A major tragedy that occurs either naturally or as a result of human

error /malicious intent.

Can include tangible devastation (e.g. destruction of lives/ assets)

Or intangible devastation (e.g. loss of organizations credibility)

Intangible devastation can be result of managements response to
tangible devastation

A crisis usually has financial impact on a company, and affects
multiple constituencies
1. Human - induced / error
Cases of negligence
E.g. sinking of Exxon Valdez causing oil-spills
Financial frauds
E.g. Enron
Theft attempts
E.g. online theft attempts at banks
2. Natural causes
Natural disasters
e.g. 2004 South East Asian tsunami

The publics attitude will generally be negative for crises that could
have been avoided, e.g. Exxon Valdez, compared to natural disasters.

In all cases though, constituencies will look to the organizations
response before making a final judgment.

Some human-induced crises end up actually increasing overall
credibility of company (e.g. Tylenol).
1. The element of surprise
2. Insufficient information
3. The quick pace of events
4. Intense scrutiny

Usually the element of surprise leads to a loss of control.

Management panics and responds in ways that are short term in
nature and can be damaging. E.g. giving false / defensive statements.
1982: Johnson & Johnsons Tylenol crisis
Tylenol Capsules contaminated with cyanide. Poisoned. Death.
J & J sales drop 90% after media report.
J & J removes Tylenol Capsules from shelves.
J & J tried to save their reputations, image and brands.
Perception of the company was actually strengthened by what
happened. The Credo.
Because it actually did what it promised to do, the public regained
trust in the brand and company.
Within 3 months of the crisis, the company regained 95% of its
previous market share.



1990 The Perrier Benzene Scare
In 1989, Perrier sold one billion bottles of sparkling water.
In 1990, small amounts of benzene was discovered in the water.
70 million bottles were recalled.
Too many conflicts of statement from Perrier.
The brand was re-launched at a very
high advertising cost to the company
the product was forced to be priced
higher than the original price.
2010 Toyota Recall Gas Pedal
Started with horrifying car crash in August 2009.
Recalls 7.5 million cars in US.
Suspended sales.
Not only gas pedal but also floor mat.
Recalls cost the company and its dealers
a minimum of $54 million a day in lost
sales revenue.
How did a company that become the world's
largest and most profitable automaker
on the back of a rock-solid reputation for
quality and dependability find itself at
the center of the biggest product recall?

Dangerous computer viruses cost businesses a lot of money
e.g. I Love You virus in 2000 cost businesses estimated $10
billion in damages.

Theft of company and customer data are great cause for concerns to
businesses.
e.g. Phishing = process of attempting to acquire sensitive
information such as usernames, passwords, credit card details, etc
by masquerading as a trustworthy entity. Online banking.

Identity thefts cost businesses
and consumers estimated
$50 billion/ yr.
To rebuild trust and increase customer confidence in online
transactions, companies should educate consumers and safeguard
against threats
e.g. Citibank shows its customers ways toward off phishing on its
website and identify fraudulent emails
It has also worked with lawyers across the US to develop new
strategies to arrest and prosecute identity thieves

In 2003, Anti-Phishing Working Group
was founded- comprising members
from 400 companies
Understand that all organizations can face crises
E.g. fire how do you evacuate a building?

Some industries are more prone to crises than others
E.g. chemical, pharmaceutical, energy-related (oil, electric)
industries

1. Assess the risk for your Organization
Public-listed companies risk of a sell-off by shareholders,
decrease stock value
Private companies risk of fall in goodwill, resulting in loss of sales

2. Planning for Crises
Brainstorm of areas that are most
likely to be affected by a crisis
Develop ideas about potential
crises scenarios
Choose which crises have greatest potential of occurring



3. Determine Effect on Constituencies
Which constituencies would be most affected by the crisis?

4. Set Communication Objectives for Potential Crises
Analyze Channel of Choice. i.e. press releases
Assign a different team to each crisis i.e. CFO, CEO, Chairman
Plan for Centralization i.e. consistent & avoid conflict message
A Formal Plan i.e. crisis details, media relations



1. Get Control of the Situation
Define and assess the real problem with the use of reliable
information.
(e.g. Perrier lacked the info to define the benzene problem in the first
place, leading to many contradictory statements issued)

2. Gather as much Information as Possible
Information comes from many sources
As different info becomes available, individuals should be assigned to
manage that info
If it takes >2 hours to get the right info, a company spokesperson
should communicate this delay to the media and other key
constituencies as soon as possible

3. Set up a centralized crisis management center
This would have already been state in the Plan
Should serve as a platform for all communications during crisis
All communication should come from this centralized location
A comfortable location for media should be provided


4. Communicate Early and Often
Waiting too late can cause fear and panic to build up among
constituencies
Most of the time you have to communicate before the facts are in
So communicate values e.g. concern for public safety, commitment to
aid people affected by crisis, etc

5. Understand the Medias Mission in a crisis
They are looking for a good story with victims, villains and visuals.

6. Communicate directly with affected constituents
Constituents want to hear directly from the company
Those affected the most adversely by crisis should get top priority

7. Remember that Business must Continue
Anticipate the effects of the crisis on other parts of the business

8. Make plans to avoid another crisis immediately
Immediately after the crisis, post mortem should be done, and plans to
avoid another crisis should be made