Lessons Learned from the Top 10 Crises of 2002 -- Part 2
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Holmes Report

Lessons Learned from the Top 10 Crises of 2002 -- Part 2

Paul Holmes

6. Nike’s Unfree Speech

When the California Supreme Court ruled that Nike could be sued for claims made in a press release—arguing the release was commercial speech, and thus not protected by the First Amendment—it triggered a crisis that involved the entire public relations industry.

The ruling restricted free speech—allowing consumer activists and other to make inaccurate statements with impunity but punishing companies for even honest mistakes—insulted the public’s intelligence (suggesting that consumers are not smart enough to weigh competing claims themselves), and dealt a devastating blow to corporate PR practitioners across the country.

The last point was obvious when the suit was brought in 1998, but it’s one of the immutable laws of public relations that unwise companies sit idly by while issues develop into crises. One would have hoped that the PR industry would have been immune to this tendency.  But in this case, it seems to have responded to numerous warnings—in this newsletter and elsewhere—with little more than a shrug of its collective shoulders. That speaks of a fundamental lack of leadership in the industry.

By the end of the year, the industry had got its act together, and public relations groups including the Public Relations Society of America and the Council of Public Relations Firms joined media giants such as The New York Times and CNN, and Fortune 500 companies such as Pfizer to urge  the U.S. Supreme Court to review the decision.

The Council of Public Relations warned that “unless the California Supreme Court’s recent ruling restricting the right of businesses to practice free speech is quickly overturned, the rights of all American companies to speak out freely on issues and to openly and fully inform the public about their products and services will be in severe jeopardy.”

According to Kathy Cripps, president of the Council, “During these times of economic turmoil, and with the crisis of confidence in corporate America, businesses must have the freedom to communicate on every level, to build trust, to engage in public discourse and dialogue, and to exhibit integrity of mission, vision and purpose. If corporations are denied the freedom to take a stand on issues, express opinions, explain their actions and defend themselves when attacked, we will all suffer. This decision has chilling implications for corporations, consumers and our Constitution.”

Nike deserves an A for the way it has handled the crisis, marshalling a broad coalition of groups—ranging from the ACLU to The Wall Street Journal—to its defense. The PR industry, despite being slow off the mark, recovered to earn a solid B.

7. Cruise Ship Sickness

Crises in the tourism sector pose challenges above and beyond those in other industries, because holidays are supposed to be a time for relaxation, a time when the stresses of everyday life don’t intrude. So when a string of cruise ships—including those operated by Disney, Holland America, Carnival and Britain’s P&O Cruises—limped into port carrying dozens of sick passengers, it became a national news story, generating 573 stories in major media, according to KDPaine & Partners.

The ships all reported cases of gastrointestinal illness, which typically causes vomiting and diarrhea and lasts one to three days. The industry was quick to communicate its cooperative efforts with the Centers for Disease Conrtrol & Prevention, and the reduction in food poisoning cases over the past three decades, despite the fact that the number of cruise ships passengers more than quadrupled since 1981.

But that response did not satisfy many public relations experts.

“The cruise industry should have come together and established solid plans for clean ships and healthy trips,” say Alex Stanton and Dorothy Crenshaw of New York’s Stanton Crenshaw Communications. “Instead, its poorly coordinated response to a mushrooming problem has compounded the situation.”

Others felt the industry failed to address the human dimension of the crisis, focusing too much on the scientific. The industry’s response, says Bernstein, is “a classic example of addressing facts only and not feelings. I didn’t see a single article in which a cruise line operator expressed compassion for the impact on victims, their families, and other stakeholders.”

Still, some cruise lines are likely to recover faster than others.

“Here is one rule that seemed to stick,” says Winters. “Build up a ‘good will bank’ in advance of crisis. While various cruise lines took a beating in the press, the sickness on the Disney Magic was a short-lived story. People just love that mouse.”

As a whole, the industry gets a C+.

8. The Catholic Church

“Buckets of holy water couldn’t wake senior leadership from their slumber as news of pedophile priests drenched the globe,” says Citigate’s Susan Silk. “While victims, Catholics and third-party experts cried out for answers, the Church kept a tight lip, and failed to respond sufficiently, promptly and honestly to its accusers and critics, which is the cardinal sin of effective crisis communications.”

Every year, at least one of the crises on our top 10 list illustrates the public relations truism that institutions are likely to be judged more on the quality of their response than on the crisis itself, and this year it’s the turn of the Catholic Church, which was able to compound an already unimaginable heinous crime by a response that committed almost every conceivable sin of effective communications.

Church leaders were guilty of the crisis management sin of arrogance, says Bernstein, believing the stature of the church would insulate them from criticism. “A good reputation is an excellent basis from which to develop an effective crisis management program,” he says, “but when actual wrongdoing has demonstrably taken place, reputation alone won’t suffice. Effective crisis communications must be prompt, honest, informative, express concern, and allow for interactive communication with all stakeholders. The Church’s communications, for many months, followed none of these basic tenets.”

But the Church faced some complex challenges, says Wolff. “First, one has to understand that the Catholic Church is not a monolithic organization in the U.S., with a coordinated posture—except with respect to doctrinal and religious matters. Each diocese is operated independent of the other, with each reporting to Rome. This decentralized structure made crisis communications very difficult from the outset, a problem that has yet to be properly addressed by Church authorities. There is no single ‘corporate’ voice for the Church, but rather a series of often disjointed responses made by high profile members of the American hierarchy—sometimes consistent, but often not.”

Says Wolff, “The need—and genuine desire—of the Church to be sensitive to the victims of child abuse is often muddled by the legal constraints imposed upon diocesan attorneys as they work their way through both legitimate and illegitimate lawsuits.”

But most importantly, as Wolff acknowledges, the seriousness of the charges was exacerbated by the poor judgment of several members of the church hierarchy who failed to properly supervise and discipline clergy involved in abuse. That failure made the hierarchy part of the problem, instead of part of the solution—at least until the resignation of Cardinal Bernard Law.

“To move forward, from a crisis communications perspective, the Church should consider centralized communications on this issue; a careful focus on isolating the criminal behavior of priests from simple sexual scandal; and proper and genuine outreach to genuine victims of child abuse. And serious
consideration needs to be given to the removal of still other bishops who improperly supervised child abusers and to the rapid settlement of legitimate victims claims. Only then can the Church begin mending its reputation in America.”

In the meantime, it earns an D- for its efforts to date, rescued from an F by the resignation of Law and the obvious attempts of rebels within the hierarchy to put decency ahead of dogma.

9. United Airlines Bankruptcy

The terrorist attacks of September 11, 2001, were the beginning of the end for United Airlines, which succeeded in delaying the inevitable for almost 18 months after the tragedy before finally seeking Chapter 11 bankruptcy protection at the end of 2002.

But the intervening months were marked by increasing rancor between the airline’s management and its employees, many of them owners as a result of a progressive labor agreement negotiated a decade earlier, and ultimately by a continuation of the customer service problems that have plagued United in recent years.

John Burnett, professor of marketing in the Daniels College of Business at the University of Denver, gives United credit for having a crisis plan in place, but suggests the company “is employing a crisis plan that is incomplete.

“Despite the fact that United knew it was in financial crisis long before 9/11, it appears to have put all its eggs in the $1.8 billion loan bailout basket,” says Burnett, who also served as a consultant to Denver-based public relations firm BRW LeGrand, and is the author of a new book, Managing Business Crises.

There is no evidence, Burnett says, that the company prepared employees and customers for the inevitable. “Rather it reported to the media that much of the success in receiving the loan was contingent upon the machinists union approving their contract. It was only after this fact that we learned that the proposed business plan was deemed insufficient long before the vote. This timing likely alienated union members and confused customers. Further, United made no overt attempt to build goodwill with their stockholders, employees or customers that would carry them through this difficult.”

Barrett is prepared to give United time before judging its crises response, as are most other observers.

Says Winters, “Airlines in general are better-prepared for crisis communications than companies in other industries, and with a number of other well executed restructuring communications plans to serve as a guide, United has done a good job of communications in the early stages of its restructuring. Its focus on uninterrupted service and customer friendly policies seems to have served it well. What remains to be seen is how the airline will fare as employees are furloughed and negotiations with creditors and other key constituencies ensue.”

Adds Silk, “Even though United is currently mapping out a better public relations future, it has the unique challenge of battling yesterday’s image of lavish spending, miscalculated daily losses, bitter union disputes and poor customer service.”

To this point, United gets a C+.

10. Hershey Trust

When the Hershey Trust, which controls 77 percent of the voting shares of Hershey Foods, decided to sell the company its motivation may have been noble—it sought to diversify its holdings to provide a more secure future for the Milton Hershey School, which serves the community’s underprivileged children—but its decision still triggered vast criticism in the local community, where even street lights are shaped like Hershey’s Kisses.

Hershey workers and other residents have picketed trust meetings and even attempted to make the sale an issue in the state’s gubernatorial race, and attorney general Mike Fisher, a candidate for governor, filed a petition demanding that any offer for the company be subject to court approval.

Observers were amazed that a decision so controversial could have been made with so little public consultation. Was the trust so out of touch with community opinion that it didn’t anticipate this reaction? Or did it foresee it, but simply not care? Whatever the explanation, the trust’s failure to fully consider the PR implications of its decision has an impact far beyond the inconvenience of a few pickets or media stories and the deal ultimately fell through.

A food industry investment banker recently told BusinessWeek, “A company is a web of relationships with employees, customers, and suppliers. Every time you go through [the sale process], it disrupts those relationships.”

What makes this crisis so interesting is the fact that it could have been avoided entirely if the people involved had thought through the reputational implications.

“Goliath underestimated David,” says Winters, “and failed to take control of this story. Even with a solid rationale for its actions, the Trust was never able to successfully build its case in the media, in part due to its inability to use reason to combat a sympathetic, emotion-driven opponent.”

A smart PR approach would have taken the time to understand objections to the sale. It would have listened to opponents, held town-hall meetings, explained the reasons for its decisions, and listened to other suggestions for attaining financial objectives. It would have commissioned studies to determine the sale’s impact on Hershey school students, whose lives, critics say, could be disrupted by it.

Most of all, a smart PR approach would have acknowledged the impact of this decision on multiple stakeholders and sought to include those stakeholders in the decision-making process.

For creating a crisis that could easily have been avoided, the Hershey Trust gets an F.


What lessons will corporate America as a whole take away from the crises of 2002?

Says Len Biegel, head of the crisis management practice at Weber Shandwick Worldwide, “Nine out of ten of these crises were caused by the statements and actions of people, and if they represent any lesson for 2003 it is: Think first of the consequences of your actions and statements - and we may avoid some of crises in 2003.”

Others suggest that corporate America has to rethink not only the way it communicates, but also the way it relates to the external environment.

“I don’t think corporate America ever came to terms with the degree to which the democratization of the stock market increased public interest in company activities,” says Ucelli. “As the number of investors increased, companies were required to be more accountable to them, but many of them never really understood that. 

“Moreover, the emphasis on CEOs and corporate leaders throughout the dot-com era led to a greater emphasis on personal conduct as the driver for the economy and companies’ economic successes or failures. Therefore, as these companies fell, the leaders were blamed for the failures (Ken Lay, Dennis Kozlowski, Bernie Ebbers), not the companies (Enron, Tyco, WorldCom). 

“Companies and their leaders must not lose sight of the fact that these crises have changed the way that our society views corporate America and the public is the most important audience. In addition to the business adjustments and strategies that must be developed, recovery requires restoring the public’s sense of confidence, trust and balance.   

Ruder Finn’s Craig Martin, meanwhile, references Peter Sandman of Rutgers University, widely recognized as the father of modern risk communication, who says, “The most impactful statements an industry spokesperson can make to the media are aimed at reducing outrage:  acknowledging problems,
apologizing for misbehaviors, offering to share control, explaining what the source is doing and what the audience can do to mitigate the risk, demonstrating accountability in lieu of trust.”

Says Martin, “These are all the types of responses that engender trust and win forgiveness from the key publics on whose support companies and cultural icons rely. Yet when it really mattered, when the company’s or the individual’s reputation was on the line, public outrage in a number of these cases was seemingly left to build and feed on itself.”

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