Crown, Optus and FTX: 2022 was a vintage year for corporate crises

While every year has its typical list of corporate crises, 2022 was different. The usual variety of companies were caught out — from the CEO of Lark Distilling forced to resign in February after the release of a video supposedly showing him using drugs, to crypto exchange Swyftx forced to lay off 35% of its staff in December following the collapse of FTX.

What makes 2022 different is the dominant role of some of Australia’s most powerful corporations engulfed in crises. Organisations that should have the resources and experience to avoid the fatal combination of being badly prepared to avoid a crisis, and responding badly when it happens. 

Look no further than the giants of the Australian casino industry.  

The rolling crisis for the industry began in 2021, in the wake of shocking revelations at a series of public inquiries, which saw Crown Resorts declared unsuitable to hold a casino licence in Sydney and Melbourne. In 2022 Crown scored a hat-trick with a similar finding against its casino in Perth. It then rounded off the year with a record $120 million fine for failing to comply with responsible service of gambling obligations, adding to an $80 million fine in May for its involvement in illegal transfer of funds.

Crown’s ongoing financial and reputational disaster was no sudden or unexpected crisis. Victorian Gambling and Casino Control Commission chair Fran Thorn said in November: “These were not isolated breaches. They were part of a pattern of extensive, sustained and systemic failures by Crown that spanned roughly 12 years.”

Rival gambling outfit Star Entertainment joined the naughty list in 2022 with similar revelations leading to its Sydney and Brisbane operations being declared unsuitable to hold a casino licence. Star was also fined $100 million for failing to stop money laundering at its Sydney casino, and two months later, the authorities in Queensland imposed a further $100 million fine on the company for its Brisbane operation and a deferred 90-day suspension of its licence.

Then Star seemed to complete the trifecta this month when corporate regulator ASIC launched civil proceedings against 11 current and former executives and board members over alleged breaches relating to oversight of anti-money laundering protocols.

In addition, financial crimes watchdog AUSTRAC launched Federal Court action to fine Star casinos for alleged anti-money-laundering breaches, with similar ongoing Federal Court actions against Crown Melbourne and Crown Perth. 

Not to be left out, New Zealand-based Sky City — which operates Adelaide’s only casino — joined the party in December when AUSTRAC began action for alleged serious and systemic non-compliance with Australia’s anti-money laundering and counterterrorism financing laws, which could result in fines of more than $2 billion.

Court documents claimed one customer listed as a “meatpacker” recorded a turnover at the casino of more than $85 million over a four-year period, and another, who allegedly told the casino they worked as a chef at a small restaurant, turned over more than $34 million in four years.

‘Black swan’ or ‘grey rhino’ events?

But Casino companies were not the only corporate giants to suffer costly crises in 2022. The Optus and Medibank security intrusions were two of the largest data breaches in Australian history and both exposed IT system weakness as well as inadequate customer response and communication.

Critics sometimes suggest that it’s smaller, less resourced companies that are more prone to a lack of crisis preparedness and failure to have adequate response systems in place. But 2022 has clearly reinforced that corporate giants are just as vulnerable, if not more so.

Faced with having to lay off staff, Brisbane-based Swyftx wrongly described the collapse of US crypto exchange FTX as a “black swan-type event”. 

That’s a mischaracterisation of how crises typically arise. Black swan events are correctly described as highly improbable, with catastrophic impact.

By contrast, research shows that most crises are preceded by warning signs that too often go unheeded.

They are more likely to be a grey rhino event — which are highly probable, high-impact yet neglected threats that occur after a series of warnings and visible evidence. Or as Michele Wucker, who coined the term, said: “It’s a metaphor for missing the big, obvious thing that’s coming at you.”

The risks of crypto are not black swan events. Cryptocurrencies in general showed red flags the size of Tasmania long before the collapse of FTX. Last year alone saw the collapse of two Melbourne-based crypto exchanges — MyCryptoWallet and Blockchain Global — so the crisis risk could hardly have been a surprise.

Similarly, the danger for casinos of money laundering and association with organised crime was well known long before the recent Commissions of Inquiry, as was the threat of criminals hacking into major corporations which hold vast amounts of personal customer data.

Companies failing to prepare

In reality, studies around the world show a consistent and continuing lack of crisis risk recognition and crisis preparedness in organisations of all sizes. 

Sadly, the problem is not new and shows no real signs of improving.

A major seminal study by Deloitte back in 2016, which looked at the attitudes of non-executive directors across the world, found 73% of directors named reputation as the single greatest crisis vulnerability, yet only 39% said their company had a plan for it.

And 2020 research by CS&A International and PR News showed that almost 40% of organisations lacked a crisis management plan, and of those that said they had a plan, nearly half admitted it was not up to date. 

More recent research gives no reason for optimism. For example, the 2022 Edelman Connected Crisis Study across six major international markets showed crisis management is the fastest-growing area of responsibility for chief communication officers and chief marketing officers, yet 60% say they don’t have the right skillsets in their teams to navigate this landscape.

And a SenateSHJ report in 2022 of interviews with company executives across Australia and New Zealand who had suffered a recent crisis, revealed only 31% felt they were well prepared for the crisis; 24% had identified a risk, but were not prepared; and a worrying 38% had neither foreseen nor identified the risk of a crisis.

The problem is blindingly obvious, and the remedy is well-proven and readily available. The only question is why so many companies — large and small — won’t take the necessary steps to protect themselves and their customers.

Dr Tony Jaques is an expert on issue and crisis management and risk communication. He is CEO of Melbourne-based consultancy Issue Outcomes and his latest book is Crisis Counsel: Navigating Legal and Communication Conflict.