Coping With Catastrophe

Crisis Management Becomes The New Corporate Discipline

When a New York woman died on Feb. 8 after taking cyanide-laced Tylenol capsules, executives at Johnson & Johnson, maker of the painkiller, saw an old nightmare returning to haunt them. They recalled all too vividly how their company was shaken in 1982 after seven people in Illinois died from poisoned Tylenol. This time, Johnson & Johnson was ready. Responding swiftly and smoothly to the new crisis, it immediately and indefinitely canceled all television commercials for Tylenol, established a toll-free telephone hot-line to answer consumer questions and offered refunds or exchanges to customers who had purchased Tylenol capsules. At week's end, when another bottle of tainted Tylenol was discovered in a store, it took only a matter of minutes for the manufacturer to issue a nationwide warning that people should not use the medication in its capsule form.

Johnson & Johnson's previous experience with disaster had taught it the value of a spreading corporate discipline known as crisis management. Many other companies have learned the hard way that catastrophe can come from nowhere at any time: the lethal gas leak at Union Carbide's Bhopal plant in India in 1984, the 1981 collapse of two skywalks in the Kansas City Hyatt Regency Hotel. But more and more firms are not waiting until calamity strikes to think about what they would do. Instead, they are developing detailed plans to cope with such crises as industrial accidents, product recalls and even terrorist attacks. Says Steven Fink, president of Los Angeles-based Lexicon Communications and author of the forthcoming book Crisis Management: Planning for the Inevitable, "Companies are beginning to realize that what happens to a Union Carbide can happen to them, whether they're big or small, publicly traded or privately held."

It is the element of surprise that is most unsettling to executives confronted by sudden catastrophe. Says Fink: "The savviest chief executive in the world often falls victim to a kind of paralysis when a crisis strikes." Any kind of conditioning may thus be comforting in a crunch. Says Jean Lipman-Blumen, a professor at California's Claremont Graduate School's Executive Management Program: "The worst part of a crisis is being unprepared. By removing the unexpected quality you are removing that which is most unnerving."

United Airlines and Dow Chemical, among others, have set up corporate SWAT teams made up of employees who are trained to take charge in the event of an unexpected disaster. Attention to detail is a crucial component of most contingency plans. Dow has produced a 20-page program for communicating with the public during a disaster, right down to such particulars as who is going to run the copy machines. Many companies designate a single corporate spokesman to field all inquiries from the press. A list may be drawn up of those executives to be notified in emergency situations, and the late-night phone numbers of local radio and television stations may be kept posted on office walls. Some companies even simulate mock disasters as rehearsals for the real thing, like fire drills.

Other companies, including McDonald's, Abbott Laboratories and CBS, are learning how to be prepared by enlisting the expert advice of public relations firms. In fact, crisis management has become a growth industry. Says Frank Mankiewicz, an executive vice president at Gray & Co., a Washington-based public relations and lobbying firm: "We're focusing on our crisis-management capabilities when talking to potential clients." Some firms have people around the country who can move on a 24-hour basis to handle a corporate crisis. Often, these independent experts offer a much needed objectivity. Says Philip Lesly, president of a Chicago public relations agency: "Everybody involved is emotionally charged."

Despite the new popularity of crisis management, executives who are fully ready to respond to emergencies are still in the minority. When a disaster unfolds, many corporate chiefs shake their heads and refuse to acknowledge the gravity of the problem. Says Gerald Meyers, former chairman of American Motors, who teaches a course in crisis management at Carnegie-Mellon University: "The most frequently made mistake is denial, and it's the biggest one you can make. Denial then gives way to anger. When the crisis doesn't go away quickly, the panic sets in." Agrees Donald Deaton, a senior vice president at Hill & Knowlton, a New York-based public relations firm with an expertise in crisis management: "You can't sit on your hands waiting for the problem to disappear. You have to take charge."

Company officials must next overcome a powerful impulse to run for cover from the press and the public. "Executives often bury their heads in the sand and refuse to communicate. But adopting a bunker mentality is always to their own detriment," says Fink. Moreover, he continues, "many companies go astray by lying." When that happens, the public loses faith in the firm, and its products, which may never be restored.

One of the most important steps in dealing with a disaster is investigating its causes. When the fifth floor of a high-rise office tower under construction in Los Angeles collapsed last December, killing three people, the general contractor, San Francisco-based Swinerton & Walberg, was besieged. Recalls Bill Van Leuven, Swinerton's manager of business development: "People were banging on our doors. We didn't know where to turn. No one was prepared to address the problem." The company hired Lexicon Communications, which organized a team of safety engineers and Swinerton executives to assess the possible causes of the collapse.

Many companies become converts to crisis planning only after they have been shaken to their corporate core. That was the experience of H.J. Heinz, the consumer-products conglomerate. The firm attracted unwelcome attention last year when its Star-Kist subsidiary was accused of shipping 1 million cans of rancid tuna in Canada. Even after the Canadian Prime Minister impounded the fish, Heinz executives refused to speak to the press or the public. Concedes Thomas McIntosh, a Heinz spokesman: " It was ignorance. We didn't know what was happening. It was a truly embarrassing episode." Two months ago, Heinz belatedly began organizing its own emergency-management team. Now, with some confidence, it hopes that its next corporate crisis will have a happier ending.

-- By Barbara Rudolph

Reported by Cristina Garcia/Los Angeles with other bureaus