Paul Holmes 23 Apr 2009 // 11:00PM GMT
Following is an excerpt from the new book, Never Say Never: The Complete Executive Guide to Crisis Management, by international crisis management consultant Len Biegel. The book traces crisis preparation and response—from Tylenol to 9/11 and Katrina—and poses a get-tough proposal for 100 percent crisis readiness.
In a world of 24-hour news cycles where news travels around the world in nanoseconds, a company in crisis in any location around the globe is at greater risk than ever. Some are prepared. Some are woefully unprepared.
If timing is everything—or nearly everything—we likely are entering a new and potentially constructive era for the modern corporation. This new era, the Era of Accountability, is marked by a number of trends that remind the corporations that they are accountable to their owners, the shareholders—whether these shareholders are the moms and pops hoping to increase their assets or the giant investment funds trusted by their shareholders to protect and grow their assets. These assets, whether one share or a million, are entrusted to boards of directors. The best board members are objective, smart and experienced, and understand their fiduciary responsibilities to protect and grow the assets. The corporate scandals of the 1990s, highlighted by Tyco International, Enron and MCI, will have a lasting effect if they spur scrutiny of the stock exchanges, government and the shareholders to assure the most responsible board members.
An important new ingredient is growing on the governance to-do lists of many boards—and that is the protection of corporate reputation and assets through effective crisis prevention and readiness. If that trend continues, we are headed for the Never Say Never method of crisis management.
Not every event is a crisis. Regardless of the company, industry, location or size, every crisis, emergency and issue share common features.
Crisis: A major event, generally characterized by one or more of the following:
· Possible or actual harm to individuals or property, including computer networks
· Imminent threat to “business as usual”
· Imminent threat to company or brand reputation
· National or international media attention—either immediate or potential
Emergency: A situation that is localized and controllable, such as a fire or injury. It generally is characterized by one or more of the following:
· Local media attention
· No substantial or uncontrollable threat to individuals or property
· Little or no disruption to operations
· No threat or indication of problems beyond the specific location.
Issue: A controversy, generally characterized by:
· Warnings through any number of sources—e.g., activist groups, legal claims, government investigations, research announcements, etc.
· Sufficient time to develop strategies and steps which may solve the problem before it escalates to a crisis
· No immediate harm or disruption to business
Crisis management as we know it today emerged after the Tylenol tamperings of the mid-1980s. While there are no “official” standards yet for effective crisis management, generally accepted standards have evolved over several years as a direct result of the public handling of the Tylenol case.
Faced with sustained, unprecedented media coverage of this crime against an American icon, public affairs professionals began reflecting almost immediately on what this all meant: Could companies prepare for a crisis? Could they all do as well as Johnson & Johnson CEO Jim Burke did in handling a crisis? Could a crisis in fact be prevented?
In the 25 years since the Tylenol event, U.S. and global businesses have faced a host of crises of all dimensions. Some have been managed successfully—with success directly linked to the survival of corporate and brand reputation and/or market share. Others have failed spectacularly, with some of the worst involving the departure of the CEO. In a few remarkable cases we have actually seen the demise or severe restructuring of entire companies, such as Enron, Union Carbide and Tyco International, to name a few.
Is the glass three-quarters full or one-quarter empty?
In the Harris Interactive survey on crisis readiness in American business (December 2006), Harris first asked business leaders to tell them how much they worry about various crisis situations. Topping the list at 61 percent, not surprisingly, is compromise of corporate information systems. Terrorism came in next at 55 percent. And nearly half, or 45 percent, listed negative financial news. And, summing it all up, Harris found that 75 percent of businesses responding to the survey said they have a crisis plan. That also indicates that 25 percent do not have a crisis plan. Is this 25 percent in denial?
I was asked not long ago by the CEO of a Fortune 50 company to tell him what I thought he ought to do to assure that his company is crisis-ready.
The answer: Assume personal responsibility for making sure that the company is crisis-ready. Make certain that all plans are as short as possible. (In fact, the best plan should fit in your shirt pocket.) Make a commitment to practice, practice, practice, practice!
The speed at which change can occur today, and the impact it can have, increase the need for crisis planning. “The speed and broader impact of change increases business risk and reduces viable reaction time. This makes preparing for change and crisis more critical than ever—especially since corporations are often judged more harshly for their responses to a crisis rather than the fact that they had a crisis in the first place.” (Report of the NACD Blue Ribbon Commission on Risk Oversight, 2002, 2003, 2006)
Special interest and activist organizations know how to attract attention. Even the threat to harm a brand’s market share through boycotts and other exploits will often call a company to action.While most boycotts have only succeeded in causing considerable angst for companies, there are a few that do stand out for having achieved their goals. For example, pressure on McDonald’s by the National Heart Savers Association forced reduction in the use of fats in some of their fried foods, and led to changes in menu options. Animal activists nearly destroyed the fur coat industry through boycotts and public demonstrations. Ongoing opposition to bioengineered foods in Europe and the U.S. has limited the growth of this emerging technology.
And, most recently, shareholder activists played a big role in the ouster of Bob Nardelli as CEO of The Home Depot.
The blogs are here, with enormous potential to help spot problems early on. Just think of the power of consumers or activists to create blogs telling of problems or perceived injustices and, in worst case situations, to spread rumors and threats.
Several myths or excuses stand in the way of business preparedness
Excuse #1: It’s expensive to create a plan.
Fact: Yes, it costs money, but that expense is negligible compared to the cost of recovering from a crisis that could have been prevented or managed so that the losses and disruptions were minimal. The cost associated with a mismanaged crisis is far more than the actual expense of destroyed goods or idled labor. A company’s most precious asset—its reputation, built carefully over the years—is on the line, too. It takes only one poorly.
Excuse #2: It won’t happen here. Who cares about my company? We make boring products in an out of the way place.
Fact: On any given day, bad things happen to good companies. Everything from tornadoes to employee violence to acts of terrorism darkens the doors of companies every day around the globe.
Excuse #3: There is little proof or information about terrorist threats. So why should I get all worked up about the next terrorist attack?
Fact: There is ample evidence of terrorist activity around the world, even though official government sources can say very little. The war against terrorism is like no other, given the lack of contact with any leadership and the dispersed army of terrorists.
Excuse #4: There is no correlation between crisis preparation and stock price—which, after all, is all that matters.
Fact: Wall Street does not like uncertainty—especially one not addressed head-on—because there is enough uncertainty on Wall Street already.Wall Street punishes companies in crisis—and it happens quickly. While many recover, many others do not.
Excuse #5: Planning is complicated and time consuming, and we just cannot afford the distraction.
Fact: You cannot afford not to. Once companies accept crisis planning as a normal part of their business, it becomes just that—a normal part of business
Excuse #6: I understand that once the plan’s in place, we need to train our people. And if that’s not enough, I hear we need to do periodic simulations. There is no way we can take the time!
Fact: Training, like all other aspects of crisis planning, can and should become a part of the company’s routine. Simulations, whether annual or semi-annual, are unusual and do disrupt the company routines for the time they take. The most effective ones do not exceed four hours plus another hour or two for debriefing to discuss lessons learned and steps to take to improve.
There’s an interesting plus to the simulations, which I have noticed over the years. A company invariably discovers during a simulation a previously overlooked area of operations that, if corrected, may prevent a crisis. It doesn’t get much better than that.
The bottom line is simple. Every day spent in denial is a day a company places itself deeper into risky waters.
Excuse #7: Crises will happen, and there’s nothing much you can do except wait for them to happen and then roll with the punches.
Fact: Many situations can be spotted before they become crises—if the right prevention and issue-management systems are in place.
Excuse #8: It’s all about managing our reputation when a crisis hits. And we’ll leave that to our PR department to take care of.
Fact: The PR department is a key component of every crisis plan and team. But the best PR people are not simply spin doctors. They are communications strategists and implementers. And they are able to tell, for example, about the actions being taken to resolve the crisis. The entire team needs to work on those actions.
Excuse #9: It’s almost impossible to know where to start when looking for generally accepted rules for planning.
Fact: How true! Since 9/11 the Web has been filled with a Tower of Babble of guidance and information from the U.S. government, the American Red Cross, and virtually every professional and trade association. Most of it is quite good, but the abundance of all of this information—without some ranking or analysis by a business equivalent of Consumer Reports leaves planners adrift.
Excuse #10: No one made me prepare.
Fact: Does your board care about the company’s reputation? If they do, they should include, high on the governance list, the oversight for the company’s crisis prevention and readiness plans.
Excuse #11: In a disaster, the government will take over and manage everything. So why should our company bother with a crisis plan?
Fact: The government cannot and will not do everything. While it appears that reforms have been put in place since the government malfunction in the aftermath of Hurricane Katrina, do not expect the government to be all-compassing in its management of a disaster. As George Foresman, Undersecretary for the Department of Homeland Security’s Preparedness Directorate put it: “Government will be able to do as much as it can reasonably do in the aftermath of an emergency or disaster. But we have not built our government structures nor does business have a motivational incentive to construct our systems and our processes to be able to deal with a full range of emergencies and disasters that potentially will confront this nation. In other words, we’re not going to always have shelter for 1.8 million people at the ready, ready to flip a switch to turn it on.
“We are not going to have in place transportation resources that could quickly, in 24 hours or less, move hundreds of thousands people from a major metropolitan area to other areas in the aftermath of an emergency or disaster.” (Address by George Foresman to the US Chamber of Commerce, June 1, 2006, Washington D.C.)
The simple, most difficult reality is that we do not know when or where the next act of terrorism or any other crisis may occur, but we can be prepared to deal with it effectively, if we remember all the details—including the “I forgots.” An examination of how to avoid some of the most common omissions can help keep any company on the road to continuous improvement and readiness.
(1) Find the crisis plan. Is the plan easily accessible? Does everyone have a copy? When you need the basics, including the checklists for what everyone needs to remember to do, there is no time for hunting through the shelves and computer files. Where are the phone numbers for key personnel? Where are the e-mail addresses? The best advice: Keep the crisis plan short, preferably on a folded card that fits in a pocket or briefcase. Keep it updated with all the vital contact information. And keep at least one copy of the names and numbers in your wallet or briefcase.
(2) Take the annual checkup. Ordinary change is a constant threat to your crisis plan. Personnel turnover can be a major problem. You’ve got to monitor staff changes and train new members of the crisis teams. A more complex problem comes when businesses and their infrastructures grow or consolidate. This is where crisis plans can easily be forgotten.
No company should ever permit a merger or acquisition to relegate the crisis plan to the “forgotten” bin. The best advice: Schedule your annual crisis plan review soon, and stick with it.
(3) Designate backups. Who is traveling, on vacation, or out sick? Inevitably, someone on the crisis team is not available when the worst hits. The best advice: Designate backups for every position—and make sure they all are all up to speed on how to perform the job.
(4) Remember that employees are important. Do you have a system in place to quickly determine the whereabouts and safety of every employee — at the plant, at the office, at off-site meetings and while traveling? Do you have emergency food and other supplies on hand in the event of a shelter-in-place situation? Do you have flashlights and other evacuation aids on hand in some ready-to-use kits? And do you have a communication system in place to ensure that employees are notified of crisis news as quickly and directly as possible so they do not hear it first on TV or radio broadcasts—or via frantic phone calls from loved ones?
(5) Commit to practice, practice, andmore practice. All too often practice sessions are postponed for budget or scheduling reasons. Or they are forgotten altogether. These sessions are invaluable, even critical, reminders of what needs to be done through real-world practice.Inevitably, simulations have tangible results because they identify areas thatneed fixing or improvement to either prevent or better manage a crisis.
When Harris Interactive polled executives on whether risk management was a board-level issue, only 65 percent of U.S. boards saw risk management as an issue. In contrast, 93 percent of European companies regard risk as a board-level issue. This is essentially due to legislation requiring companies to disclose their risk management activities. (Source: “Managing Business Risks,” Harris Interactive, June, 2004)
The big push to close the 25 percent gap and convince the Avoiders to be crisis-ready will take a big push.
Despite thousands of how-to efforts—not least of which is the Department of Homeland Security’s ready.gov—there are no pressures and incentives to close the 25 percent gap. If crisis readiness among American business continues to improve at roughly 2 percent a year, we may easily be looking at another dozen plus years before we are 100 percent crisis-ready. That rate of improvement is unacceptable.
The odds of accelerating this readiness are low unless new bold steps are taken to keep the momentum going at those companies that are prepared, and to propel those who do little or nothing. It’s going to take accountability and it’s going to take a professional approach to standards and training.
Moving to the 100 percent level will require:
· Accelerated efforts to convince board members that crisis readiness is a corporate governance issue
· The creation of an international standards and training institute
· Shareholder efforts to hold corporations accountable for crisis planning.
Until then, too much remains at risk.
This excerpt is published by permission of the publisher, Brick Tower Press, New York. Never Say Never is available in bookstores and on amazon.com