Managing a disaster

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At long last, we have an answer to the question, “Where were the auditors?” and it turns out that they were backstage, tweeting about Emma Stone.

For those who have been living under a rock for the past month or so: At the 2017 Academy Awards ceremony on Feb. 26, PwC partner Brian Cullinan, who, along with Martha Ruiz, was one of the two accountants from the Big Four firm in charge of giving the winner envelopes to the award presenters, handed Warren Beatty the wrong envelope as he headed onstage to present the award for Best Picture.

Chaos ensued. The foundations of Western civilization teetered on the edge of collapse. PwC’s 83-year history of handling the Oscars balloting — which is probably the highest-profile engagement in all of accounting — suddenly began to look like it was up for grabs.

This is probably a pretty familiar scenario for most accounting firms, right?

That is, if you leave out the Hollywood stars and the intense press coverage and the Internet hysteria, most firms will, at some point, make a big mistake with a major client. It may not be quite as earth-shattering or grotesque as this one (“You had one job!” said every single person on the Internet), but it will probably be pretty bad. In fact, it will probably be worse than you want to believe.

So, what will you do?

First off, you can tell yourself that it’s probably not as bad as that time those PwC partners gave out the wrong Oscar envelope. You can tell yourself that, but don’t tell your client that. They won’t be interested.

Far better to take a few pages from PwC’s book, because they actually handled the crisis as well as could be expected. It probably didn’t hurt that U.S. chairman Tim Ryan was in the audience, and realized the enormity of the problem pretty quickly, according to an interview he gave The New York Times. Major mistakes like this should never be hidden from the firm’s leadership — they’re the only ones who can marshal all of the firm’s resources, and make the hard decisions that may need to be made. Even more important, they should never be hidden from clients. PwC didn’t have that option, but you may — and you shouldn’t take it.

In short order — in the middle of that very night, in fact — PwC issued an apology and a promise to get to the bottom of the problem, which it then did, releasing a second statement shortly afterward that explained how the mix-up happened, with no fudging or excuses. (To put it simply, Cullinan screwed up by handing out the wrong envelope, and then he and Ruiz screwed up by not following the pre-established protocols for fixing a screw-up. Inexplicably, they were still listed on a page on PwC's Web site about the Oscars engagement through mid-March; it was only recently taken down.)

That was as far as PwC could go, but with luck, you’ll be able to go beyond keeping leadership in the loop, being honest with your client about your mistake, and taking responsibility. You may actually be able to fix your mistake — to amend the tax return or restate the books or whatever the case may be — and in that case, you should do so as quickly as possible.

Finally, you may need to decide what to do with erring staff. Firing will often be too extreme, but you’ll want to make sure that lessons are learned, whether it’s through retraining, demotions, or having them grovel to the client. Uncomfortable confrontation may be required — but on the other hand, you want your employees to know that, ultimately, you have their back. PwC did that by hiring security guards for Cullinan and Ruiz, who were subject to death threats after their role in the Oscars mistake became clear.

Hopefully you won’t need to take that page from PwC’s book, too.

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