Paul Holmes 03 Jun 1991 // 11:00PM GMT
Last month, approximately two years after one of the most heinous ecological disasters in history and crisis management errors that have already entered mythology as a classic how-not-to case study, the Exxon Corporation announced record profits of $2,240 million on its first quarter business, up 75 % from last year.
It was almost as if the Valdez spill had never happened. While no-one at the company came out and said it, there was an element of "what-was-all-the-fuss-about?" in some of the public pronouncements that accompanied the information. Certainly shareholders could be relieved that however egregious the company's mishandling of the crisis, it did not seem to have had any adverse affect on the bottom line.
Unfortunately, within a few days of Exxon's financial results being announced, Federal Judge Russell Holland overturned the oil giant's plea bargain with the U.S. government. One of the reasons he gave was the correspondence he received from ordinary citizens urging him to make the company suffer more.
Exxon may have enjoyed a profitable first quarter, but any celebration of the company's escape from the bottom line consequences of mismanagement is clearly premature. What Exxon management, shareholders and employees are likely to discover over time is what other companies that have survived crises already know: that in many terms the long-term impact is more damaging than the short but intense media scrutiny that most associate with the word crisis.
"If you measure success or failure in crisis in terms of whether the company stays in business, then most companies handle crises pretty well," says Ray O'Rourke, a crisis expert at Burson-Marsteller. (Some don't, however: Eastern Airlines and Greyhound both went into Chapter 11 shortly after crises, as did Manville some years ago.)
"But that's really not the right question. What companies should be looking at is the effect of crisis on their reputation, and at obstacles to doing business that may be more difficult after crisis."
Most experts agree that the impact of a crisis is difficult to measure, and may be felt more in terms of "soft" issues—image, morale, reputation—than bottom-line financial consequences. Though experts believe crisis does have a bottom line impact, it is difficult to measure and may not always be attributed to the crisis because the relationship between the two appears indirect at best.
There is surprisingly and disappointingly little research into the impact of crisis on the way companies do business, but what there is suggests more long-term damage than short-term.
"A crisis for which the company is held responsible affects relationships with every outside audience," says Cohn & Wolfe New York manager Steve Aiello. "It makes it more difficult to win approval for new plants, it makes it more difficult to lobby government without having your motives and the veracity of your information chal lenged, it makes it more difficult to recruit good quality people. The affect of all that is cumulative, and difficult to quantify.
Being culpable for a crisis, he says, is like being caught cheating on your taxes. "You are going to get audited every year for the rest of your life."
The increased scrutiny under which crisis-scarred companies operate can have a direct impact on their operations. Perrier, for example, was attacked in New York for misleading labeling shortly after being forced to recall its product because minute traces of benzene had found their way into the source.
"There may have been questions about sodium content even if there had not been a crisis," says one expert. "But Perrier probably would not have been singled out the way it was and the media would not have given the story as much attention if the company had not already been in the spotlight."
Burson's O'Rourke, who helped re-launch Perrier, agrees. "What the crisis did was offer regulators an opportunity to stake out a new policy in a high visibility arena."
O'Rourke believes likewise that Exxon's spill in Arthur Kill, New York, would have been a much smaller story had the perpetrator been Shell or BP, and that Union Carbide's problems at Institute in the U.S. would have attracted less comment had they not followed so sharply on the heels of the Bhopal tragedy.
Not every company that experiences crisis faces another incident so soon, but even those that do not repeat their mistakes quite so quickly and visibly as Exxon and Union Carbide are likely to find their problems coming back to haunt them. Front page headlines about the crisis are likely to be the first things a reporter comes across when he or she starts to research a new story, and the company is likely to be referred to in terms of its highest visibility experience—Dow Chemical, for example, is still first and foremost in the minds of many the company that manufactured napalm.
Bob Berzok, vp of corporate communications at Union Carbide, says his company's response to the Bhopal and Institute incidents was to place a greater emphasis on public relations, one that has survived to this day—a positive consequence of the crisis.
"Before Bhopal we rarely held press conferences at all," Berzok says. "After Bhopal we were holding a press conference a day. We became much more open, much more communicative. It simply isn't enough to put out press releases or respond to press inquiries. We have people going out into the community, talking about how we address safety concerns." However, another former Union Carbide PR exec has a different perspective, echoed by those involved in crises at Johnson & Johnson and elsewhere. "The strain that was put on the communications department was unlike anything I had imagined. And it just went on and on," he says. "After about six months I was drained. I don't think I could have taken it much longer."
Academic Ian Mitroff has reported that executives who handled crises at J&J continue to have nightmares on the anniversary of the Tylenol attack, and that NASA needed to set up an emergency medical hotline for employees after the Challenger disaster, so great was the emotional strain involved.
This is true not only of life-threatening crises. After a large fire disrupted telephone services in Chicago in 1988, engineers described their lives as "shattered." Their faith in their own expertise and the technology with which they worked was shaken.
It is little wonder, then, that companies involved in crises attempt to put the incident behind them as quickly as possible, even though that can be a mistake.
Says reputation management expert Alan Towers: "The company often needs to forget about crisis as quickly as possible and move on to new challenges. Unfortunately, other people—employees and customers—don't forget quite so conveniently. They may continue to be concerned about a crisis long after the company stops thinking about it, and the company needs to address that concern, however painful."
Acknowledging the fact that the problem does not necessarily go away with the last reporter is important for another reason: it may help the company heal itself properly. Steve Aiello comes back to the question of what constitutes successful crisis management, and the idea that survival is not sufficient definition of success.
"What really matters is the extent to which a company addresses the problems that created the crisis and the problems that resulted from it," he says. "The company has to reassure the public that it is doing everything it can to ensure that the problem does not recur. That's a communications challenge and more importantly an operations challenge, and it's the real measure of success in a crisis."