What's a crisis, anyway? - Issues Management: Ten Perspectives

Robert B. Irvine

Face it, you and everyone else are crisis managers. That's what you're paid to do when the computer er system locks up and you're deadline or top management wants to change the annual report after it's gone to the printer. Elsewhere in the organization, one of your key executives may have suddenly resigned to take another job, or the product you were counting on has a major problem in the test market. Those are legitimate crises. The difference is that the public doesn't really care about them and they probably won't generate any news media coverage that stimulates public awareness.

Essentially, any organization that's in business, whether it's a company, a non-profit organization or a government agency, has crises all the time. The business crises we're focusing on are those that, for one reason or another, trigger substantial media coverage.

The premise for making that distinction is that when any crisis goes "public," top management no longer is in control of the situation. Now they, and any number of people in the organization are compelled to respond to the outside publics that are important to the business and have reacted to the media coverage because they feel a sense of shock, anger, surprise, empathy or concern about what has happened. Others, such as your competition, plaintiff's attorneys, politicians, activist groups, labor unions or disgruntled employees, will see an opportunity to take advantage of the crisis at your expense.

Based on that premise, the Institute for Crisis Management defines a crisis as:

A significant disruption that stimulates extensive news media coverage and public scrutiny and disrupts the organization's normal business activities.

Depending on the nature of the crisis, the public scrutiny generated by that media coverage also may have a political, legal, financial and governmental impact on the business that could have a substantial effect on its sales/revenues/funding, stock price, market share and other criteria that measure the viability of your organization.

Crisis events generally fall into two basic types, based on the amount of warning time.

Sudden Crisis

We define a sudden crisis as:

A disruption in the company's business that occurs without warning and is likely to generate news coverage, which may adversely affect:

* Our employees, investors, customers, suppliers and other publics

* Our offices, franchise or other business assets

* Our revenues, net income, stock price, etc.

* Our reputations - and ultimately the goodwill listed as an asset on our balance sheets

Examples of a sudden crisis are:

a. A business-related accident resulting in significant property damage

b. The death or serious illness or injury of management, employees, contractors, customers, visitors, etc.

c. The sudden death or incapacitation of a key executive

d. Discharge of hazardous chemicals or other materials into the environment

e. Accidents that cause the disruption of telephone or utility service

f. Significant reduction in utilities or vital services needed to conduct business

g. Any natural disaster that disrupts operations, endangers employees

h. Unexpected job action or labor disruption

i. Work-place violence involving employees, family members or customers

Smoldering Crisis

We consider a smoldering crisis to be:

Any serious business problem that is not generally known within or without the company, which may generate negative news coverage if or when it goes "public" and could result in more than U.S. $250,000 in fines, penalties, legal damage awards, unbudgeted expenses and other costs.

Examples of smoldering business crises would include:

a. Indications of a sting operation by a news organization or government agency

b. Violations that could result in fines or legal action

c. Customer allegations of overcharging or other improper conduct

d. Investigation by a government agency

e. Action by a disgruntled employee such as serious threats or whistle-blowing

f. Indications of significant legal/judicial/regulatory action against the business

g. Discovery of serious internal problems that will have to be disclosed to employees, investors, customers, vendors and/or government officials

In some instances, crisis situations may be either sudden or smoldering, depending on the amount of advance notice and the chain of events in the crisis.

Examples would include:

Adverse government actions Computer tampering Anonymous accusations Damaging rumors Competitive misinformation Discrimination accusations Confidential information disclosed Equipment, product or service sabotage Misuse of chemical products Industrial espionage Disgruntled employee threats Investigative reporter contact Employee death or serious injury Judicial action against the company Employee involved in a scandal Labor problems Licensing disputes with local officials Lawsuit likely to be publicized Extortion threat Security leak or problem False accusations Severe weather impact on business Incorrect installation of equipment Sexual harassment allegation Grand jury indictment Special interest group attack Grass roots demonstrations Strike, job action or work stoppage Illegal actions by an employee Terrorism threat or action Indictment of an employee Illegal or unethical behavior of an employee Major equipment malfunction Union organizing actions Nearby neighbor, business protest Whistleblower threat or actions

Other Types of Crises

In addition to the sudden and smoldering crises, two other types of crisis need to be mentioned.

Perceptual crises are those in which there is a relatively insignificant problem, but the public perception, when it finds out from the news media, causes the problem to snowball until it is a crisis of major proportions.

Bizarre Crises also can occur. A good example was the syringes that were found in Pepsi cans in 1993. Another was the Tylenol poisonings in 1982. The media feeds on that kind of strange story even though it's hard for them, and for the public they inform, to believe it's true.

The Fallacies in Crisis Management

When the general public and many people in business think of a business crisis - fires, explosions, oil spills and, oh yes, Tylenol, immediately come to mind. The realities, based on research into crisis events since 1990, are that these kinds of crises are a small piece of the pie, literally. Another fallacy is that most crises are the results of employee errors or outside forces that are beyond the control of the organization.

Fires and explosions certainly do occur, and they invariably get prominent coverage on TV news because they are so visual. However, the realities are that they are few and far between compared to smoldering crisis events, they are most likely to occur in a small slice of industry, most are shorter-lived in terms of the days of crisis news coverage and they are more likely to be covered by insurance so the business recovery occurs more quickly.

The other reality about sudden crises is that they are declining in number and are managed much more efficiently when they do break out. The Imperial Chicken plant in North Carolina in 1991, in which 25 employees dies needlessly, revealed the lax standards in state and U.S. federal Occupational Safety and Health Administration (OSHA) programs that resulted in a massive overhaul in their inspection programs and much stiffer penalties for any business that violated the regulations. Plant managers may hate the OSHA inspectors and their unannounced visits, but the fact is it's working and we're getting fewer workplace accident crises as a result.

The Exxon Valdez oil spill in Alaska's scenic Prince William Sound was a wake-up call to both the oil industry and the Coast Guard. They heard loud and clear from elected officials that the public will not tolerate having the industry corrupting the environment because of faulty management of its oil shipping activities. Ask anyone in the business what's different in shipping petroleum now compared to 1989 and brace yourself for a 15-minute answer.

Will there be oil spills in the future? You can count on it. There's always going to be accidents caused by weather, mechanical problems or even human error. But with the stringent requirements now in place, those catastrophes will be fewer in number and much better managed by both the industry and government when they do occur.

The same thing is true for hijacking commercial airlines, robbing banks and other crises in the past. We tend to take the security measures and surveillance equipment for granted, but these costly measures have paid off and substantially reduced the traditional types of business crisis that most people think about when you mention the word "crisis."

But that's not where most of the reaction is in the business crises of the 1990s. If you want to reduce the chances of a business crisis in your organization, you need to be prepared for the sudden crisis that may occur. However, you really need to be focused on the less dramatic, more complicated and ultimately more costly smoldering crises that are likely to be brewing in your business.

The problem is that these smoldering crises often are the result of management decisions, or indecisions. They may be caused by shortcuts to win contracts, questionable actions by top producers or someone who has had an unblemished record with your organization and is close to retirement. In short, they often are tough to detect and then to resolve because they directly or indirectly involve management decisions, and management has a tough time admitting errors because it reflects on their egos and abilities.

The Internet is another area where major crises are being spawned, and already has had a significant negative impact on many companies, nonprofit organizations and government agencies. Damaging messages about your organization, even if only partly true, can be spread within minutes to millions of people, including the news media. You may not know about the problem until your switchboard is being flooded by calls from irate customers, contributors and new organizations wanting to know what's going on.

ASSESSING THE SEVERITY OF A SUDDEN CRISIS

Considering your workday, and your life in general, there probably is not much of an argument that you manage crises every day. The question is: How much of a crisis is that problem in your business? When should you really panic or call upstairs to let top management know? How can you assess the severity of the problem so you don't cry "wolf," but also don't wind up being the victim if someone decides to "kill the messenger."

Luckily that question has been addressed by most government's emergency response agencies, as well as by fire departments, oil companies, chemical companies and other organizations that often find themselves facing situations that are somewhere between minor emergencies and major catastrophes. They use what is called the Incident Command System to define the severity of the emergency. The definition is based on how much it will take in labor and equipment to get the situation under control and the impact that the emergency situation is likely to have on the community.

The Incident Command System can be very effective in managing emergencies. The same basic principles also can be applied to less catastrophic crisis situations, both sudden and smoldering. Consider using them for your business to ensure that everyone who is called in on a sudden or smoldering crisis is talking the same language and responding accordingly.

SUDDEN CRISIS ASSESSMENT

Here are the crisis classifications that ensure consistency in assessment of any sudden crisis situation so that the proper level of communication response can be provided.

Sudden Level 1

The situation can be handled by on-duty employees who are trained to respond to and manage this kind of problem.

Example:

A careless employee leaves oily rags in the storeroom of your office building and spontaneous combustion occurs over the weekend. Luckily a smoke alarm detects the fire, and it is extinguished quickly by the building maintenance.

Sudden Level 2

The situation can be handled by the employees who respond. However, they need help from their managers or fellow employees who have to be called in to work.

Example:

The fire is out, but heat and smoke have damaged valuable office furniture in the storeroom. The owners are irate and threaten to sue.

Sudden Level 3

The situation requires the help of off-duty or off-site people, outside vendors as well as local police, fire and/or emergency crews. The corporate headquarters management and staff will be involved.

Example:

The fire moves through a storeroom vent into the adjoining office area. The fire department is called and puts out the blaze, but it has severely damaged three offices, computer files and records. Local TV news stations cover the story and report that the fire was caused by a careless employee.

Sudden Level 4

The situation is out of control an will affect an extended area and numerous people indefinitely. Local emergency response agencies will be in charge. Governmental emergency response agencies also may be called in to assist.

Normal business will be curtailed and employees diverted from routine duties until the situation is resolved. Other business sites will be affected, workers may have to be furloughed, vendors ordered not to make deliveries, etc.

Example:

The fire spreads throughout the office building, high winds send cinders into nearby neighborhoods causing additional fires and forcing the evacuation of residents in the area. The fire department calls in all available units from the city and surrounding areas to control the numerous fires. Minor injuries are reported.

TV stations feed the story to their networks and it is carried on the evening news programs, with the suspected cause of the fire mentioned in the reports.

Plaintiffs' attorney begin contacting area residents, and government officials send in teams to investigate the cause of the catastrophe. Local politicians up for re-election schedule hearings.

These criteria are deliberately broad because what may seem like a Level 1 or Level 2 crisis when it is first discovered may quickly escalate to a higher level and you need to plan accordingly.

At what point does this sudden crisis scenario escalate from a business problem into a crisis situation? You have to make that call, but our advice is that anything that reaches Level 2 should include procedures for alerting the organization's crisis management and communication team to "stand by - we have a problem and might need you." With anything that is Level 3 or Level 4, the call should be to "Get in here ASAP."

SMOLDERING CRISIS ASSESSMENT

Because of the nature of smoldering crisis situations, the assessment criteria are a little less hard and fast. However the same basic approach can be used to make sure you don't get caught flat-footed or called in at the last minute when something that has been smoldering for weeks is about to erupt and go "public."

Smoldering Level 1

An internal business problem that can be resolved by the management responsible for responding to this kind of situation.

Example:

A disgruntled employee threatens to disclose internal policies to "the proper authorities" that he feels are illegal or unethical unless his grievances are resolved and he receives a pay increase.

Smoldering Level 2

An internal business problem that can be managed by supervisors and executives for that area, with help from outside management or consultants brought in to assess the situation and help resolve it.

Example:

The disgruntled employee files a complaint with the county government employment agency, which contacts the organization regarding the allegations. The employee tells his supervisor he has documents that top management would not want government agencies or the news media to see.

Smoldering Level 3

An internal problem that has the potential of going "public" via the news media and generating negative reactions from government officials, plaintiffs' attorneys, competitors, investors, consumer activitists, labor unions, etc.

The crisis can still be contained, but it could be costly and require specialized assistance beyond the management capabilities that are in place. This assistance may be from corporate headquarters management and staff, outside legal counsel and consultants.

Example:

An attorney for the disgruntled employee indicates his client has documents that substantiate unethical and possibly illegal actions. The attorney is willing to settle the dispute for an exorbitant fee. If they are forced to file suite, the attorney says the documents will be disclosed to the news media.

A copy of one of the documents is provided by the attorney. Company lawyers conclude they were illegally copied by the employee and therefore represent stolen information.

Smoldering Level 4

The crisis is very serious and likely to be disclosed publicly in the near future.

Negative public reaction will have a significant adverse impact on the business for a period of weeks or months. Top management, along with numerous employees and outside consultants will have to be diverted from their normal activities to resolve this situation. The financial impact will be substantial and will have a direct and indirect effect on operating results, stock price, etc.

Example:

The dispute cannot be resolved and the employee's attorneys are preparing to file sit, which will be at any time. They have promised to alert the news media and brief them on the details of their allegations.

A producer for a network television news magazine contacts the organization seeking background information on its business and employment policies. No mention is made of the disgruntled employee.

The county government employment agency ruled in favor of the employee two weeks ago, and the organization's attorneys have appealed the ruling.

Again, these criteria are deliberately broad because what may seem like a Level 1 or Level 2 Smoldering Crisis when it is first discovered often will escalate, and you need to plan accordingly. Even with a Level 1 Smoldering Crisis, we strongly recommend that a concise written "Responsibility to Inquiries" be developed and kept in readiness just in case the situation leaks out and someone wants to know what's going on.

Murphy's Law being what it is, if you develop the response statement, you'll never be asked. On the other hand ...

CONCLUSION:

So now you know what a crisis is, or at least you have a working definition that you adapt to your own needs. The interesting thing about both sudden and smoldering crises is that they may seem distinctly different at first look, but in reality they have a great deal in common. The initial problem, for example, invariably will be followed by aftershocks. And in both cases, the management of the crisis can be honed down to one word - anticipation.

Regardless of whether it's a smoldering or a sudden crisis, or a combination of both, the more you and your business colleagues can anticipate the aftershocks, the more effectively you will be able to manage the crisis and get your organization back to normal in the shortest possible time.

Robert B. Irvine is president of the Institute for Crisis Management, Louisville, Ky. This article is excepted from a book he is preparing for IABC's Communication Bank.

COPYRIGHT 1997 International Association of Business Communicators
COPYRIGHT 2004 Gale Group