Crises can strike any company at any time. Microsoft, ValueJet, Chrysler, Pepsi and the tobacco industry are some of the most recent companies that can attest to this fact, but they are not the only ones. Crises do not discriminate based on a company’s size or notoriety, and they can hit when a company least expects them. They come in many forms – strikes, layoffs, product recalls or allegations of misconduct, but while some of these may seem small, every crisis has the potential to damage the reputation of a company. s
Regardless of the severity of the situation, crises pose a serious threat to companies – not only to their reputation but their fiscal health as well. When Odwalla’s apple juice was thought to be the cause of an outbreak of E. coli bacteria, the company lost a third of its market value. The same allegation against Jack in the Box restaurant in 1993 caused the hamburger chain’s stock price to fall from $14 a share to nearly $3 a share. On the other hand, some companies emerge from crises unscathed in the eyes of consumers and investors. Johnson and Johnson is one such company. After it was discovered that its Tylenol capsules had been laced with cyanide, Johnson and Johnson reacted in such an effective way that the case is now well-documented as an example of successful crisis management.
“Failure to have a workable Crisis Management Program
is akin to playing Russion Roulette with an automatic pistol.
You don’t have the luxury of pulling the trigger on an empty chamber.”
-Geary Sikich,”All Hazards’ Crisis Management Planning”
The factor that determines how a company will withstand a crisis is its ability to respond to the crisis. “The public forgives accidents, but it doesn’t forgive a corporation if its response to the public is inadequate.” Once a crisis occurs, the company is suddenly a target for the media, who are acting on behalf of the public to find out the answers to the important questions about their own safety. One substantial barrier the company must overcome is the public’s perception, because it is a well-known fact in the public relations field that perception is, indeed, reality. One survey discovered some unsettling facts:
• Three-fourths of the people surveyed said companies do not take responsibility for crises
• Three-fourths said companies do not usually tell the truth
This high level of cynicism is important to overcome, for it is how the company is perceived by the public that ultimately will determine the future of the organization.
Time is at a premium during a crisis, so it is essential for companies to plan ahead. “In a world where the wrong split-second decision can cost a company millions in negative publicity, not being prepared is not worth the risk – to executives or the companies they work for. “Many companies today recognize this and have in place a crisis communication plan that outlines the steps to be taken during the first few hours of a crisis. They spell out the who, what, when, where and how the company should deal with the crises. The best plans produce many of the materials necessary ahead of time, including initial official statements, press releases, fact sheets and backgrounders so that the missing information simply must be inserted and the materials are ready to go. A good crisis plan is “everything you need in one place so you don’t have to search – because you may not have time to search.”
Are You Prepared
Many actions can be taken prior to an actual crisis that can help a company quickly and effectively respond when it does finally occur. Speed and efficacy are paramount, so it is important these steps are taken before, rather than during, a crisis. “If you need to spend the first few hours creating a plan, you may have missed your window of opportunity and will always be playing catch-up.”
“While some crises happen in an instant, others slowly evolve. In either case, you need to be prepared and have a plan in place to deal with the expected and unexpected fallout.”
James W.Burchill, “Crisis Management Techniques”
Establish a Crisis Management Team (CMT)
This team should be composed of eight to 10 decision-makers in the organization, each representing a different background and area of expertise. They should include members from the public relations department, management, personnel, security and any specialists that relate to the specific industry. In addition, this team should select a leader and a spokesperson. This spokesperson is the only person who should be made available to the media, at least initially. Although the media often want access to the CEO, this should be done on a limited basis, and he/she should not be the main spokesperson. The team members should be creative with strong problem-solving abilities, for “it is the team concept that brings together the expertise to understand and evaluate the specific crisis and come up with solutions that can help your organizations deal with it.” This team will make all the important decisions during the time of crisis and will be intimately involved in every detail.
Develop a Crisis Response Plan
One of the Crisis Management Team’s main responsibilities is to develop a crisis response plan. This plan should be developed with the assumption that a crisis is any “event, revelation, allegation or set of circumstances that threatens the integrity, reputation, or survival of an individual or an institution.” These plans will direct the organization’s actions in dealing with the crisis. Key to the process of developing this plan is generating a set of “worst-case scenarios” in which the group lists all the potential crises the company could face. These would include everything from the CEO resigning to allegations that the company’s products kill people. Many of the scenarios in between the two extremes can be grouped together and will have similar response processes. Based on each potential crisis, a specific crisis plan should be developed to outline the exact response needed. Each plan would require materials, such as official statements, outlines for press releases, fact sheets and backgrounders, which deal with the situation to be prepared ahead of time. In addition, it is essential to speak with one voice, so internal and external messages should be crafted to adhere to this important guideline. Effective crisis response plans allow companies to “hit the ground running” because so much of the legwork is done ahead of time.
Update the Crisis Response Plan and Practice it regularly
Once the plan is developed, it should not be placed on a shelf and forgotten. Circumstances change, and so must the plan. To be able to implement the plan, a company must practice the plan regularly. Role-playing exercises and seminars by former journalists help to prepare the crisis team for the pressure of a crisis situation. In addition, the media can be unrelenting, especially to an ill-prepared spokesperson. It is important this person be prepped before speaking to the media. Speech patterns, camera presence and poor body language can all affect the delivery of the message.
Establish a Strong Relationship with the Company’s Legal Counsel
During a crisis, there is a natural split between the legal, financial and communications departments of a company. Each brings to the table its own unique angle, and these ideas often collide. “To a public relations professional, saying ‘no comment’ is akin to death. For an attorney, it is safety.” Despite their conflicting views, it is essential there is teamwork between these groups. Therefore, it is advisable for communicators to develop a relationship with both legal and financial decision-makers to allow for all interests to be represented and a compromise developed ahead of time.
Putting It Into Action
Having a complete crisis response plan is the first step to effectively dealing with a crisis, but implementing that plan is just as important. In a crisis, companies find themselves under the watchful glare of the public, and every decision they make gets examined under a microscope. The first hours following a crisis are crucial, for it is in that time that the public will form its own opinions. Despite all future actions, these opinions are nearly impossible to change. Therefore, “operational response is essential. It is the one that saves lives, property and other assets. The ability to communication is no less important. It’s the one that saves the business.” The public will base their opinions on both of these elements. So, when presented with a crisis, companies should:
“First impression count and they’re almost impossible to change, so make sure you show that you care and are taking whatever positive action is possible.”
Arviva Diamond, “Dealing with the Media in a crisis”
• Communicate early and often.
• Show compassion, and be sure the company is doing everything possible to improve the situation.
• Be honest and open.
• Be consistent in the message.
• Monitor public opinion using new technology (chat rooms, message boards, discussion groups, surveys).
• Follow up with public opinion surveys and employee questionnaires to learn from mistakes.
Many crises cannot be avoided, but effectively responding to the situation may limit the negative impact the company suffers.
Models and theories associated with crisis management
Crisis Management Model
Successfully diffusing a crisis requires an understanding of how to handle a crisis – before it occurs. Gonzalez-Herrero and Pratt created a four-phase crisis management model process that includes: issues management, planning-prevention, the crisis, and post-crisis (Gonzalez-Herrero and Pratt, 1995).
Management Crisis Planning
No corporation looks forward to facing a situation that causes a significant disruption to their business, especially one that stimulates extensive media coverage. Public scrutiny can result in a negative financial, political, legal and government impact. Crisis management planning deals with providing the best response to a crisis. (12Manage, 2007)
Preparing contingency plans in advance, as part of a crisis management plan, is the first step to ensuring an organization is appropriately prepared for a crisis. Crisis management teams can rehearse crisis plan by developing a simulated scenario to use as a drill. The plan should clearly stipulate that the only people to speak publicly about the crisis are the designated persons, such as the company spokesperson or crisis team members. The first hours after a crisis breaks are the most crucial, so working with speed and efficiency is important, and the plan should indicate how quickly each function should be performed. When preparing to offer a statement externally as well as internally, information should be accurate. Providing incorrect or manipulated information has a tendency to backfire and will greatly exacerbate the situation. The contingency plan should contain information and guidance that will help decision makers to consider not only the short-term consequences, but the long-term effects of every decision. (12Manage, 2007)
Business Continuity Planning
When a crisis will undoubtedly cause a significant disruption to an organization, a business continuity plan can help minimize the disruption. First, one must identify the critical functions and processes that are necessary to keep the organization running. Then each critical function and or/process must have its own contingency plan in the event that one of the functions/processes ceases or fails. Testing these contingency plans by rehearsing the required actions in a simulation will allow for all involved to become more sensitive and aware of the possibility of a crisis. As a result, in the event of an actual crisis, the team members will act more quickly and effectively. (12 Manage, 2007)
Structural-Functional Systems Theory
Providing information to an organization in a time of crisis is critical to effective crisis management. Structural-functional systems theory addresses the intricacies of information networks and levels of command making up organizational communication. The structural-functional theory identifies information flow in organizations as “networks” made up of members and “links”. Information in organizations flow in patterns called networks (Infante, Rancer, & Womack, 1997).
Diffusion of Innovation Theory
Another theory that can be applied to the sharing of information is Diffusion of Innovation Theory. Developed by [Everett Rogers], the theory describes how innovation is disseminated and communicated through certain channels over a period of time. Diffusion of innovation in communication occurs when an individual communicates a new idea to one or several others. At its most elementary form, the process involves: (1) an innovation, (2) an individual or other unit of adoption that has knowledge of or experience with using the innovation, (3) another individual or other unit that does not yet have knowledge of the innovation, and (4) a communication channel connecting the two units. A communication channel is the means by which messages get from one individual to another (Infante et al., 1997).
Examples of organizational crises
• Hostile Takeover
• Terrorist Attack
• Last minute LARA RFC
• Copyright infringement
• Vehicular fatality
• Information sabotage
• Product tampering
• Workplace bombing
• Natural disaster that destroys organizational office
• Computer tampering
• Sexual harassment
• Natural disaster that disrupts product/service
• Confidential data loss
• Kidnapping, (Key person; Tiger)
• Product/service boycott
• Work-related homicide
• Malicious rumor
• Hazardous material leak
• Plant explosion
• Personnel assault
• Assault of customers
• Product recall
• Natural disaster that destroys corporate headquarters
• Natural disaster that eliminates key stakeholders
For the purposes of this plan there are three types of crisis. They are defined below. Type #1 does not involve the coordination of the Crisis Management Groups while Types #2 and #3 will require their coordination.
The Director of Campus Safety or his/her designate will assess the elements of the crisis and determine what level of crisis faces the College based on the following criteria:
Type 1 – this is a minor department or building crisis that can be resolved with existing College resources or limited help. A Type #1 crisis is usually a one-dimensional event that has a limited duration and has little or no impact on Lewis & Clark College personnel or operations.
Type 2 – this is a major incident that involves more than one department or building, and impacts sizable portions of the campus community. A Type #2 crisis may be a single or a multihazard situation, and often requires considerable coordination with external jurisdictions. Type #2 emergencies also include imminent events on campus or in the general community that may develop into a major College crisis or a full disaster.
Type 3 – this is a catastrophic emergency event involving the entire campus and surrounding community. Immediate resolution of the disaster, which is usually multihazard, is beyond the emergency response capabilities of campus and local resources.
Check List for Crisis Management Planning
A crisis is anything that has the potential to significantly impact an organization.
Companies with crisis management plans are better able to –
• Work effectively with local emergency responders city, state and federal agencies in responding to events;
• Promptly attend the needs of those affected;
• Assist investigating agencies without jeopardizing the company’s legal position;
• Form working relationships with media and elected officials that will help get the company’s message to the public;
• Prepare for possible litigation and claims;
• Provide accurate and timely information;
• Minimize the diversion of corporate executives;
• Contain financial exposure; and minimize the incident’ effect on the company’s reputation
Crisis management has four objectives:
• Reducing tension during the incident;
• Demonstrating corporate commitment and expertise
• Controlling the flow and accuracy of information
• Managing resources effectively
Major elements of effective management planning include the identification of a crisis management team, an assessment of the most likely crisis scenarios, the development of a crisis management plan document, periodic crisis training exercises, adherence to crisis communication guidelines and continual review and refinement of the plan.
Step One: Create a Crisis Management Team and Assess Potential Crises The CMT team can include legal counsel, investigators, public relations personnel, investor relation’s personnel, risk manager, financial personnel, marketing personnel, employee relation’s personnel, and technical personnel.
Step Two: Develop Crisis Management Team plans The primary objective of any plan is to set up a flexible structure that is capable of responding to any type of crisis quickly, decisively and in a coordinated manner. The CMT plan should establish relationships, responsibilities and continuity. It should include a notification system with a specific and up to date listing of current contact information on the team members, chain of command, outside relevant agencies.
Step 3: Establish guidelines for gathering information and internal investigations. The CMT should be prepared to initiate the investigation, determine the facts, potential liability and available defenses. The team should implement policies that promote the fact-finding process.
• Identify who has the authority to initiate an investigation.
• Identify who will determine the scope of the investigation.
• Identify an attorney or investigator that is qualified to head the investigation.
• Formulate a preliminary list of employees and management with knowledge about particular crisis risks.
• Formulate guidelines that establish an initial schedule for the investigation and identify the information needed; and
• Determine which team member will evaluate the results and what will be done with them.
The team should take efforts to maximize protections provided by legally recognized privileges, including attorney-privilege, work-product immunity doctrine and self-evaluative privilege.
An important component of a crisis management plan is creation and communication of a document retention policy.
Step Four: Provide periodic crisis training evaluation
The best way to ensure that everyone understands his or her roles in the plan is to have training on managing a crisis. The training will help address legal issues before they occur, develop investigation procedures; identify systems and equipment needed during a crisis and develop good media relation’s skills.
Step Five: Develop guidelines for crisis communications
Good communication is the heart of any crisis management plan Communication should reduce tension, demonstrate a corporate commitment to correct the problem and take control of the information flow. Crisis communications involves communicating with a variety of constitutes: the media, employees, neighbors, investors, regulators and lawmakers.
Public relations in the single most important element of the crisis response. Create guidelines for designated spokesperson covering how working with the media and community leaders. Prepare templates for communicating with various scenarios. Attorneys on the crisis management team should review media statements and proposed answers to protect against privilege waivers and potential admissions than can be used in litigation.
Example – I
Johnson & Johnson and Tylenol
Crisis need not strike a company purely as a result of its own negligence or misadventure. Often, a situation is created which cannot be blamed on the company – but the company finds out pretty quickly that it takes a huge amount of blame if it fumbles the ball in its response.
One of the classic tales of how a company can get it right is that of Johnson & Johnson, and the company’s response to the Tylenol poisoning.
In 1982, Johnson & Johnson’s Tylenol medication commanded 35 per cent of the US over-the-counter analgesic market – representing something like 15 per cent of the company’s profits.
Unfortunately, at that point one individual succeeded in lacing the drug with cyanide. Seven people died as a result, and a widespread panic ensued about how widespread the contamination might be.
By the end of the episode, everyone knew that Tylenol was associated with the scare. The company’s market value fell by $1bn as a result.
When the same situation happened in 1986, the company had learned its lessons well. It acted quickly – ordering that Tylenol should be recalled from every outlet – not just those in the state where it had been tampered with. Not only that, but the company decided the product would not be re-established on the shelves until something had been done to provide better product protection.
As a result, Johnson & Johnson developed the tamperproof packaging that would make it much more difficult for a similar incident to occur in future.
Cost and benefit
The cost was a high one. In addition to the impact on the company’s share price when the crisis first hit, the lost production and destroyed goods as a result of the recall were considerable.
However, the company won praise for its quick and appropriate action. Having sidestepped the position others have found themselves in – of having been slow to act in the face of consumer concern – they achieved the status of consumer champion.
Within five months of the disaster, the company had recovered 70% of its market share for the drug – and the fact this went on to improve over time showed that the company had succeeded in preserving the long term value of the brand. Companies such as Perrier, who had been criticised for less adept handling of a crisis, found their reputation damaged for as long as five years after an incident.
In fact, there is some evidence that it was rewarded by consumers who were so reassured by the steps taken that they switched from other painkillers to Tylenol.
The features that made Johnson & Johnson’s handling of the crisis a success included the following:
• They acted quickly, with complete openness about what had happened, and immediately sought to remove any source of danger based on the worst case scenario – not waiting for evidence to see whether the contamination might be more widespread
• Having acted quickly, they then sought to ensure that measures were taken which would prevent as far as possible a recurrence of the problem
• They showed themselves to be prepared to bear the short term cost in the name of consumer safety. That more than anything else established a basis for trust with their customers
EXAMPLE – 2
Odwalla and the E-coli outbreak
Odwalla (pronounced “odewalla”) is the health-conscious juice company which began a couple of decades ago when Greg Steltenpohl, Gerry Percy and Bonnie Bassett began squeezing fresh oranges on a $200 hand juicer. The company was growing strongly with annual sales rising 30% per year and approaching $90m. The company had established a strong brand with enormous customer loyalty.
On October 30, 1996, everything changed. Health officials in Washington state informed the company that they had discovered a link between several cases of E. coli 0157:H7 and Odwalla fresh apple juice.
The link was confirmed on November 5. As the crisis played itself out, one child died and more than 60 people in the Western United States and Canada became sick after drinking the juice. Sales plummetted by 90%, Odwalla’s stock price fell 34%. Customers filed more than 20 personal-injury lawsuits and the company looked as though it could well be destroyed.
What did the company do?
Odwalla acted immediately. Although at the point where they were first notified the link was uncertain, Odwalla’s CEO Stephen Williamson ordered a complete recall of all products containing apple or carrot juice. This recall covered around 4,600 retail outlets in 7 states. Internal task teams were formed and mobilised, and the recall – costing around $6.5m was completed within 48 hours.
What the company didn’t do was to avoid responsibility. On all media interviews, Williamson expressed sympathy and regret for all those affected and immediately promised that the company would pay all medical costs. This, allied to the prompt and comprehensive recall, went a long way towards satisfying customers that the company was doing all it could.
Internal communications were key: Williamson conducted regular company-wide conference calls on a daily basis, giving employees the chance to ask questions and get the latest information. This approach proved so popular that the practice of quarterly calls survived the crisis.
External communications were just as vital. Within 24 hours, the company had an explanatory web site (its first) that received 20,000 hits in 48 hours. The company spoke to the press, appeared on TV and carried out direct advertising with the website address. All possible attempts were made to provide up to the minute, accurate information.
The next step was to tackle the problem of contamination. The company’s entire approach had been founded on fresh unpasteurised juice because only juice which had been untampered with could have the best flavour. The company decided quickly that this had been wrong. The company moved quickly to introduce a process called “flash pasteurisation” which would guarantee that E-coli had been destroyed whilst leaving the best flavoured juice possible.
Within months of the outbreak, the company had in place what some experts described as “the most comprehensive quality control and safety system in the fresh juice industry.” On December 5, the company brought back its apple juice.
Williamson’s explanation of how the company found its way is instructive. “We had no crisis-management procedure in place, so I followed our vision statement and our core values of honesty, integrity, and sustainability. Our number-one concern was for the safety and well-being of people who drink our juices.” (Source: Fast Company)
Cost and benefit
Odwalla made a rapid recovery. Much of the good will and trust it had built up over the years remained. Sales picked up again quite quickly.
The company did exactly the right things to achieve this. For instance during the lean months, Odwalla refused to lay off any of its delivery people. They were sent out to maintain customer relations – an approach that not only earned the loyalty of the employees, but helped to secure the company’s reputation with its customers.
Even the most grievous victim of the crisis gave Odwalla credit. “I don’t blame the company” the father of the girl who died said. “They did everything they could”.
The company did pay a large cost. Odwalla pleaded guilty to criminal charges of selling tainted apple juice and was fined $1.5m – the largest ever assessed in a food industry case by the US Food and Drug Administration.
So is everyone happy?
Not quite – the company still has some critics who say that it was not quite the victim it would have people believe. Jon Entine, for instance, says that ‘investigators now contend that Odwalla had significant flaws in its safety procedures and citrus-processing equipment was so poorly maintained that it was breeding bacteria in “black rotten crud’. Before the outbreak, Odwalla had received letters from customers who become violently ill, but had not addressed the problem.
“Resisting industry safety standards, Odwalla steadfastly refused to pasteurize its juices claiming it altered taste and was unnecessary. Yet, the year before the incident, the head of quality assurance, Dave Stevenson, who was aware of the dangers, proposed using chlorine rinse as a backstop against bad fruit. Senior executives who feared chlorine would leave an aftertaste overruled him. They decided to rely on acid wash although its chemical supplier had informed Odwalla that the wash had killed the E. coli in only 8 percent of tests and should not be used without chlorine.”
The overwhelming feeling of people who dealt with the company at the time of the crisis was that here was a community of ordinary people who were devastated at the fact that they had created an episode of poisoning that ended in a loss of life. The company’s values spoke of nourishing people – and when the crisis came it was an adherence to honest, straight talking and accepting responsibility that helped to get the company through.
There are critics who refuse to credit the company with any integrity whatsoever – but even these will concede that as an exercise in crisis management, Odwalla stands as an example of best practice that few can match.
The year after the crisis, Odwalla was voted “Best Brand Name in the Bay Area” by San Francisco Magazine. This was the first indication amongst many that Odwalla’s reputation had survived.