CRISIS MANAGEMENT



In the past two decades, crisis management has become one of the fastest emerging of the business sciences. The reason for this interest is that a single crisis—any unexpected, negative event that could impair an organization—could lead to a loss of life as well as injure the reputation and profitability of a business.

Hundreds of potential threats exist for every organization, ranging from a plant fire to loss of competitive secrets. To assess whether a particular company has a higher exposure than others to categories of crisis, a company may employ a risk or crisis manager who may prepare statistical models, review industry data, or work with consultants to understand how one or more crises could affect the organization. Once this process of risk is completed, many companies then design a crisis management plan to determine how negative events can be avoided or reduced in scope.

INTERNAL AND EXTERNAL THREATS

The list of corporate crises may include violence in the workplace, product defects and product liability, embezzlement and extortion, chemical spills, sabotage and terrorism, and natural disasters—such as earthquakes, hurricanes, or floods—that can destroy corporate assets. Any of these events—as well as numerous others—can cause an immediate and prolonged financial loss to a company, require an intensive communications effort directed to investors, employees, consumers and other publics, and may present a series of regulatory, community relations, and competitive challenges.

Some examples of incidents that have required insight into crisis management include:

Although none of these events could be predicted, the principles of crisis management suggest that several could have been reduced in their severity of impact if the organization had engaged in an intensive review of risk and crisis susceptibility. Various crisis management scholars have argued that signals . exist prior to many crises emerging; these may include oral or written threats made to a company, "near miss" accidents in which an employee was injured but not killed, customer complaints, or serious incidents that occur in competing firms.

DURING A CRISIS, A SINGLE VOICE

During and throughout a crisis, the challenges presented to a company can be overwhelming. Crisis management strategists typically suggest that an organization engage the services of one spokesperson to reduce the possibility of contradictory statements. For instance, when Perrier Group of America voluntarily recalled bottled water because of abnormally high levels of benzene in 1990, two news conferences were held—one in Europe and one in North America—and executives of the company made remarks that were embarrassingly contradictory. By contrast, Luby's Cafeterias Inc. president Ralph Erben served as the sole spokesperson for his company for three days in the aftermath of the Texas violence. As a result of his skill and comments, Luby's stock value did not fluctuate on the New York Stock Exchange—a rare success for a company under siege.

By contrast, Exxon chairman Lawrence Rawl was widely criticized by regulators, environmentalists, and consumers for not traveling to Alaska and speaking to the press to inspect damage caused by the Valdez until three weeks after that catastrophe. His decision was perceived by some as a lack of sensitivity to an incident' in which the captain of the tanker admitted that he routinely drank vodka while on board and was drinking on the night of the incident. The absence of a swift, professional response can cause lingering financial and reputational harm; hundreds of thousands of Exxon customers reportedly tore up their credit cards and mailed them to the company.

Although crisis management is practiced by many large and medium-sized firms, the responsibility for assessing and preventing a disaster may be headquartered in a company's human resources, public relations, regulatory affairs, or safety departments; there is no single model that applies across industries. Today, many companies are implementing crisis management programs (CMPs); many others schedule simulations to test managerial response. Books, journals, and conferences have emerged to guide managers through this high-profile process. This author's study found that 67 percent of the Fortune 500 and 39 percent of the Fortune 1000 had a CMP in place in the early 1990s.

For example, British Petroleum (BP) Exploration in Anchorage, Alaska, prepared a CMP that details how different teams of managers would respond to any incident, ranging from an earthquake to an industrial accident. The plan also designates how business relationships will be managed, ranging from trade associations to vendors of the company. Every day of the year at least three BP managers are on call around-the-clock to assume leadership during any serious incident that could challenge the company internally or externally.

CRISIS MANAGEMENT AND PRODUCT
LIABILITY

The process of insurance and risk management is as important to crisis management as is public relations. For instance, after more than 20 years of denying that their products posed any serious health threats to women, manufacturers of silicone breast implants acknowledged in 1994 that hundreds of thousands of patients had suffered from multiple, serious side effects. As a result, a $4.3 billion trust fund was established by firms that had previously competed feverishly against one another, constituting the single-largest product liability case of its kind in history.

Up until a federal judge allowed the 1994 trust fund to disperse these funds to patients and their families, implant manufacturers such as Dow Corning Inc. had faced a crisis of unprecedented proportions: a former engineer with the company, Thomas Talcott, engaged in whistle-blowing and frequently testified in court, producing documents suggesting that Dow Corning executives knew for more than 20 years that their product could cause serious harm.

Numerous women won major lawsuits against the implant manufacturers, including judgments that reached over $6 million in a single case. Insurers of these manufacturers were eager to see the trust fund established so that their exposure to thousands of potential, individual lawsuits could be avoided. Increasingly, insurance companies are urging both corporations and nonprofit organizations to design and implement a CMP so as to reduce their exposure to a crisis.

DISASTER RECOVERY

Natural disasters such as flooding and earthquakes can seriously disrupt a company's computer and communications systems. These are especially critical to financial institutions and securities exchanges, among others. To help companies deal with such crises, numerous firms have begun to offer disaster recovery services. IBM, which accounts for about 10 percent of the international disaster recovery market, is one company that provides disaster recovery services around the world; Hewlett-Packard is another. The size of the international disaster recovery market has been estimated at $4.5 billion a year with a projected growth rate of 14 percent.

Disaster recovery services typically involve developing a contingency plan in case of a crisis. While the cost of such a plan varies with the size of the firm, Hewlett-Packard estimated that it would cost a medium-size bank about $95,000 a year to implement a backup plan, while a large full-scale bank's program could cost as much as $750,000 a year. Among the disaster recovery services provided to customers are dedicated office space, currency trading rooms, maintenance of backup data, and the handling of all telecommunications needs in case of a crisis.

CRISIS COMMUNICATIONS

Public relations practitioners become heavily involved in crisis communications whenever there is a major accident or natural disaster affecting an organization and its community. Other types of crises involve bankruptcy, product failures, and management wrongdoing. After the San Francisco earthquake of 1989, the Bank of America utilized its public relations department to quickly establish communications with customers, the financial community, the media, and offices in 45 countries to, assure them the bank was still operating. When faced with bankruptcy, Chrysler Corp. embarked on an extensive public relations campaign under the direction of its public affairs department to persuade Congress to approve a $1.2 billion government loan guarantee. In some cases, crises call for an organization to become involved in helping potential victims; in other cases, the crisis may require rebuilding an organization's image.

SEE ALSO : Workplace Violence Program

[ Laurence Barton ,

updated by David P. Bianco ]

FURTHER READING:

Ayres-Williams, Roz. "Maintaining Grace under Fire." Black Enterprise, February 1999, 39.

Barton, Laurence. Crisis in Organizations: Managing and Communicating in the Heat of Chaos. Cincinnati: South-Western Publishing, 1993.

Bianco, David, ed. PR News Casebook: 1000 Public Relations Case Studies. Detroit: Gale Research, 1993.

Budd, John F., Jr. "The Downside of Crisis Management." Public Relations Strategist, fall 1998, 36-37.

Dolven, Ben. "Crisis Control." Far Eastern Economic Review, 5 November 1998, 60.

"Ford Disaster Brings out Best Instinct in Detroit." Ward's Auto World, March 1999, 40.

Ligos, Melinda. "Crisis Control." Successful Meetings, November 1998, 59-64.

Moskovitz, Mike. "Managing the Media during a Crisis." American City and County, January 1999, 53-58.

Powell, Tony, ed. The International Simulation and Gaming Yearbook: Simulations and Games for Emergency and Crisis Management. Sterling, VA: Stylus Publishing, 1998.

Ray, Sally J. Strategic Communication in Crisis Management: Lessons from the Airline Industry. Westport, CT: Greenwood, 1999.



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