Risk managers who are convinced their organization is prepared to withstand a blow to its reputation need only read the daily newspapers to be reminded of what can go wrong and the snowball effect the lack of a comprehensive crisis management plan can have on the outfit's brand, value, employees and community standing.
A case-in-point is Duke University in North Carolina, now in the midst of a public relations nightmare because of its handling of a rape charge by an African-American exotic dancer against white members of the university's lacrosse team. Sadly, the incident provides a perfect example of just about everything that can go wrong when an organization does not have a crisis plan in place, public relations experts warn.
"This is obviously a tragic situation and one that hurts the Duke brand," said Mike Swenson, president of Barkley Evergreen & Partners Public Relations in Kansas City, Mo. "If they had been doing real crisis management, then the moment this occurred, the first person who was made aware of it, whoever that might be, would have made one phone call–to the crisis manager of the organization."
Once contacted, he said the crisis manager would put a previously designated team into action. "That's why you have a process and a team in place, because what tends to happen is nobody knows who to call," he explained. As a result, either nobody gets called, or everyone gets called.
"Either way you have chaos, because either you are doing nothing and the crisis begins to be defined for you, or you have chaos on the inside [of the organization] because you don't have a plan in place," he said. "You have [multiple] parts of the organization trying to solve the problem–none of whom are talking to each other."
He cautioned that organizations first need to recognize that the need for a crisis management team is just as important as the need for a legal, sales, marketing or human resources team–especially since any harm to the brand can drive away clients and prospects, lower a public company's stock price and demoralize employees.
"Everyone needs to understand their role, risks need to be identified, and the team needs to start identifying new risks as they come up–and role play how to handle them," he said, recommending that the team meet at least four times a year.
How can a company tell if it is truly prepared? "To me it's a simple test. I can ask one question," he said. "'Can you give me a list of names of people who are members of your crisis team?'"
Setting up a crisis team presents a great opportunity for risk managers, who can contract in advance to bring in a public relations firm or crisis management experts for added support and expertise in case of a crunch, he suggested.
Mike Hatcliffe, executive vice president with Ogilvy public relations, speaking at a seminar on reputation exposures at the Risk and Insurance Management Society's annual conference in Honolulu last month, explained the difference between an issue and a crisis. "An issue is a situation that needs watching and managing," he said. "A crisis is a real problem that has to be dealt with right now."
If an issue becomes a crisis, much is at stake, he said. In the short term, public and employee health and safety come first. But in the long term, loss of reputation is "probably the hardest to recover," he said.
Mr. Hatcliffe said that much needs to be in place before a crisis erupts, and that one thing an organization can do in advance is cultivate friendships. Friends can include important people in the organization's industry, competitors or members of professional organizations. They can also be members of the community where the company is based, such as academics or reporters from the media.
An important aspect of crisis planning is knowing who will represent the company to the media, and how to work with reporters. "The media is actually an opportunity, not the problem," he noted. "Think about using the media–the message you send can be read by all those other audiences, including your own employees. Also get your allies involved in talking to the media–this is where those friends come in."
He noted that the media will always ask certain fundamental questions–what happened, why did it happen, who is to blame, and what is being done to make sure it doesn't happen again. "The sooner you have credible information to answer those questions, the better shape you'll be in," he said. "That's why you need planning and processes. If the media asks the questions before you know the answers, the answers you give have to be true."
He cautioned that a "no comment" response will hurt and create a negative image. Instead, he advised, "tell them you are holding an inquiry, you are going to investigate, you'll understand before long what happened and make sure it doesn't happen again. And that as soon as those facts are known you will issue a statement."
Keeping all lines of communication open–including the Web–is also critical. In fact, most major organizations prepare emergency Web pages and Web sites in advance, kept "dark" until they are needed in a time of crisis, experts suggest.
Good use of a Web site allows for quick communications with stakeholders in real-time. It allows hundreds or thousands of inquiries to be handled via the Web site instead of the telephone, which would require massive manpower.
Mr. Hatcliffe noted that a U.S. organization that "probably takes reputation risk more seriously than most is FedEx."
At the start of every year, he said, FedEx routinely maps out all the issues the company is facing, and then determines which are the most serious. "You can see the effect on companies that had not worked through those issues," he said, giving Enron as an example.
"While I never worked at Enron, it was fairly clear that Enron had issues for a long time," he said. "When it went into freefall, they really had no response to some clear-cut threats to the company."
An example of a company currently in the news–and not in a good way–is H&R Block. Although it did a good job in the past of managing the potentially damaging issue of loans made at tax time at very high interest rates, the company was "caught unawares" earlier this year by a lawsuit challenging the program filed by New York Attorney General Eliot Spitzer, he noted.
In addition, news broke that the company's own tax return was incomplete and it owed the federal government millions of dollars. "That quickly became a crisis," he said. "When you're in the business of preparing tax returns and you don't do your own right, that's a problem."
Mr. Swenson compared Duke's slow, inadequate response to its situation to an incident with the Jack-in-the-Box fast food chain. The company had a crisis in 1993, when the pathogen E. coli caused the death of two children and the illness of about 160 people. Jack-in-the-Box "made no statements for a week, they blamed their vendor, they refused to help with medical costs," Mr. Swenson said.
As bad as it was, however, he said the chain managed to turn itself around. Today, he noted, it is "considered to have some of the highest food-handling standards of anyone."
Their practice now is to stay ahead of the curve with government regulations, he said.
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