Lack of Planning Brings Vulnerabilities

In the absence of a structured response plan, team members may not know what to do if they learn that authority figures have taken an interest in the company or in a team member. Sometimes, leaders act rashly. People have gone to prison for their response to a government investigation, rather than for the underlying reasons behind the inquiry.

Consider the case of the famous celebrity, Martha Stewart. Many people are familiar with her brand, which sells household products. In 2001, however, a personal scandal over a stock sale completely disrupted her life. Her response to a government inquiry led to criminal charges.

According to the U.S. Securities and Exchange Commission, in late December 2001, her stockbroker at Merrill Lynch, Peter Baconovic, called her. Peter revealed that Sam Waksal, the CEO of ImClone Systems had placed an order to sell all of his shares in his company as a result of an adverse decision by the Food and Drug Administration. In response, Martha sold approximately 4,000 shares that she owned, avoiding losses of more than $45,000.

When government investigators began making inquiries, Martha did not have a good plan. The responses she gave to the government investigators resulted in criminal charges. The fees and costs associated with the disruption likely exceeded several million dollars. Besides losing money for legal costs, Martha’s response to the investigation led to a prison term, a shareholder derivative suit against Martha Stewart and other directors at her company, and five months in prison. With a felony conviction, Martha endured lifelong complications, including bans on travel to some countries.

Clearly, Martha Stewart did not have a principled plan that would guide her response to a government inquiry. Sadly, many people find themselves in the same predicament. Those who operate businesses without designing a response plan for government inquiries may leave themselves vulnerable to knee-jerk reactions that can exacerbate troubles.

A lack of a plan can lead to confusion during the first few hours, days and weeks of an inquiry. The unfolding drama can distract team members, as everyone may worry about personal liability. If people don’t know what to do, they may make futile attempts at self-preservation, such as destroying incriminating evidence, or lying to government investigators. Either response would expose the individual, and potentially others, to criminal charges.