How To Plan For Potential Corporate Crises
Consultant Urges Firms to Consider Priorities, Disaster Scenarios, Do Role-Playing
By Alexa Bell, Investor's Daily
If Exxon Corp. had tested its crises management plan properly, the oil giant wouldn't be in the mess it's in now.
That is the way it seems to Steven B. Fink, president of Lexicon Communications Corp. in Los Angeles. Fink worked for then-Pennsylvania Gov. Dick Thornburgh during the 1979 Three Mile Island nuclear power plant accident. Brought in to design a publicity campaign for the state, he suddenly found himself at the center of Pennsylvania's nerve-racking but ultimately successful efforts to manage the crisis.
Today, Fink is a public relations and crisis consultant who helps others prepare for the worst. At best, he said, planning for possible disasters helps companies head off crises altogether. At worst, it provides a framework for controlling the damage.
Organizations caught off guard by crises often pay the price in long-term damage. "One crisis leads to others," Fink warned. "(Companies) weaken their attention and the vultures come in."
Union Carbide Corp.'s experiences provide a perfect example of the domino effect a crisis can have, Fink added. After the 1984 disaster in Bhopal, India, the company's stock became severely undervalued, leading to a hostile takeover effort and, ultimately, elimination of thousands of jobs and the sale of company assets.
Fink teaches companies to avoid such calamities by recognizing danger signs and taking action early on. Companies should be on the alert, he said, for situations that will:
Escalate in intensity.
Gain unwarranted attention from outsiders, such as the media or government.
Interfere with normal business operations.
Jeopardize the positive public image of the company or its officers.
Damage a company's bottom line in any way.
Using these conditions as a guide, Fink helps clients develop a prioritized list of the worst things that could happen to them. Each potential problem is assigned a "crisis impact value," based on its potential to cause damage.
The probability of problems is also rated. This assessment is based on history and a company's systemic weaknesses.
Potential crises that rate high in either impact value or probability are vulnerabilities that need to be reduced, Fink said. Companies can develop strategies such as better quality control, that will reduce the probability a specific crisis will flare up. They also can develop contingencies to limit the impact of a crisis once it occurs.
Companies also must consider the cost of each intervention -- and weigh them against the cost of doing nothing, Fink said. "Then management has a dollars-and-cents way to make a decision," he said.
Indeed, making decisions is one of the biggest problems in managing a crisis according to Fink. "Many executives get the analysis-paralysis syndrome in a crisis," he noted. "It's because there's a lot at risk in a crisis, sometimes life and death."
One of the first decisions executives must make in a deteriorating situation is whether a crisis is actually occurring.
"Let's say a complaint comes in about a tainted product during the night. . . .Then what? Do you ignore it, wait or investigate immediately? Who makes the decision?" Fink asked.
He suggests that companies establish a crisis management team whose responsibilities include identifying crises. If two or three team members decide a crisis is in the offing, the crisis management plan should be implemented.
Team members usually consist of a core of decision-makers led by the chief executive or some other authority. Secondary team members with technical skills or other types of expertise should be lined up to handle crises calling for specialized knowledge, Fink said.
Companies also may want to set aside meeting places where team members will gather automatically in a crisis.
This is a strategy that has been used successfully by United Airlines in handling potential crises, Fink said. United's "situation room" contains a conference table with phones at each seat and a speakerphone in the center. A chemical firm, one of Fink's clients, has a similar facility stocked with food, cots, computers and cash.
"The cash is to get money out in the middle of the night, to rent cars or a crane, " Fink explained.
A good crisis plan also designates company spokespeople. These should not always be top-level executives, Fink cautioned. Sometimes technical experts are needed or people close to the disaster scene.
All of those selected, he added, should receive media training.
While the interventions identified in a plan should be general, they should be backed up with pertinent details. Information belonging in a crisis management plan includes the names and phone number of crisis team members and other key players; where equipment or supplies can be procured; and instructions for operating machinery.
Once a plan is completed, it must be tested and updated. This is where Exxon failed in its crisis planning, Fink believes.
"If Exxon had been able to contain and control the (Alaska) oil spill in five hours as its plan called for, it would not be dealing with the loss of oil, revenue and image it's going through now," he claimed.
A Simulated Disaster
Techniques for testing plans can be as simple as role-playing or as elaborate as simulating a disaster. One of Fink's clients hopes to stage a chemical spill, complete with a derailed train and local police reaction.
If the plan doesn't work perfectly, don't despair, Fink said. It's probably a sign things are going well.
"The goal is not to find out if it works, but to find out how it doesn't," he said. "It's too neat if you don't find any problems."