PRE-CRISIS MANAGEMENT

Posted in Anticipation, CRISIS MANAGEMENT STARTS WITH PLANNING, Ethics and Crisis Management, PRE-CRISIS PLANNING on September 12th, 2012 by mnayor

 The term crisis management itself is enough to send executives and managers scurrying back to their desks, burying their heads in papers so they can be overlooked. If one is tapped to head a pre-crisis management team, it’s like being the designated fire marshal for your floor in the building. If you are appointed to manage a post-crisis event, you may have everything to lose and nothing to gain. After all you may be in the cross hairs of public opinion and totally distracted from your regular role in sales, marketing, advertising, or finance.

 

But crisis management is a vital function. It should be recognized as such by the CEO of any organization and communicated down the chain. Any one event, whether due to totally external factors or self created, a crisis can set an organization back years or deep six it, if not handled properly. Handling that one event may well far outweigh for example the importance of the market roll-out of a new product.

 

Pre-crisis management is preventative in nature. It helps you avoid a crisis. It also prepares you for handling a crisis in the event one occurs.

 

Post crisis management implements the plan you have prepared in anticipation of a crisis occurring.

 

So, what is a crisis. It can be any event or circumstance that has the potential for negatively impacting your organization whether it is damage to reputation, operations, markets, or products. Tainted, shoddy or defective products. High profile litigation. A government investigation. The resignation of a key officer. An environmental or natural disaster. n internet failure. Illegal employee activities. Computer data loss. A walkout or strike. The list goes on

 

The spill-over effect is the negative impact the event will have on your stakeholders – your customers, your suppliers, investors, employees, government officials, the public at large, the media. Major crises happen all the time. We have seen several  recently and they are not pretty.PennStateof course, Wal-Mart’s Mexican subsidiary bribery story, Netflix’s pricing fiasco, Olympus Corporation’s cooked books, J&J’s poor handling of product recalls. These stories and many more underscore the necessity for pre-crisis management.

 

Of course we are not all Wal-Mart or Johnson & Johnson.  But the owner of the local retail toy store has as much to gain from crisis management as the big boys. Bad press, damaged relationships, investor confidence, employee morale, supplier cut-offs, civil and criminal liability – none of these things happen only to giant institutions.

 

How to start. It’s easy. Brainstorm. No one can anticipate an exact crisis but we can all speculate as to what our organizations may be vulnerable. List these vulnerabilities and what you can do about them. Example: you are a farmer and need to protect yourself against weather-related events. Insurance coverage, smudge pots, protective coverings etc. may be your answer. Example: your supplier of critical components has had problems. Begin identifying and ordering from alternative sources of supply, vertical integration, overseas sources etc. may be your answer. Example: you produce or distribute products for human consumption. Check your sources for utmost reliability, third party liability insurance, random quality checks.

 

Other potential solutions to problems: alternate transportation sources, duplicate bookkeeping and records backup, key man insurance, family succession planning. All these actions, if circumstances warrant, can be extremely helpful in avoiding you being caught unaware.

 

Next, assemble a team, a core group made up of the CEO, your PR people and legal counsel. Identify those managers or employees who have the best in-depth knowledge and are capable of attacking a problem in their respective areas. Identify those managers and employees who are capable of succinctly explaining issues to top management and/or to the public. Assemble this team and assign roles. Ensure that you have an organized document management system in place that preserves data and information and be ready for fact finding. Develop a communications strategy which includes assigning responsibility for communication content and approval, and assigning the role of spokesperson. Recognize the need for different messages for different stakeholders. develop responses for different media, from press releases, on air responses and social media.

 

Don’t think you can handle everything in-house. Your attorney, your public relations consultant or those who you rely on for sage advice will come in handy. Outsiders have a broader perspective than you may have and can assist to anticipate problems, develop a plan, assist in investigations and document management, assess any legal exposure and help prepare public statements.

 

One observation I personally believe to be of utmost importance.  If you look at some of the highly publicized crises of the day, many stem from lax ethics. Enhancing the bottom line has many times replaced the goal of doing the right thing, often at the expense of customers. Increasing short term profits may make a hero out of someone today but the actions taken to accomplish this may have severe repercussions to an organization tomorrow. A CEO can pressure everyone to redouble their efforts to increase revenues and profits and let employees find their own path or a CEO can communicate the need for high ethical standards which in the long run, will bear more fruit and allow everyone to come to work the next day. Crisis management especially crisis planning is a crucial effort to manage those events that have slipped by you. The worst and the best that can happen is that you will never have to implement your plan.

 

 

 

 

 

 

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FAILURE TO ANTICIPATE: THE WALMART EXAMPLE

Posted in Anticipating A Crisis, Anticipation, Business Crisis Management, corporate integrity, Crisis Communication Strategy, Crisis Management, Crisis Management Planning, Doing the right thing, Ethics and Crisis Management, Honesty and directness in dealing with a crisis, Wal-Mart on May 3rd, 2012 by mnayor

On April 22nd, 2012 The New York Times broke a huge story on Wal-Mart’s Walmex subsidiary. The subsidiary is alleged to have systematically engaged in bribery in order to grease the wheels of  its store expansion program in Mexico. Two of its most senior executives have been directly implicated in the scheme and the subsequent cover-up. The fallout has been dramatic including upcoming Congressional and Justice Department investigations and investigations within Mexico, a precipitous drop in Wal-Mart’s stock price, and perhaps worst of all, a huge black eye to WalMart’s reputation for integrity.

 This is a story that will not go away soon, even with the short collective memory for which the U.S.public is noted, and even with the perception we have, mistaken or not, about how business is done inMexico. The investigations and potential lawsuits will wend their way forward but Wal-Mart has an immediate problem: how to revive its reputation which was essentially snuffed out by one newspaper story. Unless there are very clear explanations that go beyond mere flim-flam, cut your losses Wal-Mart. Cooperate with investigations to ensure that they are completed rapidly. Develop your best explanations. Negotiate your fines for violating the Federal Corrupt Practices Act. Make restitution wherever it is required. Terminate those who were complicit. Get your house in order as quickly as you can.

 But this article is not about what to do now. It is about what should have been done. Wal-Mart’s story is as old as the hills. It is the same story as Richard Nixon and Watergate, Bill Clinton and Monica Lewinsky, Enron, Goldman-Sachs. And on and on and on. It is the story of hubris. It is the story of deceit. It is the story of the ostrich.

 Faced with a calamitous issue, a powerful person, a powerful company, a powerful country is most likely still to believe that there is a good chance of getting away with something. Lie low and time will make the issue recede into history. Put a band aid on and no one will dare to pierce your impenetrable shell. What would have happened if Wal-Mart had entertained a genuine independent internal investigation when it had the opportunity, and made those findings known to the Justice Department and toMexico? There would have been a much smaller story. Wal-Mart would at least have been accused of being honorable. Its reputation for integrity would have been burnished. It would have paid a price but perhaps not as steep a price as it will now pay.

 Why don’t people get it? Because there is a gambler in all of us, even when the odds are poor. Is there a chance we can get away with something? Let’s give it a try. What do we have to lose? Ask Richard Nixon. Ask Bill Clinton. Ask all those who have tried to wheedle their way out of messes only to get caught. Ah but then again there is always that other guy, the guy who got away with it. We should follow him. He’s a smart guy. He knew the angles. If he could do it, we can too.  Right now things are calm. Let’s not rock the boat. But in the long run the straight-shooter almost always wins.

Crisis management is not only activated when a cris occurs. It begins prior to a crisis in order to avoid a crisis or lessen its severity. Preparation and right-thinking separate those companies and organizations from those that merely kick the can or determine to ignore or purposefully hide a potentially serious issue.

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NETFLIX REDUX

Posted in competitive advantage, Crisis Management, Gauge Your Competition, NETFLIX, Respect your customers, You Don't Have a Monopoly on October 27th, 2011 by mnayor

Those fickle consumers! After being presented with a whopping monthly price increase of 60%, 800,000 U.S. subscribers bailed on Netflix in the third quarter of this year. And the company’s stock tanked as a result. At the close of business Monday October 24th the Company’s stock was at 119. By Tuesday morning it was at 75 and currently hovers at 80. In July it was $300. This, while the company has negotiated a potentially great deal with Dreamworks Animation and posted third quarter earnings that rose an impressive 65% from $38 million to $62.5 million. What does this say about investor confidence?

True, the Company has admitted candidly to shareholders that it moved too quickly and dramatically to raise prices although it has emphasized that the new prices are where they have to be in the longer term. But, there is a bit of defiance in between the lines. Interviewed by The New York Times for its October 23rd Magazine Section, Reed Hastings, CEO of Netflix observes that when Netflix started its stock price was $7.50 and it had a million subscribers and it is a mistake to measure everything by what happened recently. Fair enough.

But there seems to be a failure to recognize the obvious. Competition not only looms in the wings. It’s right in Netflix’s face. Confidence is good. Over-confidence can be dangerous. Hastings fails to recognize that Netflix does not have any special competitive advantage in its industry. Yes, it clobbered Blockbuster and yes it got a good jump on internet streaming. However, here’s what is competing with Netflix, now and in the future: cable networks, Direct TV, Dish, Hulu (currently being courted by Google and Amazon), Redbox, and that old stand-by Blockbuster which certainly sees an opportunity to jump back into the game big-time.

Netflix no longer has a monopoly on a product or an idea. Thus it must now compete on service and price. Unless it discovers a new method of delivery or obtains a lock on new products, it will have to provide a superior product at a fair price if it wishes to continue to distinguish itself from its competitors. Which may mean its heyday is over. And that’s the lesson all businesses can take away from the Netflix experience. Better to compete like you have competitors breathing down your neck rather than act like you are the kingpin to whom all customers shall pay homage.

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NETFLIX: A GOOD BUSINESS DECISION ON PAPER

Posted in Business Crises We Create, CONSIDER YOUR STAKEHOLDERS, Crisis Communication Failures, Crisis Management Consulting, DECISIONS IN A VACUUM, NETFLIX on September 21st, 2011 by mnayor

You sit around the conference table and throw out ideas. You think outside the box. You think inside and around it. You crunch numbers. The numbers point in a logical direction. You come up with a winning profit strategy that makes sense. You implement the strategy and blow yourself out of the water. Hello Netflix, which recently announced a restructuring that would divide its business into two segments – providing entertainment by mail and by download – at a hefty increase in customer fees.

Business decisions aren’t made in an isolation booth. Stakeholders, stakeholders, stakeholders. Why do businesses always forget some of their stakeholders? The word has become trite; it’s been used so often. Nevertheless the concept just doesn’t seem to sink in for many business executives. Granted, you can’t please all stakeholders all of the time, and certain stakeholder interests may conflict with those of other groups – but the least you can do is be awake.

Stakeholders are any group or even individual(s) whose interests are important to your company and must be served. If a stakeholder interest is not served, it should at least not be harmed especially if harming the stakeholder will harm you. Here are the most common of them: shareholders and/or investors, customers, suppliers, governmental regulatory agencies, employees, the public at large for health and safety issues and finally, even the media. It’s quite a list and of course not everyone can be happy all of the time.

However, management must always try to forecast the effects of its decisions on its stakeholders. What may be an excellent decision on paper may have disastrous results. Enter Netflix. It is difficult to believe that executives of that company gave any heed to the reaction of its customers. And if they did, they wrongly concluded that there would be some grumbling but they could just hunker down and it would blow over.

Blow over? Netflix is facing an angry customer base. Will it face mass defections? Perhaps. Maybe Netflix concluded that it should take the backlash at all once. Perhaps it feels that its new higher prices and a smaller, better quality customer base better suits its model. The risk, however, is that its base will shrink too much and the company’s revenues will decrease dramatically.

What does a company do after it does its homework and knows that a good corporate decision will have adverse consequences for one or more stakeholder groups? It can be a difficult and agonizing decision. One course of dealing, and the one that makes the most sense when considering an elective course of action, is to implement changes in steps. MODERATION is the key. The first benefit is that you can get a handle on reaction. Similar to a test market, you can assess the effects of your action, make adjustments, refine, modify, go to plan B, etc. Secondly, by going slow, you don’t shock the stakeholders who are affected. It’s the difference between giving a stakeholder a rash versus a blow to the solar plexus.

Don’t make decisions with your head in the clouds. Know the effects of your decisions on others, anticipate what the reactions will be and the effects those reactions could have on your company.

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DODGING THE-ALL-THE-EGGS-IN-ONE-BASKET-SYNDROME

Posted in Anticipating A Crisis, Anticipation, Business Crises of our own making, Crisis Management Consulting, Crisis Management Planning, Diversification on January 13th, 2011 by mnayor

Secretary of Defense Robert Gates will most likely cancel the $14.4 billion program to develop a Marine landing craft designed to navigate water and storm beaches. Gates’ decision represents a change in fighting strategy. Now that ships and landing craft can be hit by missiles from a range of distances it is a signal that this type of warfare may be relegated to the ash heap.

What should companies take away from this development? Easy. Doing work for the Federal Government can, no doubt, be rewarding, (even though highly frustrating; red tape can turn crimson and frustrations can escalate) but a business must be ever vigilant and conscious of the winds in Washington. Certainly many high level decisions make a great deal of sense. But others can be politically motivated, or motivated by nothing more than the need to squeeze the national budget. Whatever the reason, it behooves any company that is a government contractor, to always have an ear to the ground.

The Marine vehicle in question is being built by General Dynamics. Although the cancelled $14.4 billion program was to have been spread out over a number of years cancellation will certainly still be a blow. At the end of 2009 GD had sales of $32 billion. The Combat Systems Division alone in 2009 generated 9.6 billion in sales and the company had an overall profit of $3.7 billion. So putting the project in this proper perspective, it was not just loose change.

GD has a diversified operation. With over 90,000 employees worldwide, it does not just rely on the government for business. It has thriving Aerospace, Marine Systems and Information Technology and Systems divisions, with many commercial customers. Its Gulfstream brand of business jets is known worldwide.

The moral of the story is clear. While GD may be diversified enough to withstand the travails of cancelled programs and losses of billions of dollars in sales, not all businesses are as prepared. Crisis management is not just for the “now” when the crisis has struck and everyone is scrambling. It includes crisis planning. A way for executives to focus on this is to consider it an offshoot of long range planning. Where does the company want to be in five years? In ten? What are the company’s vulnerabilities? How do we soften the exposure?

By treating crisis management not as a something to deal with as a rarified event, but, rather, as a necessary corollary to a normal function of long range planning, you will be able to mitigate the losses that come from the cancellation of your very own amphibious landing craft project.

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FACING A BUSINESS CRISIS OR A COST OF DOING BUSINESS

Posted in Anticipating A Crisis, Business Crises of our own making, Business Crises We Create, Crisis Management Consulting on November 2nd, 2010 by mnayor

A Company admits that it erroneously charged millions of customers for services they never ordered or used. The Company plans to credit current customers and refund former customers to the tune of anywhere from $30 million to $90 million in total. Most companies would consider this a crisis, especially since the regulatory commission with jurisdiction over it says it hasn’t finished with these guys.

Well, not so fast. The Company had been notified at least two years ago that they were overcharging, and did nothing about it. After all, customer service is expensive. Why dig into this messy situation if by ignoring it, customers might give up and go away. The loss to an individual consumer may be a pittance, but the possible refunds may be huge, thereby justifying the gamble that the situation won’t come to light. Even if the Company is caught, things like this happen all the time. The adverse publicity, if there is any, will blow over, and this is a business risk the Company is willing to take.

The Company in this case is Verizon. The Federal Communications Commission continues its investigation and may start a formal proceeding. But Verizon may have already calculated this into the bottom line cost. More and more U.S. companies are consciously deciding to take on bigger and bigger risks. Stated another way, more and more companies are deciding to be dishonest, whether by design or by simply ignoring facts. Some start out to cheat – inferior raw materials, child labor, the list is endless. Others don’t set out to be dishonest but decide not to correct mistakes because of the expense. In today’s environment most companies feel they can weather the storm.

It was recently reported that GlaxoSmithKline, PLC (GSK) agreed to pay $750 million to settle charges that between 2001 and 2005 they distributed adulterated drugs made at its now-closed manufacturing facility in Cidra, Puerto Rico. Authorities said a corporate whistleblower had filed a lawsuit against GSK under provisions of the U.S. False Claims Act. A GSK spokesperson stated that “We regret that we operated the Cidra facility in a manner that was inconsistent with current Good Manufacturing Practice requirements and with GSK’s commitment to manufacturing quality.  GSK worked hard to resolve fully the manufacturing issues at the Cidra facility prior to its closure in 2009 and we are committed to continuous improvement in our manufacturing processes…”   The GSK Puerto Rico subsidiary, SB Pharmco Puerto Rico Inc., will plead guilty to a crime and pay a $150 million fine, including forfeiting assets of $10 million. Under a separate agreement, GSK will pay $600 million to settle federal government and related state claims under the False Claims Act. The guilty plea and sentence is not final until accepted by the U.S. District Court in Boston.

In other lawsuits pharma companies have been accused of paying money to doctors to prescribe their brand-name medications and, in some cases, telling physicians to push “off-label” uses of the drugs which is prohibited by federal law. In the last few years pharma companies have paid up to $7 billion in settlements, criminal and civil fines, and have pled guilty to misdemeanor and sometimes felony charges.

While making these admissions, many continue to assert that they use the highest ethical standards in conducting their businesses, or they are in full compliance with FDA requirements and regulations, or that they continue to operate in the best interest of the public.

It is difficult not to read or hear news almost daily about companies getting caught doing something indifferent to the public interest or unethical in one way or another. The stories no longer appear to be the exception but rather are beginning to constitute business as usual and most people really don’t care unless they are directly involved. Have we come to the point that American business is expected to be dishonest? Is bad behavior so common that a case like these don’t even get a second glance?  Are responsible decisions being replaced by risk analysis? And is crisis management being relied on to merely cover one’s tracks?

Is it possible to revert to the good old days when companies tried to do what was right most of the time, and crisis management was a tool relied on to protect and respond to the public interest, as well as enhance and protect reputations.

Portions of this article were published in Bernstein Crisis Management: http://www.bernsteincrisismanagement.com/nl/crisis-manager-101101.html

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ANTICIPATION

Posted in Anticipating A Crisis, Crisis Communication Planning, Crisis Communication Response, Crisis Communication Training, Crisis Management Planning on September 3rd, 2010 by mnayor

This post is about crises that require that you and/or your organization be in the public eye. In a previous post the observation was made that you should try to control the dialogue, as long as you don’t overly rush and sacrifice accuracy. All that is true but in many cases you may have to open yourselves up to questions, and the questions may be hard ones. So not only is it important to craft your message honestly and pick your messanger carefully, but it is also important to ANTICIPATE.

That seems easy enough and many organizations do that but the method is usually very haphazard. A bunch of people get in a room and the leader says “what do you think They’ll ask?” And then the brainstorming begins and people feel obligated to spout something out. After an uncomfortable length of time when the perticipants have spent their energy, someone says “Ok, I think that does it” and that does do it.

Not good! First you should list your stakeholders and one by one list those issues in which each is primarily interested. Investors – the bottom line; employees - job security; customers – continuity of supply; suppliers – change orders and continued ability to pay. There are those in the organization who know the stakeholders best. Pull them into the room to tell you. Role-play. List the issues and develop the answers. Finally, brainstorm to develop everything and anything that might go wrong. Anticipate the worst. The crisis gets worse, competitors ponce, the news media tries to hang you out to dry. Make the list and try to develop the reaction. You won’t be able to anticipate every scenerio or have an answer for everything BUT the process will prepare you and get you close enough to most issues so you won’t be caught in the headlights.

Finally, the chief operating officer should certainly be your front-(wo)man. Nevertheless we all realize, and it is not expected, that the CEO is all-knowing. Mayor Bloomberg has a brilliant strategy of talking to reporters about key situations, giving the broad-brush information or account and then handing over the microphone to his deputy – the police commissioner, his financial chief, his environmental guru or whoever is the person with the handle on the situation. This has a dual-fold impact: the matter has the attention of the very top, and the organization has the expertise and knowledge to provide the public with detailed information. Oftentimes it may be necessary even for the deputy to surround himself with additional experts and rely on them to feed information or come forward and provide the additional information directly. That is why it is very good training to have your employees particpate in meetings and have some experience in speaking in front of a group. You never know when they will be needed.

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