DTE003 Corporate Response to Crises Situations

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This module will take you through Corporate Response to Crises Situations.

  1. Corporate Response to Crisis Situations
  2. Impact of a Crisis on Corporate Reputation
  3. Case History: Getting It Wrong : British Petroleum (BP) and Deepwater Horizon
  4. Creating the Corporate Response : The First Hour
  5. The First Twenty-Four Hours
  6. The First Forty-Eight Hours
  7. Finding Positive Examples
  8. Summary
  9. Main Points

The information in this document is part of the Deltar
‘Level 4 Management Award in Advanced Risk and Crisis Management’

Corporate Response to Crisis Situations

A brief look at any the paper you brought this morning is likely to have at least one example of a crisis situation that has developed, not because of a major outside attack or event, but through basic failures in management skills. A simple test of how good an organisation’s crisis management skills are is whether the media coverage surrounding the crisis becomes focused on how the leadership has failed, rather than how well (or badly) the situation is being handled. Although it may be true that a crisis itself outside the control of an organisation (though as we have seen, that is not always the case), how the response is handled is certainly within their control.

The first significant example of the difference that effective corporate crisis management can make is usually considered to be the Tylenol incident in 1996. Johnson & Johnson was a major US pharmaceutical company who gained up to 15% of their corporate profits from a single product – Tylenol, an over-the-counter pain-killer that controlled 35% of the US market. In 1992, someone managed to lace some of the product with cyanide, resulting in the deaths of seven people. Johnson & Johnson were slow to react and take control of the situation, and they lost up to $1bn in market value.

In 1996, the same thing happened again, but this time the Johnson and Johnson management team were ready. They immediately acknowledged that there was a problem and withdrew the total Tylenol stock from across the US. The fact that they were showing strong leadership (even though this was a repeat situation), meant that public trust in them remained high. As part of their response, Johnson and Johnson introduced the first ‘tamper-free’ packaging, and as a result, not only regained their market share, but took customers away from other companies that had not suffered from the cyanide scare, but had also not introduce the latest tamper-free packaging.

Impact of a Crisis on Corporate Reputation

Major corporation are not just dependent on sales and profits, but to a large degree are as much concerned – or in some cases, even more concerned – with their corporate image. Whether it is a global consultancy giving the impression of cutting-edge efficiency and the ability to offer its services anywhere in the world, toilet paper manufacturers wanting you to think of puppy dogs rather than what toilet paper is actually designed for, or alcohol and car manufacturers trying to get you to connect their brand with an image of the good life driving along open roads or enjoying parties on a beach, this aspect of brand management, image management or reputational management is crucial to the identity of whatever it is that they are selling.

That is equally true of governments and public organisations. Part of the BBC ‘brand’ is its position as the national broadcaster naturally at home in the living rooms of every house in the country (an image that itself goes back to the 1950’s!). The revelations that came out as part of the Jimmy Savile scandal that there had been a culture of sexual bullying and active paedophilia by one of its major stars, which then led to an understanding that i fact there had been a corporate culture that had allowed this to happen over many years, was an extreme example of how corporate reputation is dependent on maintaining a specific brand image.

Recent examples have included supermarkets selling horse meat as part of the cheap food ranges, water companies polluting rivers and other water sources, and even the RSPCA who suffered high-profile complaints from celebrity supporters because of their policy of pursuing criminal cases against what were seen as vulnerable people for cruelty for animals.

Case History: Getting It Wrong: British Petroleum (BP) and Deepwater Horizon

One of the largest corporate crises of recent years was that of BP and the Deepwater Horizon oil spill. The leak from an oil well in the Gulf of Mexico led to the deaths of 11 people, and the largest oil spill in American history. The oil spill had a massive effect across the region, affecting sea beds, coast lines and local economies. BP was eventually fined $4.5 billion dollars, and put aside $20 billion for potential compensation claims (though it seems that hat will not be enough, and final figures may be much higher). In order to pay for the disaster, BP was forced to sell off major operations it held in Russia, and for as time it was even questioned whether BP would be able to survive as a company. The CEO, Tony Hayward, was the public face of BP, and it was his comment to a Congressional hearing in America that the response to the spill was extremely upsetting and ‘he wanted to get his life back’, together with a picture of him enjoying himself on a private yacht whilst the oils spill continued to destroy large parts of the US coastline, that meant that the public outcry against BP became as much of the story as the actual oil spill.

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One of the signs that a company has failed to understand the needs of effective crisis management is when their lack of leadership in a crisis situation becomes the story, rather than the actual crisis itself.

Examples of where leadership has been seen to be weak or ineffective include Hurricane Katrina in New Orleans, where both President George W Bush and Michael Brown, the head of the Federal Emergency Management Agency (FEMA), were seen as symbols of the failure of national agencies to respond more effectively to a major disaster. The failure of the political leadership in Japan immediately following the Fukushima earthquake and tsunami i March 2011 was another example of where national political leaders where held responsible for a weak response that did not safeguard the safety and wellbeing of the people after a major disaster.

Although the issue of effective leadership may be one of public relations as much as actual operational management, the perception that the leadership is in position, is taking hard decisions and has a clear view of how it can achieve its objectives is likely to have a significant impact on how the public perceives that organisation. Although many crises catch organisations by surprise, once they have been triggered there are a number of things that an organisation can do in order to give itself the best chance of creating an effective and well-received, crisis management response.

Creating the Corporate Response
The First Hour

One of the signs of how ‘crisis aware’ an organisation is, is how long it takes until they are prepared to acknowledge that a crisis exists. It is natural in any organisation to ’wait and see what happens’, but that often means that by the time the organisation does recognise a crisis, and starts to respond, the crisis itself has already grown beyond its original state, and has got bigger and potentially more dangerous. Because crises are, by their very nature, rare events, there is often a lack of experience in dealing with them, which means that most people do not know what it is that they should do in such a situation.

Because it is likely that any crisis will be accompanied by confusion and a lack of information, it is important that the very first stage of an organisation’s response should be well-understood, and rehearsed if possible. The initial response to a ‘crisis status’ should be almost automatic, with the critical top-level decision makers being informed; a communication system put in place (it is quite possible that the people who need to be in on that first conversation may be overseas, or on holiday, or it might be a Sunday morning and their mobile phones are turned off….), and a support team, led by a team leader, gathering as much information as possible and putting together a briefing for the decision makers as to what the current situation is, what is known, what is not known, and possible implications for future threats and actions. This Stage 1 process allows the organisation to bring the decision-makers together (even if it is only on a conference call), to assess the situation, and to put initial measures in place in preparation for the next stage.

The First Twenty-Four Hours

Within the first twenty-four hours of the crisis status being declared, there should be a clearer picture emerging of what the nature of the crisis is, what impacts it might have on the organisation and its operations, and whether it is likely to turn into a longer-term problem. The nature of the crisis will determine who exactly needs to be on the crisis management committee, but it would include managers from the HR division, facilities management, legal team, IT department, security team, as well as senior company executives. There may well be the need to include the PR department in the event that the crisis is not just an in-house affair, but could impact on the company’s reputation. These are the people who will put together the crisis response programme that will ensure the safety and well being of the company’s assets (both personnel and facilities), as well as it to put in place a recovery programme if necessary. From a crisis management perspective, it is important that the top team has an effective support team around it, to ensure that information can be brought in and decisions handed down as effectively as possible.

As in any crisis, it is likely that the initial period will suffer from a lack of information and a clear idea of what exactly has happened, who has been caught up in it, and what the wider implications are. It is one of the functions of the crisis management team to start developing a picture of what the situation is and how they can best respond to it, which in turn will reassure all stakeholders (staff, family members, shareholders, business partners and the wider public) that the leadership of the organisation has taken effective control.

The First Forty-Eight Hours

Within forty-eight hours the crisis management framework should be in place, and should have settled into a routine that would enable it to carry out its functions whilst allowing the rest of the organisation to carry on with its normal business (as much as possible).

Once a crisis has gone beyond forty-eight hours, there are issues such as rotation of teams (everybody has to go to bed at some time!), collation of information (it is likely that there will be a review after the crisis is over, and it is important that all information concerning decision making is kept safe, as that will be an important part of any review that is held), as well as coordination with a wide range of other departments, both within the organisation and with other organisations, inside the country and overseas.

The structure of the crisis management team should have become clearer, with clear lines of responsibility for the management of the overall crisis response, and for reporting to the main board, if appropriate. The operational issues would have become clear, together with possible options for response. In short, at the end of forty-eight hours, the initial adrenaline shock of the crisis event should have passed, and the organisation should have returned to some level of operational normalcy.

Finding Positive Examples

For any security manager, the opportunity to find strong examples of good working practices should never be passed up. Next time that there is a major disaster in the news, look at how the various organisations involved in that manage the situation. Which are the ones that have clearly prepared for it, and which are the ones that don’t know how to react? How quickly does a sense of normalcy return? How well do they manager the media? Who gives an impression of effective leadership and who looks lost? Who do you trust that they know what they are doing?

The lessons that you will learn from observing others in what are, hopefully, rare events will give you valuable insights into how you can best prepare your own organisation for such a situation, and how you can make the most effective contribution to business recovery in the event that you are ever caught up in a similar scenario.

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It would be nice if crises gave you a warning, and though this sometimes happens, the usual situation is that it comes as a complete shock. The ability of the senior decision-makers to acknowledge, assess and make effective decisions, even when there is a lack of information, high levels of confusion and extreme pressure (with the risk of catastrophic losses), is critical to the eventual outcome. Although each individual crisis is unique, prior planning and the development of a ‘risk aware’ culture will set the foundation for effective crisis response, whatever the triggering event may be.

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Main Points

  • Any organisation, however rich, powerful or popular, can lose everything within forty-eight hours once a true crisis strikes
  • The most important stage in the crisis cycle is ‘crisis recognition’. This is the time is takes for an organisation to recognise that there is a crisis, and is a crucial factor in the effectiveness of the initial response
  • The first stage of the corporate response should be an automatic process, bringing together decision makers who can assess the situation and decide on an initial strategy
  • The first stage of crisis response is likely to be ‘What happened?’ rather than ‘What shall we do?’. The quicker that picture can start to be built, the quicker an appropriate response can be developed, and the more effective it will be