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Organizations' Crisis Preparedness Gap: A Risk to Investors

AInvestTuesday, Oct 15, 2024 4:10 am ET
1min read
A recent study sponsored by FTI Consulting has revealed a concerning gap in crisis preparedness among organizations, with those facing the greatest risks being the least prepared. The survey, conducted by Economist Impact, canvassed 600 primary legal decision-makers across North America, EMEA, and Asia Pacific, highlighting the need for better crisis preparedness and the evolving role of general counsel in navigating crises.

The study found that nearly 30% of surveyed general counsel (GCs) cited reputational or operational crisis events among the top three risks and the least prepared crises. This lack of preparedness is alarming, as these crises can have severe financial implications for organizations and their investors. Inadequate crisis management strategies can lead to significant losses in market value, damaged reputations, and potential legal liabilities.

Moreover, the study revealed that over two-thirds of organizations do not incorporate past crisis lessons into trainings and drills. This oversight hinders the development of effective crisis management strategies and limits the ability of organizations to anticipate and respond to high-risk crises. By not learning from past experiences, organizations are more likely to repeat mistakes and exacerbate the impact of crises.

The lack of AI/ML integration in crisis management strategies further hampers organizations' ability to anticipate and respond to high-risk crises. More than half of the surveyed organizations do not use AI or ML-powered modeling for crisis management. This absence of advanced analytics can result in missed opportunities for early detection and mitigation of crises, ultimately leading to more severe consequences.

In addition, the study found that nearly 70% of organizations lack a cross-functional crisis response team or pre-selected external advisors. This absence of a well-coordinated response team can result in delayed reactions, miscommunication, and inefficient crisis management, further exacerbating the impact of crises.

Investors should be aware of these crisis preparedness gaps and consider the potential financial implications if these crises materialize in underprepared industries or regions. To mitigate risks associated with underprepared crises in their portfolios, investors can:

1. Conduct thorough due diligence on the crisis management strategies of their investee companies.
2. Encourage investee companies to adopt AI/ML-powered tools and models for crisis management.
3. Monitor the development of crisis response teams and external advisors within investee companies.
4. Evaluate the effectiveness of general counsel in enhancing crisis preparedness and their role in crisis management strategy.

By taking these steps, investors can better assess the crisis preparedness of their investee companies and make more informed decisions about their portfolios. The lack of crisis preparedness is a significant risk to organizations and their investors, and addressing this gap is crucial for ensuring the long-term success and stability of businesses.
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