1. recognize the need for early crisis detection and crisis management.
The StaRUG offers companies more opportunities than before to prevent insolvency and carry out restructuring outside of insolvency proceedings.
Prerequisites for the application of the StaRUG include the planning and establishment of a system for early crisis detection and crisis management. Section 1 of the StaRUG already stipulates that the executive board or management must "continuously monitor developments" that "could jeopardize the continued existence [...]". If "such developments" come to light, "appropriate countermeasures" must be taken.
However, companies often assess the risk of a potential crisis as currently irrelevant. This is dangerous, because good crisis management only works if those responsible at all levels recognize its necessity - especially at shareholder and management level. After all, crisis management initially incurs costs that are not offset by direct income. It is therefore important to raise and cultivate awareness of the need for a system for early crisis detection and appropriate crisis management throughout the company. In fact, the secret of effective crisis management lies first and foremost in developing risk awareness: Crises are special situations, whereas crisis management is part of everyday business.
2. Appoint a crisis management lead.
Effective crisis management requires a crisis management lead. This person is responsible in particular for moderating the risk assessment workshops, which involve developing risk analyses. In addition, the management monitors and controls the implementation of the corresponding countermeasures. To ensure a certain degree of neutrality, the crisis management lead should be directly responsible for crisis management to the CEO. It is equally important that he or she has the necessary freedom and resources to work effectively.
Against this background, there are several reasons that speak in favor of an external crisis management lead:
- Especially at the beginning, there is often a lack of awareness of the urgency of crisis management - or it is suppressed for human reasons. The external person, who should have as much experience as possible with corporate crises, is more sensitive in this regard and can put their finger on the problem at an early stage.
- Risk assessment is one of the least popular topics for managers or employees. They often prefer operational business - also because they often lack a sense of the relevance of the task.
- The person broadens the horizon with their view from the outside.
- Heading up crisis management is not a full-time job - especially for SMEs.
3. Conduct regular risk assessment workshops.
Workshops that take place regularly under the direction of a moderator with experience of crises have proven successful for risk assessment. The aim is to establish the system for early crisis detection and provide a basis for crisis management. To this end, regular risk analyses must be carried out at all levels of the company and with the involvement of all stakeholders - at the following three levels:
- Company level: Possible risks include power outages, hacker attacks and pandemics.
- Project level: Possible risks include the award of a major contract and the implementation of a major project.
- Daily business level: Possible risk is the execution of individual, potentially dangerous measures.
Involving all stakeholders personally is important - especially since over 70 percent of all crises have their origin in human (mis)behavior. Crisis management must therefore start with the human element - even if the stakeholders often misunderstand this as a personal attack. A culture of acceptance of the human element must therefore first be created in the organization, which can only be achieved top-down and through practical implementation.
4. Develop suitable countermeasures.
The next step is to prioritize the risks identified in the risk assessment, for example according to their probability of occurrence and their possible consequences. In addition, precise countermeasures and processes must be defined, scheduled and addressed for all risks above a certain threshold value. Companies also need a detailed emergency plan for all risks and events that require rapid action, such as a cyber attack.
However, it is not possible to identify all risks in advance and proactively avoid them. This is why crisis prevention also means clustering all conceivable risks into scenarios and defining specific tasks and responsibilities for these scenarios. This serves to create reasonable barriers against the occurrence of risks that could provoke a crisis. Proportionality is very important here. And, of course, the workforce must be included and involved from the outset. In order to test the effectiveness of the countermeasures and practice their application, it is essential to carry out regular unannounced emergency drills. The crisis management team is responsible for monitoring implementation.
5. Set up neutral management tools.
Almost every corporate crisis is preceded by 10 to 1,000 near misses. Those who are able to recognize these and then react to trends are the smart ones. To do this, it is essential to create a culture in the company that allows undesirable developments to be addressed openly. The management should set an example that such behavior is right and important. This is the only way to create trust and a willingness to act among employees.
It is also important to structure existing data in such a way that it allows conclusions to be drawn about risky trends. Two levels of monitoring are useful here:
- the company view with a focus on operational risks and
- the shareholder view, which focuses on the implementation of crisis management and strategic KPIs such as liquidity.
In order to evaluate the available data, it is advisable to set up a simple and comprehensible KPI system. It should include hard facts such as payment arrears, liquidity, delivery delays or accidents at work as well as soft facts such as supplier assessments or situation assessments. In addition, the reports generated, including the definition of necessary measures, should be discussed regularly, for example on a monthly or quarterly basis. Last but not least, the head of crisis management should be directly accountable to the management.
6. Break escalation chains at an early stage and draw up a restructuring plan.
Managers tend to perceive crises and crisis situations as their own failure - which can lead to them denying the actual problem. However, it is important to clearly communicate a crisis as such - by the management, the shareholders or the crisis management team. Only then can a crisis team, which includes the most important stakeholders and works in parallel with day-to-day business, be convened. This group should be composed in a factual and competence-based manner and be capable of taking action. Some managers who are appointed to the crisis team are reluctant to hand over the day-to-day business to their deputies or employees in the event of a crisis because they fear that they will do the job well - and that the manager will become superfluous. In such cases, leadership is required from the management.
A central task of the crisis unit is to draw up and implement a restructuring plan in accordance with StaRUG. It serves the purpose of breaking crisis processes and escalation chains as early as possible, if necessary with very drastic measures, before they can no longer be brought under control. It is very important to initiate sensible measures immediately in order to maintain room for manoeuvre and minimize consequential damage - especially with regard to securing liquidity and supply chains.
7. Monitor the countermeasures on an ongoing basis.
Crises are very dynamic. Therefore, all countermeasures must be regularly subjected to a PDCA process (Plan - Do - Check - Act). The composition of the crisis team should also be checked from time to time and adjusted if necessary. The appropriate period for checks can range from a few hours to several days. To prevent employees from perceiving the review, control and correction of measures as an attack on the people involved, a mindset must be promoted that recognizes necessary corrections as a team-internal or human strength.
8. Organize crisis communication.
Misguided communication can massively damage the company's reputation and destroy credibility with employees, suppliers, lenders and other stakeholders, especially in the event of a crisis. This is why a clear communication strategy is needed that aims to maintain the authority to interpret events. To achieve this, it is important to maintain consistent, coherent, transparent and, if possible, proactive communication. Ideally, a competent person should be responsible for crisis communication. They must specify the wording and language rules and brief the designated communicators to ensure that they proactively inform the public and other stakeholders via strictly regulated communication channels and convey their interpretation of the events.
9. Debriefing after the crisis: learn from mistakes.
Every successfully managed crisis should end with a debriefing, with an open exchange about the mistakes made in the management of the corporate crisis and the associated opportunities for improvement. This debriefing often gets lost in everyday life - partly because managers and employees want to get back to their actual work after a crisis. It is therefore important to initiate and promote the process of working through the crisis top-down. Ideally, the head of crisis management organizes a concluding workshop with all stakeholders to process what has been learned and derive further measures. Of course, companies are required to implement these measures. But after the crisis is before the crisis.
