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Cognitive Bias in Law Firm Crisis Management: Why Smart People Make Bad Decisions

Crisis-Management

For law firms navigating complex stakeholder environments and an ever-evolving risk landscape, effective decision-making in crisis situations is essential to ensuring long-term reputational and commercial success.

Yet too often law firm leadership is left flat-footed when crises emerge. Recent history is littered with examples of firms that have failed to predict, mishandled or exacerbated crisis scenarios by making the wrong decisions when it mattered most.

But why? Why do organizations fail to prepare effectively for high-risk scenarios? Why do experienced leaders make errors of judgment under stressed conditions? Why do seemingly thoughtful crisis management and communication plans collapse under the first live fire of public scrutiny?

There is no single answer to these questions; every crisis is different, every decision unique. However, one critical factor is often overlooked in law firm crisis management and communications strategy: the wide range of cognitive, emotional and social group biases working at a behavioral level to undermine our capacity for intelligent decision-making, not least when experiencing the heightened uncertainty and stress of crisis situations.

The Vulnerability of Crisis Decision-Making



Law firm leadership must do more to understand how vulnerable human decision-making is to the distorting effect of various mental biases that undermine even the most diligent risk mitigation and crisis management strategies. The importance of embracing a "behavioral science perspective" has become increasingly understood in many industries and disciplines—from financial investing, to advertising and government policy-making—yet the legal sector lags behind.

Having researched these influences and observed their effect in crises affecting our many legal clients, we can identify three broad trends which present across the risk and crisis lifecycle. First, prior to crisis occurrence, firms tend to prepare insufficiently. Second, when a crisis occurs, firms are prone to responding slowly or ineffectively. Third, once a crisis has passed, firms too often fail to learn the lessons and adapt their crisis plans and risk mitigation strategies accordingly to reduce the likelihood of similar incidents reoccurring. These trends are, in turn, driven by a large number of cognitive, emotional and social group biases that corrupt our capacity for rational decision-making. This article lays out a small but indicative selection.

Pre-Crisis: Biases Undermining Effective Preparation



Why do organizations routinely fail to prepare for the impact of predictable, high-risk crisis scenarios? In our experience, too many law firm leadership teams hope for the best, yet do not consider the worst. For example, we know without question that the probability of a law firm falling victim to a cyber-attack in the next three years is very near 100 percent. Yet many firms still seek to cut corners in their investment in cyber risk mitigation and defense measures.

Cognitive biases distort our ability to appraise probabilities and weigh risk. Optimism Bias drives senior leaders and their teams to discount the likelihood of negative outcomes befalling the firm and sustains the belief that the future will on balance be bright. Normalcy Bias similarly persuades us that business-as-usual conditions are likely to continue while Overestimation Bias inspires individuals (particularly those experienced and skilled) to overestimate their ability to understand and evaluate complex information (not least around risk probabilities). As a result, it is alarmingly common for firms to either have no crisis strategy in place, or to have one that is largely out of date. Research suggests that between 10 percent and 50 percent of companies (across industries, not only in the legal sector) have not undertaken meaningful crisis planning within the last 12 to 24 months.

Insufficient crisis preparation is also driven by Single Action Bias, one of the most commonly observed biases in the pre-crisis phase. Instead of undertaking a comprehensive range of risk mitigation and crisis preparation measures, firms will often undertake only the initial first steps of a recommended program. Having completed the first step—for example, holding an initial crisis strategy or training session—leadership teams can quickly come to feel cognitively and emotionally satisfied (in technical terms, "cognitive dissonance" is reduced) that the risk has been sufficiently addressed and that no further action is required. Crisis strategy thus becomes a tick-the-box exercise and effective preparation is bypassed.

Live Crisis: Biases Undermining Incident Response



Once a crisis situation begins to unfold, a range of further biases may come into play. Under the live fire of crisis conditions, leadership teams need to remain calm and organized. However, we readily underestimate the physiological and emotional impact of stress on human behavior. Adrenaline surges as the mind enters fight or flight mode. The body shuts down non-vital functions, including our capacity for rational thought and logical deliberation, as well as other bodily functions, such as the peristaltic digestion process (causing us to experience stress via "butterflies in our stomach"). In live crises, surrounded by angry customers and prying journalists, agreed upon strategies and response protocols can quickly disintegrate as even senior decision-makers are prone to prevaricate or panic.

One specific symptom of the disintegration of crisis response protocol is the Mile-Long Screwdriver: the tendency for senior leaders experiencing stress to break with agreed upon roles and responsibilities and seek to intervene in frontline tactical actions for which they are ill-suited. Infinite Global advised a client whose senior decision-maker—against advice—sought to repeatedly edit pre-agreed media statements and accompanying social media posts at the 11th hour of a difficult crisis situation. Driven by Modal Bias (the inclination to believe our own ideas are superior) and Reactive Devaluation (the psychological tendency to de-value and neglect the opinion of those perceived to be antagonists; in this instance, disagreeable colleagues and advisers), the individual’s panicked editing caused significant delays and reduced the quality of response overall.

Crisis teams need to remain agile and open-minded, able to adjust response plans to the unfolding conditions before them. However, certain cognitive biases work to prevent this, by narrowing our field of vision and creating rigidity in tactical response. For example, Deformation Professionelle (Law of the Instrument Bias) drives individuals to diagnose crisis situations and prescribe solutions through the lens of their own specific skillset. Therefore, to legal counsel, any crisis situation can automatically appear to be a litigation concern. For IT specialists, it’s a technical issue. For PR advisers, it is a communication task and so on. Though specialist perspective is useful (subject-matter expertise is critical in crisis strategy), decision-making will suffer if any one expertise takes undue precedence over others. Effective crisis leadership teams blend skillsets by recognizing the risk of bias and ensuring equal voice to each specialist, ensuring a multi-discipline perspective is embraced.

Post-Crisis: Learning Tough Lessons



Crisis situations provide organizations with a harsh but invaluable learning experience. Firm leadership must take the necessary steps to understand the causes of a crisis, evaluate its handling of the situation (including the specific decision-making therein) and fully learn the lessons of what occurred. These insights must then be embedded into institutional memory and firm-wide knowledge management systems and not solely in the personal memories of those involved. However, it is common to observe the effects of Hindsight Bias and Outcome Bias during this process. Both effects can drive leadership teams to not only misdiagnose the causes of a crisis, but also misjudge the manner in which they were managed.

Mitigating the Risk of Bias



Crisis leadership and strategy will always be vulnerable to the corruptive effects of cognitive, emotional and social dynamic biases; this article describes only a small handful. The challenge for crisis leadership teams is to understand their exposure and develop measures to counter the risks posed.

There are a large number of potential mitigative steps. Corporate organizations are increasingly undertaking de-biasing programs to improve the efficacy of their decision-making (both in crisis and non-crisis conditions) and law firms would be wise to follow suit.

Conducting a behavioral risk audit enables firms to map their exposure to cognitive bias risk at key stages in crisis response and understand how and when specific individuals are prone to certain biases. For example, the most effective crisis management strategies will account for the risk and behavioral profile of leading individuals (e.g., if a senior decision-maker is identified as being particularly risk-averse or risk-tolerant).

Secondly, firms are advised to review their performance in self-evaluation and knowledge management vis-à-vis crisis situations. What steps has your firm taken to transparently (perhaps even brutally) self-critique itself on its crisis management performance and its role in causing a recent crisis in the first place? From here, firms must ask what concrete steps they have taken to adapt their forward planning, monitor and amend behaviors and update the crisis management strategy in light of this learning.

This article offers a small snapshot of how a host of cognitive biases work to undermine crisis strategy and leadership. Law firms globally would be advised to dig deeper and consider what more they can do to counter such pernicious and pervasive risks.

Peter Barrett is an associate director in the London office of the international communications firm Infinite Global. Jamie Diaferia is CEO of Infinite Global based in New York.