Leadership

Development
Crisis Management

What happened?
On March 24, 1989, Exxon was
faced with a crisis when it
spilled 11 million gallons of oil
into Alaska’s Prince William
Sound with the Exxon Valdez
oil tanker.
How did it happen?
One of the crew members was
unable to properly maneuver the
ship due to tiredness from work
overload. Also, the crew master was
under the influence of alcohol and
could not give the proper directions
to his crew. Although the errors
occurred once on board, one of the
mistakes was Exxon’s insufficient
supply of trained crew members
and the availability of inadequate
equipment on the ship.
 Litigation was filed on
behalf of 38,000 litigants.
In 1994, a jury awarded
plaintiffs US$287 million in
compensatory damages and
US$5 billion in punitive
damages. Exxon appealed
and the Ninth Circuit court On August 27, 2008, Exxon Mobil
reduced the punitive agreed to pay 75% of the US$507.5
damages to US$2.5 billion. million damages ruling to settle the
Exxon then appealed the 1989 Exxon Valdez oil spill off Alaska.
punitive damages to the In June 2009, a federal ruling ordered
Supreme Court which Exxon to pay an additional US$480
capped the damages to million in interest on their delayed
US$507.5 million in June, punitive damage awards.
2008.
WTC Business Fallout

652 companies occupying 28.6

million square feet of
200,000 Verizon space were temporarily or
Communication lines were permanently displaced by the
knocked out by network destruction
failures
13.4 million square feet of
36 miles of new cable had space in six buildings
to be installed by in and surrounding the
Consolidated Edison WTC complex were
destroyed
Indirect impact to U.S.
businesses has been
estimated at $151 An estimated 14,600
billion in the first year businesses inside and
around the World Trade
Center were impacted
by the disaster
 Katrina’s Damage Estimates

An estimated 300,000
homes were destroyed
or otherwise made
uninhabitable. At least
118 million cubic yards of
utter debris and
devastation was left
behind, making clean up
efforts a mind-boggling
The actual cost of Hurricane attempt.
Katrina's damage was
between $96-$125 billion,
with $40-$66 billion in
insured losses. Half of these
losses were a result of
flooding in New Orleans.
 A crisis can occur as a
A dangerous or result of an unpredictable
worrying time: event or as an
a situation or period in unforeseeable
which things are very consequence of some
uncertain, difficult, or event that had been
painful, especially a considered a potential
time when action or risk. In either case, crises
decision must be taken almost invariably
to avoid complete require that decisions
disaster or breakdown; It comes from the be made quickly to
Latin, Krisis, which limit damage to the
means “a decisive organization.
moment”
Krisis in turn, comes
from the Greek word,
“Krinien” meaning “to
decide”.
Types of Crisis
 Common Features
of a Crisis:
• Time is short
• Decisions are required urgently
• Specific threats must be identified
• Urgent demands for information
• There is a sense of loss of control
• Pressure builds over time
• Demands are made to identify
someone to blame
• Reputation suffers
• Communications are increasingly
difficult to manage
 Crisis
Management

The process by which

an organization deals
with a major
unpredictable event
that threatens to
harm the firm, its
stakeholders, or the
general public.
Phases of Crises Management
 “The credibility and reputation of
organizations are heavily influenced
by the perception of their responses
during crisis situations.”
“THIS week the world's most famous consumer brand became embroiled in its worst-
ever health scare, when around 100 people in Belgium, many of them children, and 88
people in France suffered nausea, headaches and diarrhea, some of them seriously
enough to be admitted to hospital. On June 14th Coca-Cola's soft drinks were banned in
Belgium. Luxembourg and France followed suit, and the firm itself eventually
withdrew its products from the Netherlands. Coca-Cola seemingly forgot the cardinal
rule of crisis management—to act fast, tell the whole truth and look as if you have
nothing to hide.” The Economist, June 17th 1999.
The first complaint came from an elderly couple in Tacoma, Washington. The second came
from a woman in Federal Way, Washington, 10 miles from Tacoma-and suddenly, consumers
all over the country seemed to be finding hypodermic syringes in cans of Diet Pepsi. How did
they get there? No one seemed to know, but the parallel to previous tampering scares, such as
the 1982 Tylenol case, seemed all too obvious. Within days, the Pepsi-Cola Co. and the U.S.
Food and Drug Administration were swamped with tampering reports from consumers in
more than 20 states. Though most involved syringes, the list of items allegedly recovered from
Pepsi, Diet Pepsi and Caffeine Free Diet Pepsi included a wood screw, a bullet, a crack vial, a
broken sewing needle and a blob of mysterious brown.
What was Tylenol's On the company’s credo It was essential to
basis for its crisis written in the mid-1940’s maintain the safety of its
management by Robert Wood Johnson, publics to keep the
program? he stated that the company alive. Johnson
company‘s responsibilities
& Johnson’s
The reason Tylenol were to the consumers
responsibility to its
reacted so quickly and and medical professionals
in such a positive using its products, publics first proved to be
manner to the crisis employees, the its most efficient public
stems from the communities where its relations tool. It was the
company’s mission people work and live, and key to the brand’s
statement. its stockholders. survival.
 Reaction: Exxon vs. Tylenol

One of Johnson and Exxon on the other

Johnson’s crisis hand, waited a long
Instead, he sent a
management time before responding
team of individuals
techniques with the to the oil spill and
who were not trained
tampering of Tylenol sending aid to Alaska.
in crisis management.
capsules, that was very For example, an
This showed the
effective was its quick advertisement ran in
public that Exxon
response to the the newspapers 10
didn't consider the
product tamper. days after the spill, and
spill a truly
Exxon’s chairman,
environmental
Lawrence G. Rawl, did
problem, or just that
not fly to Alaska until
they didn’t care.
two weeks after
the spill.
 Questions

1. What are the likely objections and barriers to implementing a

Crisis Management Team (CMT)?
2. If you were going to prepare an argument promoting a CMT, what
are the key points and sequence in your argument?
3. Who in an organization (general positions) should be selected as
a CMT member?
4. What are the technical skills and personal qualities that
members should have?
5. What training in CM and team process should be required?
Team Composition: Membership should be
based on representation, knowledge, and skill.
Key roles:
• Executive/CEO– responsibility &
authority
• Team leader (may be CEO)– keep
team updated and focused
• Spokesperson– public relations,
central source of information,
communications, rumor control
• Legal representative– legal guidance
& implications of actions
• Researchers– gather facts & compile
information for position statements
Typical team composition:
• Facility management
• Legal department
• Risk management
• Information technology
• Human resources
• Financial services
• Real estate management
• Corporate security
• Public relations/
communications
Define the Duties
of the Team:

• Coordinate all crisis related activities

• Gather and review facts of the crisis
• Determine crisis response activities
• Allocate resources
• Specify internal and external communications
• Train staff
• Establish working relationships with external
stakeholders
• Monitor progress and continuing situation
assessment

• Building an environment of trust
• Reforming the organization’s mindset
• Identifying obvious and obscure
vulnerabilities of the organization
• Making wise and rapid decisions as well as
taking courageous action
• Learning from crisis to effect change.
Leadership action in crisis reflects
the competency of an organization,
because the test of crisis
demonstrates how well the
institution’s leadership structure
serves the organization’s goals and
withstands crisis. Developing
effective human resources is vital
when building organizational
capabilities through crisis
management executive leadership.
 Crisis Management Includes:
Prevention Level: Risk Assessment
Remedial Level: Crisis Communication
Crisis Decision Making
• Identification
- define and describe
• Estimation
- likelihood and
consequences
• Evaluation
- acceptability of risk
Crisis Communications
 Communication Plan:

Core elements are:

• Identifying audiences (Who?)
• How communication is to take place (How?)
• What messages are to be communicated (What?)

The core process is:

Active, two-way communication
 Virginia Tech Massacre

The Virginia Tech massacre was a school shooting that took place on April
16, 2007, on the campus of Virginia Polytechnic Institute and State
University in Blacksburg, Virginia, United States. Seung-Hui Cho, a senior at
Virginia Tech, shot and killed 32 people and wounded 17 others in two
separate attacks, approximately two hours apart, before committing suicide
(another six people were injured escaping from classroom windows). The
massacre is the deadliest shooting incident by a single gunman in U.S.
history. It was the worst act of mass murder of college students
since Syracuse University lost 35 students in the bombing of Pan Am Flight
103, and the second-deadliest act of mass murder at a U.S. school campus,
behind the Bath School disaster of 1927.
Initial Response
 Initial Response:

Tell the truth as it is known

• Facts beyond question
• Actions being taken
• Acknowledgement of
emotions/psychological needs
 Media Demands

• Accuracy and simplicity

• Statistics which are explained
• Context of information
• Comments from highest authority
• Some controversial elements
• Both sides of the issue
• Speed, speed and speed
The Ideal Spokesperson:

• Polite and patient

• Well-informed and
authoritative
• Accurate and reliable
• Articulate
• Available
• Trustworthy
• Evidently committed to the
process
 EARLY WARNING SYSTEMS DON’T
WORK IF YOU DON’T USE THEM
o Only 23% of businesses have no early warning of some kind; about
75% of crises result from inappropriate action or inaction by top
management
o 13 months before the 3-Mile Island disaster a senior engineer
warned of the pending accident
o Evidence of threats against the US, use of planes as weapons, and
infiltration by Islamic terrorists to the US were all known before 9-
11
o Years before Enron collapsed, Arthur Anderson found $51 million
of accounting problems in Enron’s books…but said nothing!
o Executives Cynthia Cooper of WorldCom and Sherron Watkins of
Enron both tried to give warnings of accounting irregularities
before the crisis…but were shut down!
o Roger Boisjoly, O-ring engineer for Morton Thiokol, warned that
there was “blow-by” on the Challenger shuttle O-rings
 “The secret of crisis
management is not
good vs. bad, it’s
preventing the bad
from getting worse.”
– Andy Gilman