A major tragedy that occurs either naturally or as a result of human error /malicious intent.

Can include tangible devastation (e.g. destruction of lives/ assets)

Or intangible devastation (e.g. loss of organization’s credibility)

Intangible devastation can be result of management’s response to tangible devastation

A crisis usually has financial impact on a company, and affects multiple constituencies

1. Human - induced / error Cases of negligence▪ E.g. sinking of Exxon Valdez causing oil-spills Financial frauds▪ E.g. Enron Theft attempts▪ E.g. online theft attempts at banks

2. Natural causes Natural disasters

e.g. 2004 South East Asian tsunami

The public’s attitude will generally be negative for crises that could have been avoided, e.g. Exxon Valdez, compared to natural disasters.

In all cases though, constituencies will look to the organization’s response before making a final judgment.

Some human-induced crises end up actually increasing overall credibility of company (e.g. Tylenol).

1. The element of surprise2. Insufficient information3. The quick pace of events4. Intense scrutiny

Usually the element of surprise leads to a loss of control.

Management panics and responds in ways that are short term in nature and can be damaging. E.g. giving false / defensive statements.

1982: Johnson & Johnson’s Tylenol crisis Tylenol Capsules contaminated with cyanide. Poisoned. Death. J & J sales drop 90% after media report. J & J removes Tylenol Capsules from shelves. J & J tried to save their reputations, image and brands. Perception of the company was actually strengthened by what

happened. “ The Credo”. Because it actually did what it promised to do, the public regained

trust in the brand and company. Within 3 months of the crisis, the company regained 95% of its

previous market share.

1990 The Perrier – Benzene Scare In 1989, Perrier sold one billion bottles of sparkling water. In 1990, small amounts of benzene was discovered in the water. 70 million bottles were recalled. Too many conflicts of statement from Perrier. The brand was re-launched at a very

high advertising cost to the company – the product was forced to be priced higher than the original price.

2010 Toyota Recall – Gas Pedal Started with horrifying car crash in August 2009. Recalls 7.5 million cars in US. Suspended sales. Not only gas pedal but also floor mat. Recalls cost the company and its dealers

a minimum of $54 million a day in lostsales revenue.

How did a company that become the world's largest and most profitable automaker on the back of a rock-solid reputation for quality and dependability find itself at the center of the biggest product recall?

Dangerous computer viruses cost businesses a lot of money e.g. “I Love You” virus in 2000 cost businesses estimated $10

billion in damages.

Theft of company and customer data are great cause for concerns to businesses. e.g. Phishing = process of attempting to acquire sensitive

information such as usernames, passwords, credit card details, etc by masquerading as a trustworthy entity. Online banking.

Identity thefts cost businesses and consumers estimated $50 billion/ yr.

To rebuild trust and increase customer confidence in online transactions, companies should educate consumers and safeguard against threats ▪ e.g. Citibank shows its customers ways toward off phishing on its

website and identify fraudulent emails ▪ It has also worked with lawyers across the US to develop new

strategies to arrest and prosecute identity thieves

In 2003, Anti-Phishing Working Group was founded- comprising members from 400 companies

Understand that all organizations can face crises▪ E.g. fire – how do you evacuate a building?

Some industries are more prone to crises than others▪ E.g. chemical, pharmaceutical, energy-related (oil, electric)

industries

1. Assess the risk for your Organization Public-listed companies – risk of a sell-off by shareholders,

decrease stock value Private companies – risk of fall in goodwill, resulting in loss of sales

2. Planning for Crises Brainstorm of areas that are most

likely to be affected by a crisis Develop ideas about potential

crises scenarios Choose which crises have greatest potential of occurring

3. Determine Effect on Constituencies Which constituencies would be most affected by the crisis?

4. Set Communication Objectives for Potential Crises Analyze Channel of Choice. i.e. press releases Assign a different team to each crisis i.e. CFO, CEO, Chairman Plan for Centralization i.e. consistent & avoid conflict message A Formal Plan i.e. crisis details, media relations

1. Get Control of the Situation Define and assess the real problem with the use of reliable

information. (e.g. Perrier lacked the info to define the benzene problem in the first

place, leading to many contradictory statements issued)

2. Gather as much Information as Possible Information comes from many sources As different info becomes available, individuals should be assigned to

manage that info If it takes >2 hours to get the right info, a company spokesperson

should communicate this delay to the media and other key constituencies as soon as possible

3. Set up a centralized crisis management center This would have already been state in the Plan Should serve as a platform for all communications during crisis All communication should come from this centralized location A comfortable location for media should be provided

4. Communicate Early and Often Waiting too late can cause fear and panic to build up among

constituencies Most of the time you have to communicate before the facts are in So communicate values – e.g. concern for public safety, commitment

to aid people affected by crisis, etc

5. Understand the Media’s Mission in a crisis They are looking for a good story with victims, villains and visuals.

6. Communicate directly with affected constituents Constituents want to hear directly from the company Those affected the most adversely by crisis should get top priority

7. Remember that Business must Continue Anticipate the effects of the crisis on other parts of the business

8. Make plans to avoid another crisis immediately Immediately after the crisis, post mortem should be done, and plans to

avoid another crisis should be made