an API supplier in China. A dispute with the supplier arises, with the supplier suspected of using confidential details of the manufacturing process to manufacture for another customer. After initial correspondence the API supplier threatens to go public.
This scenario looks relatively simple at first glance, but presents a range of issues with a complex stakeholder landscape. An initial information-gathering process and contractual analysis is needed. There could be delays to the clinical programme, and impact on out-licensing partners. Alternative suppliers may need to be engaged, presenting the difficulty of approaching them without revealing too much about the issues.
The supplier is suspected of mis-using the manufacturer’s confidential information. There will be contractual clauses in place to protect this information, but action will be required to enforce these clauses. Seeking an injunction to prevent disclosure would be relatively straightforward in the UK, but more difficult with a supplier in China, and the dispute resolution clauses in the agreement will come into play.
In the initial agreement it may be possible to control the categories of IP and know-how that are shared to avoid possible disclosure going too far.
Grappling with issues in China will require access to professionals that can translate and understand/monitor local channels. The Chinese media does not work in the same way as in the UK, and the involvement of local agencies with an understanding of the local culture may be necessary.
If possible, the aim would be to keep this kind of issue out of the media. With a clear, concise story it may be possible to brief media proactively, although this is, of course, no guarantee that other angles will not be pursued.
From a litigator’s perspective, Mark explained that it is preferable not to engage with the press, while acknowledging that this might be necessary. Lynne and Janet emphasised that there is often very little time to respond to a journalist’s queries – again highlighting the importance of good preparation.
The session touched on the opportunities and challenges presented by online channels and social media. Social media can be useful, but it also presents obvious challenges as negative information can be quickly shared and picked up by journalists. Mark noted the dangers that can be presented by a long-lasting footprint of negative social media content. Countering this, it is possible to use other channels, such as the business’s own website, to present a positive, transparent position and build a long-term reputation and brand.
Find out more about our life sciences practice.