Handling corporate crises. How firms regain public confidence after disasters
Boston — A plane crashes, leaving few survivors. As president of the airline, what do you do? If you're Yasumoto Takagi, president of Japan Air Lines, you offer your resignation and pull all advertising for three months.
If you're R. W. Allen, president of Delta AirLines, you pull advertising for a week, set up a command center to field all press inquiries, and assign a Delta employee to take care of the relatives of each of the victims.
Corporate crises have hit board rooms fast and hard in the last few months. Union Carbide, E. F. Hutton, Bank of Boston, airlines like Trans World Airlines, Japan Air Lines, and Delta are learning -- some the hard way -- how to withstand the burning scrutiny of the press, Congress, and the public. How a company can limit the damage to its reputation -- and sales -- is a question that is getting more attention and is even becoming something of a science.
In fact, much of a crisis can be handled before the accident even occurs, says Steven Fink, president of Lexicon Communications and author of ``Crisis Management -- Planning for the Inevitible,'' which is due out next year. A company, such as Union Carbide, knows the types of accidents most likely to occur, and can plan for them.
A company should practice ``war games,'' seeing how executives react when, for example, an accident occurs at a chemical plant. If the company has already figured out who will notify the employees, how to alert news centers such as radio stations, who will handle the press, and other details, it can respond more quickly and contain the crisis.
Art Stevens, author of ``The Persuasion Explosion'' and president of Lobsenz-Stevens Inc., agrees. ``It's the first 12 hours that spell the difference between building public confidence or mistrust,'' he says. A company shouldn't spend those hours setting up systems that could have been planned in advance, he says.
The classic case of a crisis well handled is Johnson & Johnson's response to the poison placed in bottles of Extra Strength Tylenol in 1982. Management immediately assigned 50 people full time to answer the estimated 1,000 calls that would come during the first week. The employees also relayed the latest available information to the press. The company withdrew all television advertising and most print advertising (some ads were locked in) and offered a $100,000 reward for the person who tampered with th e bottles. Chairman James Burke appeared on ``Phil Donahue,'' and other Johnson & Johnson executives gave interviews on local TV stations.
Johnson & Johnson pulled Tylenol capsules off store shelves and redesigned the packaging. When the company reintroduced the capsules two months later, it offered $2.50 coupons to boost sales. These measures helped the company to appear caring, accessible, and as much a victim as the families involved. Tylenol's market share, which dropped 10 percentage points during the ordeal, rebounded to its previous share within months.
The cardinal rule in handling crises is to tell all fast, says Mr. Stevens. ``If there's a mistake, acknowledge it right away. Evading, obfuscating, avoiding the press, will backfire almost immediately because the press is expert at finding out details. If you don't supply information, the media will create their own version from the few facts they have,'' he says.
That's easy for companies that are victims, like Tylenol, Delta, and TWA, whose jetliner was hijacked to Beirut in Jun. But what do companies like Union Carbide, E. F. Hutton, or Bank of Boston do, when blame may lie at the company's feet?
James Callaghan at the public relations firm Hill & Knowlton, which along with Burson Marsteller is a leader in crisis management, says the principle is the same: Stop the flow of product (and advertising, especially if it is a consumer product); keep the public knowing what steps you are taking to rectify the problem; and be accessible.
Union Carbide is learning that the hard way. The company -- which faces billions of dollars in damages after a deadly gas leak in Bhopal, India, killed about 2,000 people and injured as many as 200,000 others -- is handling a more recent crisis a little differently. A cloud of aldicarb oxime, a less-toxic gas, leaked from its Institute, W.Va., plant Sunday. Carbide officials at first said they sounded a warning siren ``in a timely fashion,'' but a day later conceded that it took them 36 minutes. It has given status reports on hospitalized victims and information on the details of the accident and nature of the chemical.
This contrasts with the way the company handled the Bhopal tragedy. Corporate officials initially refused to acknowledge basic facts, thus giving the impression they were hiding something. For example, they failed to note that Union Carbide owned 50.9 percent of the Bhopal plant.
But ``sometimes it's good to be defensive,'' says John Burke of Burson Marsteller. Mr. Burke is working on the Union Carbide case. ``You don't always get a fair shake from the press. And if it's going to lead to international litigation, it's good to minimize your public statements.''
The ideal situation, he says, would be to have a ``downside risk scenario'' prepared, in which a company would outline what possible accidents could happen and how to handle them. ``But from a legal point of view, it's one of the worst things you can do, because the plaintiff's lawyer can dig those up'' and build a case that the company predicted the accident and did nothing about it.
The Bank of Boston has also ``learned some painful lessons,'' says Wayne Taylor, a spokesman for the bank. After the bank was fined $500,000 in February for failing to report $1.2 billion in currency transactions, it kept silent, irking the press and unnerving employees.
``For a week, there was little communication internally while there was bad publicity in the press,'' says one employee. Morale at the bank fell.
A Justice Department investigation of the bank's connections with reputed crime boss Mario Angiulo kept the bank from commenting on the case when it broke in the press.
But about a week later, when the bank was given permission to disclose details and defend itself, it tried to boost morale by circulating internal memos, press releases, and statements reiterating that the bank was still a respected institution.
The bank hired Hill & Knowlton to help it with its future dealings with the press and public. And it hired Covington & Burling, a law firm with expertise in counseling clients before congressional hearings, to prep William Brown and other executives. The bank also pulled all its advertising for several weeks, including its ``First Choice Auto Loan'' campaign.
E. F. Hutton -- which declined to be interviewed for this article and which is still feeling the heat as congressional investigations try to find boardroom responsibility for a check-kiting scheme -- has tried much the same tactic as Bank of Boston initially did. It's low profile may have damaged the company's reputation more than the overdraft scheme, analysts say. Details have trickled out that executives knew about the scheme, though they may not have known it was illegal, thus keeping it in the head lines.
Its recent full-page ad in the Wall Street Journal thanking the company's employees and clients for their support is unlikely to resurrect the company's reputation, analysts say.