A Strategic PR Approach to Crisis Management and Litigation

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A STRATEGIC APPROACH TO CRISIS MANAGEMENT

Background Crisis management, by definition, is the preparation and application of strategies and tactics that can prevent or modify the impact of major events on the company or organization. At best, crisis management is a way of thinking and acting when everything “hits the fan.” At its worst, crisis management can be the life-or-death difference for a product, career, or company. A crisis will demand the use of all our skills. Gaining credibility with all our audiences, under extreme stress and with severe time constraints, is a true test and too often we come up short. Crisis management begins with the answers to two very important questions: What is a crisis, and when did the crisis start? Finding answers isn’t as easy as it sounds. There is a framework to determine if an event is a crisis. A crisis is defined as a violation of the corporate vision. Four questions have to be asked: 1. To what degree will this event affect your ability to meet your mission? 2. What is the intensity and the urgency of the crisis? How big can it get? 3. Which of your values are affected and what is the long-term potential for damage? 4. What relationships are threatened? Crisis management crosses all organizational boundaries to have an impact on every stakeholder, either as a direct result of the problem or as a potential supporter of the solution. Above all, it is important to remember that a crisis affects people first, then organizations. Employees, customers, and shareholders are the early losers in a crisis, especially one that is out of control. Trends The trends in crisis handling are based in the changing face of the standards of society and the resultant attention of the media. Organizations increasingly put greater emphasis on quality, ethics, and respect for employees. Prior to the late 1960s, crisis handling was deliberate and legally dominated. Without the pressures of instant communications and immediate public reaction, a crisis could be dealt with by thoughtful and determined people, normally lawyers who were concerned exclusively with lawsuits and communications strategies designed to conceal rather than reveal. Not that everyone has seen the light and every lawyer has been checkmated, but we have come a long way in understanding what a crisis is, how to handle it, and what the ultimate penalty is – that is, the damage to the brand or the company which far outweighs the cost and fear of the courts. The bottom line is clear. The combination of increased standards and improved communications have made corporations into glass houses. The reduced loyalties of all audiences, driven by restructuring and outsourcing of employees; the dramatic move of corporate ownership from individual to institutional investors; and an increasingly better-informed customer, have created an environment that will spawn and nurture crisis.


Today, companies see a crisis for what it is: a potential marketing issue, with lasting effects beyond just an isolated event. Consequently, how a company handles a crisis creates a lasting impression that ultimately changes or supports the company’s reputation. Along with changes in corporate and community climates and the corresponding evolution of the approach to handling a crisis, several other current trends continue to impact crisis management: 1. Trial by media: Today, more news outlets exist than ever before and the demand for

sensationalism is at an all-time high; 2. Sue the media: An apology from the media serves as a solid vindication; 3. Give something back: This concept is taken from the complaint-handling formula.

People who are disadvantaged want an apology, assurance that – whatever it is – it will not be repeated, and then, something extra. Give something.

The change in the attitude and specialization of media has led to crises becoming national events, and the speed of coverage has shifted a company’s successful handling of a crisis from reaction to preparation. Relationship of PR and Communications to Missions and Goals Crisis management has three sequential objectives. The first, ideally, is to prevent a crisis when possible. The second, if a crisis should occur, is to modify the negative effect on the company. The third, through its behavior, is to provide a platform for the company’s future. All responsible corporate relations strategies boil down to two objectives: 1. To produce new revenues; or 2. To protect current revenues. Crisis planning may be at the top of the protect list, along with various competitive issues, operational concerns, and franchise questions, for instance. Consequently, the strategic implications are broad and integration into the organization’s planning, missions, and goals is imperative. In contradiction to current thinking, most companies are not prepared for a crisis. They either have failed to prepare or the plan sitting on their shelf is outdated and incomplete. The key to crisis management is planning – knowing what can happen to you or your industry, and what you can do about it. Most crises can be anticipated and preparations can be made, even though the timing and magnitude remain in doubt. The stated objective must be to prevent the crisis, although, in most cases, what happens is out of the company’s hands. But, all crises can be at least partially anticipated. Consider the examples:

• The drug companies could have anticipated that they were going to targeted by the President; and


• The cement companies could have prepared for a congressional probe with the

Speaker initiating it. When you look at the majority of crises in the last 10 years, what happened should have been on or near the top of the list of possible events. Why wasn’t anyone prepared? The first reason for this is a feeling that it is impossible to plan for everything; therefore, plan for nothing. The second reason is an inherent arrogance, an assumption that we can handle anything that happens. The first step in crisis management involves analysis – knowing what can happen to you or your industry and what you can do about it, if anything. Getting information about a potential crisis can be as sophisticated as a formal issues management program or as simple as interviewing your employees about what could go wrong, or what may be going wrong. The four most important questions in formulating a crisis plan are: 1. What are the potential threats to your company?

• Natural disasters, fires, explosions.

• Accidents and terrorism.

• Legal/regulatory trouble. 2. Can you plan for every eventuality?

• You can plan behavior, not specific tactics.

• You can assign responsibility based on threat potential.

• You can communicate “upstream” to provide early warnings.

• You can centralize control and handling of top-tier crisis situations. 3. What is your plan trying to protect?

• The reputation of your company with the public and lenders.

• The immediate bottom line.

• The franchise. 4. Do you need a plan, or just good preparation?

• There is no need for elaborate manuals.

• You can make directional decisions now.

• You can anticipate the tough questions and prepare the best answers.

• You can create a proprietary distribution network. Determining if you are at risk of a crisis is easy, but some organizations are more at risk than others because of previous exposure. The source of crisis has traditionally been attributed to what happened, rather than the more important cause of what happened. The Risks of Crisis There are two categories. High and medium. There is no low risk. Is the risk preventable? Certainly many are. Preventable risks generally fall into the category of manufacturing rather than service industries. All incidents are different. They have different characteristics, but many are similar in some ways. Some of the more notorious can be grouped as follows:


1. Product-related cases; 2. Terrorism and random violence; 3. Financial, takeover, regulatory, and ethical issues; and 4. Rumors and allegations. The Real Source of Crisis A crisis is not what happens to you but its outcome – how you handle it. The results change the conversation and give foundation to crisis management principles the common mistakes that led to bigger and more costly mistakes are: 1. Erroneous ethics: This describes situation where, it is alleged, that management’s

ethics were responsible for the crisis; 2. Incentive crisis: One of the most overlooked root causes of a crisis is misguided

incentive programs; 3. Mixed values: When your organization’s values clash with those of your public, it can

cause big problems; 4. Stonewalling stakeholders. This is the worst and most invoked of all the mistakes.

The issue here is trust – telling what you know when you know it. When a company or individual refuses to admit a problem, even for a short period, they lose credibility;

5. The Peter Syndrome: Almost all crisis handling can benefit from truth telling. When a company refuses to accept blame or even express regret, the public turns on it. The organization looks guilty, even if it isn’t;

6. Walking the high wire without a net: it is the slow-burning crisis that should have been anticipated Communication is not a substitute for action; and

7. Addiction to repetition: Never become an expert in the same mistake. One event is a situation, and two is a crisis. It may bot be within your control to prevent the repetition, but it is in your control to anticipate it and plan for the result.

The Porter-Novelli Survey In 1993, Porter-Novelli, a well-known PR agency, conducted a survey to track the impact of crises and the public dynamics of anger. The survey supports and documents the real damage to reputations and gives real substance to the dynamic of crisis handling: 1. The larger the crisis, the longer the public remembers; 2. How the company behaved influenced the public reaction: When a company refused

responsibility, or put inaccurate information, the public gets angry. When a company seemed to put profits above public interest, or was not quick to rectify a problem, the public gets angry;

3. Eyewitness and third parties are believed: Company spokespersons, no surprises, are not credible. We are seen as what we are, especially when we defend rather than admit. Most people believe that companies do not tell the truth;

4. A damaged reputation affects the customer’s decision to purchase/use: This is the real cost.

Preparing for a crisis means developing the internal mindset necessary to survive a turbulent period. When a company is prepared for a crisis, it is reflected in the corporate


attitude during rough times. A crisis tests a company’s mission, values, and strength. During a crisis, the company operates under a microscope. The way the company behaves day to day and how it stratifies its priorities will carry over into a crisis, for better or worse. The public will give the “good corporate citizen” a break, but will punish the organization that does not seem to care about its employees, community, or environment. Budgeting and Measurement Considerations Justifying the budget for crisis planning involves elementary cost-benefit analysis. First, the initial cost of creating a plan is relatively small, and second, the potential cost of not planning can be astronomical. Recent studies done at Northwestern University’s Integrated Marketing Communications program found that the majority of costs associated with a crisis are not legal costs or judgments. The potential for legal costs tends to determine how companies respond to a crisis and, in almost every case, ends up being a minor segment of the ultimate costs. The largest single segment of costs is market costs – the cost of lost sales, either through restriction or damaged reputation. The ultimate effect is on market share, ability to grow, and margins. The second major cost is the company’ s market value or equity. Stock price is generally hammered when a crisis occurs. The financial community understands the effect on sales and growth. Shareholders, employee-owners, and management options are immediately discounted, and rarely rebound over time. The new model of crisis planning no longer takes large expenditures. It is the agreement and understanding of top management on how they will behave, and the preparation of public practitioners on how they will manage the event, that carries the day. A Tactical Approach: The Crisis Plan Planning in advance of a crisis may be the prime determiner as to the depth and cost to a company’s reputation and bottom line. Once an event occurs, there is no time for a considered, thoughtful approach. 1. Start with an Approach The crisis plan begins with a corporate statement outlining the company’s crisis management approach, providing a decision base and behavior path for all actions. The statement will summarize the company’s philosophies and ethics, and delineate what the company plans to “protect.” This is the corporate conscience section. While it is possible to list the most probable events that fan befall an organization, the details, twists, and turns have the ability to handcuff. With an approach that has the agreement of top management, all decisions become faster, safer, and sounder. If the organization needs to have a meeting to make a directional decision, it is already behind and may never catch up. 2. Build a Strong Reputation Banking some goodwill in advance is the best and cheapest of crisis tactics. An organization with a solid reputation will survive a crisis better than one without. It is nearly impossible to build a relationship and credibility with stakeholders in the middle of a crisis. It has to be done when the wind is down and the seas calm. Each player’s initial


approach to the crisis will be strongly influenced by its perception of your historical behavior. This is as true for regulators and reporters, as it is customers and communities. 3. Create a Crisis Team Someone has to be in charge of a crisis, and in most cases it will consume all of their time. The person should be a member of top management who can step away from the day-to-day duties and assume control of the crisis team. Candidates for the team include:

• Corporate communications;

• Legal;

• Public Affairs;

• Human resources;

• Research;

• Operations;

• Safety;

• Security; and

• Logistics. 4. Establish a Crisis Center There is a need for a Crisis Center. This can be an established conference room, preferably one that is already wired and equipped for these communications technologies:

• Provide wi-fi and broadband;

• Preinstalled jacks for phone lines;

• Computers with modems to access databases;

• Faxes, video conferencing, and VCRs; and

• Cable TV and radio. In addition, the room should contain: Communication lists for key groups

• Top management and board of directors;

• Company directories;

• Investors and analysts;

• Customers and distributors;

• Regulators and government officials;

• Media; and

• Field offices. Stationery and overnight envelopes and Grab bags – duffel or box that is already stocked and ready to be taken to the site of the crisis. It should also contain lists, stationery, cell phones, lap top computer with modem, and, additionally, some cash, credit cards, tape recorder, camera, film, batteries, and beeper.


5. The Network Alert System The bigger you are the harder it is to know what is going on in your company: Lots of suits, price issues, advocate groups, investigations, and safety issues. Knowing which ones have the potential to create a crisis can give a real edge. Forge a link with the legal department. Help them understand what kind of suits you want to be informed about, even if they don’t have large price tags. Eliminate all surprises. There are no good surprises. 6. Prepare Materials in Advance Every organization is different, and every crisis is different, but every response is not different. We can prepare a great deal in advance. The thought process is straightforward. If something bad happened today, what would you need to respond immediately? The list will differ with each situation, but some suggestions to get the thinking started:

• A press response stating that you have incomplete knowledge of the crisis details, describing your conceptual approach, and giving your promise to inform;

• Your best answer and information in the event of a crisis;

• Some generic but positive information about the company that has some bearing on the crisis. Usually, technological matters are given out;

• In the “normal” crisis, there is an early vacuum of information. Fill it with information that will form a background and control media speculation. Don’t be reluctant to say good things about your company, your services, your safety record, audits, and management. If you don't, nobody will.

Managing the Crisis The first response to a crisis can be very important. Even though it is on a much larger scale, the rules of complaint handling and the “4Rs’ still apply: 1. Regret: They want you to say that you are sorry it happened. Not that you’re guilty,

or even responsible, just that you regret the event. This is very hard for overprotective lawyers, who will caution that “these very words will come back to us in court.” First, the real costs are not in the courtroom, and second, crisis research is clear: If you don’t express regret, nobody will listen to anything else you say. You cannot skip the first R and jump to the second;

2. Resolution: State, if appropriate, what you will do to resolve the issue; 3. Reform: The third step is to assure, if you can, it will not happen again; and 4. Restitution: Everybody wants something. This could be coupons, free service, etc.

The formula works. To assure an accurate and fair reporting and understanding of your position, your facts, and your attitude in a crisis, you cannot allow the media to control the entire dialogue. Think of the media as the only distribution system, and one that has its own agenda, unless you establish your own proprietary systems:

• Develop direct, unedited information systems to reach your important audiences;

• Utilize all forms of media. Overnight delivery and faxes can be used for small, important groups like your board, legislators, or institutional investors;


• Consider direct mail, group faxes, toll-free numbers, internet pages, regional

meetings, or ads for larger, more diverse groups like customers, employees, or the community;

• Hold the media to the truth. Form a “Truth Squad” to monitor and correct any and all media errors or omissions. Understand that each instance will not or should not result in a correction. The objective is to make sure the database is reasonably accurate, as each new reporter on the scene will use it as a basis of their coverage;

• Test messages for understanding and impact. A quick focus group or telephone research is helpful in sensing the mood of the public and testing your response for sincerity and credibility;

• Supplement everything you do with third-party support. Everyone will have “experts” to support or explain the terrain;

• Keep a log of all press releases and key accurate stories as the crisis develops, and use it to “upload” new members of the press as they enter the story. This will improve the accuracy of the coverage; and

• Provide a location for the press to meet, communicate, and get briefings from your organization. If you want to get your messages across, you need to be a source of information.

Crisis planning provides clear, measurable benefits. It is risk management in the best sense of the term . Very simply, it is possible to reduce the risks associated with unexpected events by planning an approach to handling a crisis – not by planning for a specific crisis. On a much larger scale, it is similar to hedging currency or interests, insuring an investment, or getting performance guarantees on contracts. Crisis management will change little from its current state of planning and execution without external pressures that broaden the definition of a crisis. The potential for crisis events increases as government continues to insert itself into the business arena, as regulations grow, and as agencies seek more oversight.

A Strategic PR Approach to Crisis Management and Litigation

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