Crisis-Management Plan Softens Blow

When a major corporate accident occurs--such as an oil spill, a chemical release or a major fire--the companies involved quickly become the target of public scrutiny and regulatory investigation. Often, how the situation is handled by a company may affect that organization more than the actual incident.

Public skepticism is at an all-time high. People demand action, explanation and accountability, and wise companies are prepared to deliver.

Corporations have often been reluctant to develop crisis-management plans out of concern that their existence might be construed as an admission that management knew of problems and took no action to correct them. That perspective has given way to the more balanced viewpoint that a company’s good faith efforts to prepare for crises and manage their consequences are far more likely to reduce liability than to generate it. In addition, ignorance--or a claim of ignorance--about a problem no longer holds up in an era of public right-to-know laws.

By definition, crises are large-scale, unexpected, negative developments. They create instant chaos within an organization, regardless of how well managed it may be under normal business conditions. Crises impose extraordinary demands on company staff at all levels, and the ability to accommodate these demands is a critical factor in successful management. Similarly, crises by their nature affect multiple constituencies, all of which have urgent--and different--needs for information.

Finally, a crisis situation is inherently in flux, and thus requires maximum flexibility to accommodate new information and rapidly changing circumstances and priorities. As a result, some of the more common problems companies experience in dealing with crises arise from the following:

* Paralysis. When a crisis occurs, even strong, well-managed companies can experience a period of disbelief that paralyzes management, resulting in needlessly lost time.

* Lack of clear leadership. Consensus management is usually ineffective and inefficient under crisis conditions. While crisis management requires multidisciplinary effort, that effort must be led by a strong and acknowledged decision maker.

* Lack of information. Efficient fact-finding systems and reliable communications links are critical, especially when the crisis is triggered by an event at a remote location.

* Strained relations between the home office and the crisis site. Clear-cut delineation of responsibilities should be established in advance, permitting local management adequate latitude to manage the physical emergency and deal with local constituents while maintaining effective corporate oversight.

* Strained relations among the members of the crisis-management team. An effective crisis-management team incorporates senior representatives of a variety of key functions with varied perspectives such as legal, human resource, operations, safety, public affairs and finance. Their collective efforts will succeed in direct proportion to their ability to work together, despite professional or philosophical differences.

* Insufficient infrastructure. Both emergency response and crisis management require rapid infusions of resources--people, equipment and money. Valuable time is often lost in arranging logistics and approval thresholds that could have been planned well in advance.

* Bunker mentality. Managers embroiled in a crisis frequently close ranks, stonewalling or alienating vital constituents--including their own employees. This tendency has a devastating impact on corporate reputation and makes rehabilitation unnecessarily lengthy and expensive.

* Denial. Many forms of denial emerge in corporate crises, ranging from an unwillingness to accept the situation to a conscious effort to obscure the facts. Denial of a crisis and the magnitude of its consequences almost invariably undermines a company’s best efforts to manage it.

* Inflexibility. Besides intentional misconduct, the single most dangerous pitfall in crisis management is the inability to adapt to rapid change, even radical redirection of strategy, in light of new information. In a crisis there are few hard precedents and there is no “right” path. Managers who require rigid guidelines are ill-suited to take on a meaningful role in crisis management.

While there is no single, all-purpose formula for crisis management, the most effective programs rely on a realistic assessment of risks rather than on theories or a collection of highly specific contingencies. They also build on existing company strengths and culture rather than seeking to impose an artificial structure from outside the organization.

Successful crisis-management programs establish a small, multidisciplinary crisis-management team with clear leadership and sufficient authority to act quickly on behalf of the company. They should be empowered to recognize and preassign responsibilities at three levels: policy, strategy and execution.

At least as important, rather than simply reacting after the fact, a good crisis-management team takes on a meaningful role in actively improving ongoing vigilance with regard to a potential crisis.

Effective programs must balance local and corporate priorities and responsibilities, as well as potentially conflicting corporate perspectives. They must recognize and accommodate practical realities such as time differences and remote locations and include workable mechanisms for internal communications and early warning. Finally, a valid crisis plan should incorporate effective means of keeping the program current and training managers to use it.

Crises that suggest systematic fraud or abuse of power are virtually impossible to manage well; those arising from accidental causes, despite the company’s best efforts, are often no less devastating in the short term, but management and rehabilitation are far less costly, psychologically and financially.

Regardless of their level of preparation, companies that have a good reputation and maintain high standards of operation will always fare better during and after a crisis than those with lower standards and reputation. These often intangible qualities are vital because in the aftermath of a crisis, underlying corporate standards become the focus of rigorous scrutiny. The conclusions arising from this scrutiny will often dictate the long-term impact of a crisis on a company.