Class actions on the rise

September 6, 2017 admin 0 Comments

Class actions, once considered costly for the average ‘punter’, are now more accessible with the increasing numbers of litigation funders entering the market. Indeed, lawyers report a tripling of class actions in Australia following the rise of funding companies that are not only keen to invest in legal action, they also want to shout about it. We’ve even seen class actions against class action law firms.

It all means that the spot light on corporate behaviour shines brightly. Corporates are well advised to plan early for long periods of brand damaging offensives.

Regulators have shown an increasing willingness to use a well- equipped tool kit of disciplinary measures and media opprobrium against companies that flout –or appear to transgress – good corporate behaviour. Legal action, calls for record fines and increases in legislated penalties, (even before the judge has made a decision on quantum), are all accompanied by damaging ‘name and shame’ PR campaigns.

Add to this an emboldened group of employees, customers, shareholders and investors, with a willingness to take legal action against organisations that have over promised and under delivered. The rise in what might be described as ‘corporate accountability action’, is evident in the increasing willingness of shareholders and customers to either initiate litigation or follow successful prosecutions with class actions. Indeed, customers are reported to be actively encouraged by some regulators and consumer groups to follow up successful prosecutions with further civil litigation.

Not surprisingly, smarter executives and board members are consulting crisis and issues management planners earlier than they otherwise might to ensure they have an effective strategy in place.

There are also internal communication issues to plan for. Not least is ensuring frontline workers are trained and equipped to deal with aggrieved consumers, keen to voice their displeasure at whatever it is the organisation has or has not done. Communication advisers include scripts and coaching for call centre workers and office receptionists to deal with these stressful conversations.

These risks come at a time when corporates are also encouraged to take stances on social and political issues in order to be seen to be part of the communities in which they operate. Some high profile activist CEO’s claim that there is a legitimate business case for promoting social causes. Companies with millennial customers, or that wish to employ them, often comment that they are increasingly obliged to reflect the complex social concerns this group holds. Some commentators have described it as the ‘market for virtue’. The flip side is that a higher profile raises expectations and invites scrutiny. It also risks disappointing distinct stakeholder groups. The marriage equality debate, for example, saw some organisations criticised and even ridiculed about their corporate performance after they publicly supported the ‘Yes’ campaign.

It’s a volatile environment for business which must balance community expectations with financial results. Powell Tate has acted for a number of corporations that have faced class actions following protracted regulator scrutiny and costly penalties. We’ve noticed a ‘blow out’ in the time frame for adverse commentary and negative publicity. Put simply, bad news lingers longer in an always on world. This impacts the types of strategies an organisation must have in place to not only monitor and deal with the initial complaint, but also to ensure an organisation and its brand effectively recovers from a bruising campaign. Companies should ensure a strategy includes:

    1. Scenario planning and appropriate messaging,
    2. A timeline of events,
    3. Approved statements that cover various scenarios, likely court judgements and comments,
    4. Question and Answer documents,
    5. Scripts for spokespeople, including sales teams, receptionists and call centre personnel,
    6. Training for those on the front line of battle (sometimes this even includes hints on court etiquette),
    7. Ensure there is a close working relationships between communication advisers and the legal team,
    8. Measurement of damage to the organisation and brand, an agreed acceptance of what the pain threshold is,
    9. Plans to recover, which might even include rebranding.

Jacquelynne Willcox, EVP and Managing Director, Powell Tate