Courting Disaster

Developing crisis management plans and preparing for the worst can help retailers reduce collateral damage. 

By Len Lewis 

·        It’s been 5 minutes since the last aftershock.  Major roadways are impassable.  Cars are wedged together and overturned tractor-trailers are everywhere.  Scientists say the quake measured 7.5 on the Richter scale and another one may be coming.  There’s only intermittent phone service, but you’ve heard enough to know that 10 of your stores were lost. 

·        By 7:00 a.m. the phone lines are jammed with customers asking questions about cyanide tainted meat they heard about on the morning news, which mentioned your chain among others.  There’s little information, but a dozen people have been hospitalized. 

·        There’s been three days of rolling blackouts.  On the morning of the fourth day, television stations receive a message from terrorists who have taken control of substations throughout the state.  Explosions can be heard as far away as Nevada and Arizona.  Everything goes black and the Governor declares marshal law. 

Dramatic and not altogether unfamiliar scenarios to be sure.  But if history and recent events have taught anything, it is that everyone must ask the question—Are we prepared? 

While the events of September 11 brought the issue of crisis management to the forefront, so did the non-violent but devastating impact of the financial and accounting scandals surrounding Enron, Arthur Anderson, Global Crossing and Martha Stewart.  But whether crises are man-made or natural the one common denominator is the need for advance th inking. 

For years, crisis management has been part of the corporate curriculum.  But too often plans are left collecting dust on a shelf in the CEO’s office, rarely revised, let alone tested for practicality and effectiveness, thus leaving companies open to consequences of epic proportions.  After something happens, some companies make the disastrous mistake of going into a state of denial, hoping the crisis will disappear on its own.  But denial turns to anger and then corporate panic—and that’s the point when real mistakes are made and irreparable damage to a company’s image can take place, according to crisis management experts.

“A crisis is inevitable in one form or another,” says Steven Fink, CEO of Lexicon Communications Corp., a Los Angeles-based consultant, who served on Pennsylvania’s Three Mile Island crisis management team. “But a crisis is not necessarily bad.  We view it as a turning point for better or worse—depending on how things are handled.  Many have come through a crisis stronger and more highly regarded among employees, shareholders and customers.”

But again, the key factor is planning and, as Fink says”  “Every company in America today—regardless of their industry—should prepare for a crisis.”

Gelson’s markets has already taken this advice to heart with the help of  the CGA’s Emergency Planning and Procedures Manual, says Bill Rolette, senior vice president, operations.  “Every one of one of our 18 units has this book at the front desk and it is mandatory reading for all store directors,” he says, noting that he is the designated point person for the chains crisis command headquarters.

In addition to the extensive precautions being taken at the store and distributions center, Gelson’s also backs up its computer system, pulling files daily and sending them to an outside storage facility.  “If something happens, we can be up an running pretty quickly,” Roulette says.

 Gelson’s has hit the essence of crisis management. 

Whether [a company’s essential crisis management] team is composed of people only from headquarters, or also from the division and store level, depends on the structure of the organization and its corporate culture.  Many companies prefer having a core team at corporate that communicates with people in the field.

Additionally, regularly, update telephone numbers and other contact information for all people on the team and maintain emergency offsite meeting locations for use when headquarters is not available.

Although California retailers are better prepared than others to deal with natural disasters…since September 11 terrorist attacks in New York and Washington, all companies have dusted off crisis management plans and started conducting drills and simulations.

Even companies that have budget issues and can’t implement full-blown crisis management and response plans are bringing together teams to talk about the issues and how a response should be activated.  One of the most important subjects for team discussion is how something was mishandled in the past.

The structures of crisis management teams vary by company and should, as noted earlier, consist of people from different disciplines.  However, final authority is not necessarily with the CEO, who may be dealing with other business concerns.  

Lexicon’s Fink believes it’s important to isolate the crisis from the rest of the company -- particularly prolonged situations that attract media interest.  “Sometimes its best for the chairman and CEO to focus on running the company, leaving others to handle the crisis on a daily basis.”

How visible and accessible top executives should be during a crisis is another issue.  However, Fink notes that the person in the top seat must be the spokesperson when there’s loss of life or the potential for it.  “The media and people demand that kind of respect,” he says.

Although health and safety of consumers and employees is of paramount importance, there is also a need to manage crises as quietly as possible, according to Fink, noting that communicating how a crisis is being managed is critical.  “It’s not just cranking out a press release. When hamburgers kill people, management has to make tough decisions,” he says, alluding to the deadly strain of e-coli that tainted meat at Jack-in-the-Box restaurants a few years ago.  “The question was whether to close one restaurant or all of them.  Business schools don’t teach you how to handle life and death decisions.”

Sometimes executives do the wrong thing for the right reasons.  Such was the case in 1984 following the devastating explosion at Union Carbide’s facility in Bhopal, India.  Despite advice to the contrary from his own team the State Department, CEO Warren Anderson rushed Bhopal where, as expected, he was placed under arrest.

“He should have been running the crisis management team from the company’s headquarters in Connecticut and sending emissaries to India.  Instead, he took himself out of the picture for a week and the company was leaderless," Fink says.

This is also a perfect example of the domino effect a crisis can have.  The company’s stock became undervalued, which led to a hostile takeover and ultimately, the loss of thousands of jobs and the sale of the company assets, Fink says.

On the other hand, Exxon chairman Lawrence Rawl was severely criticized for not jumping the next to Alaska following the Exxon Valdez disaster.  “But why show yourself standing in a puddle of oil.  He was right to stay in New York.  It’s the media capital of the world.  His mistake was not opening his mouth for a week,” Fink says.  Additionally, Exxon said it had a crisis response plan, which stated that an oil spill could be contained in five hours.  Unfortunately, the plan was never tested, he notes.

A valuable lesson for all company executives is that Exxon should have established a news center in New York as a clearinghouse for authorized statements, briefings and status reports.  This clearinghouse should have done two briefings a day to accommodate news cycles, with Mr. Rawl handling one of them personally, according to Fink.

One positive example of management intervention and weighing the need to be in a hostile environment during a crisis was Johnson & Johnson’s handling of the Tylenol tampering in 1982.  Then chairman James Burke only went to Chicago to appear on the “Donahue” television talk show.

“Mr. Burke did not earn his laurels by posing in from of empty store shelves at the scene of the disaster.  Instead, he maintained his authority by remaining at the helm of his company, going where the media were located and communicating his message in an effective controlled and less volatile atmosphere than in Chicago,” Fink notes.

Whether the subject of the crisis is tampering, oil spills, earthquakes, fires or plethora of other man-made or natural disasters, Fink believes it’s important for a company to have deep reservoirs of goodwill in the communities they serve.  “If you are well thought of by your community, the American system of fair play will allow you to take a few strikes without being called out.”

Such was the case with J & J.  Even though the company did not have a crisis management plan at the time, they were first able to prove that the tampering was not at their plants.  In fact, the company acted so responsibly and communications were so effective in building goodwill, that the media actually held back on parts of the story so as not to create panic, giving  J&J time to do its own investigation.  “People were willing to give Johnson & Johnson the benefit of the doubt,” said Fink.

An instance where goodwill had to be created took place after the California earthquake several years ago when areas impacted were having significant power outages.  “People were going into 7-Eleven stores to get essential supplies like water and batteries.  But you couldn’t open the registers or scan anything and there were reports of extreme price gouging.”

The stores didn’t have the reservoir of goodwill to begin with and this made things worse.  We proposed a strict policy of terminating franchise agreements if any price gouging incidents proved to be true.  “Even when it didn’t, people perceived the that the parent company was cracking down.”

Perception is a key word, according to Fink.  “In the pitched battle between perception and reality—perception always wins.  If a company is doing good job managing crisis, but not in communicating what they’re doing to the outside world—the perception is that they’re not doing a good job,” he says.

Communication is so closely tied to whatever action is being taken, that communicators must sit at the table with the crisis response team.  Furthermore, communication must be twofold—communicating within the organization to make sure the well being of employees is being addressed, then communicating to outsiders, including the community, suppliers, customers and the media.  The latter must be used as conduit for getting valid information out to those that are affected.

But he reminds companies that the basic rule in dealing with the press “never, never lie and whatever is said must be based on fact.”  However, apply the rule with a degree of judgment.

As a member of a response team dealing with food products, it’s important to have sound advice from in-house quality assurance people, or to bring in experts form an outside laboratory or a government agency to make sure there’s no unnecessary panic.

“There is always the question of whether or not to pull all products immediately off the shelf.  But part of the advance work is knowing what to do when the situation arises. But sometimes withdrawing all products establishes a situation as a crisis where one might not exist.  Determine what happened but don’t escalate it unnecessarily.”

Excerpted from California Grocer
August 2002

Read "Insuring the Future" to see how one food chain handles crisis management planning.