The Crisis Manager

Responding to the era of crises in which we now live, The Crisis Manager offers
wise counsel for anticipating and responding to crises as well as taking the steps
required to reduce the impact of these events. Spotlighting the reality of crisis at
levels ranging from local to global, author Otto Lerbinger helps readers under-
stand the approaches and ways of thinking required for successful crisis man-
agement in today’s world. As no organization or individual is immune from
crisis, he guides managers to make good decisions under conditions of high
uncertainty, and to consider the interests not only of stockholders but also of a
wide variety of stakeholders.
With a focus on the threat of crises to an organization’s most valuable asset—
its reputation—The Crisis Manager covers:

• Preparation for crisis, including crisis communication planning

• Physical crises—natural, biological, and technological
• “Human climate” crises, stemming from targeted attacks on an organiza-
tion’s policies, actions, or physical holdings
• Crises due to management failure, including mismanagement, skewed
values, deception, and misconduct

New to this second edition are the use of social media in crisis manage-
ment, and chapters on image restoration strategies and crises stemming from
mismanagement, as well as a comprehensive updating of the entire work. Real-
world case studies provide examples of what worked and what did not work,
and the reasons why.
Written for present and future crisis managers in all types of businesses and
organizations, this resource will be required reading for managers at all levels,
as it prepares them for their crucial roles as decision makers.

Otto Lerbinger is Professor Emeritus at Boston University, specializing in

corporate public affairs and applying the social sciences to management and
communication. He holds a PhD in Economics and Social Science at the Mas-
sachusetts Institute of Technology.
Irv Schenkler, Leonard N. Stern School of Business, New York
University
“Invaluable and comprehensive, The Crisis Manager will provide practitioners,
scholars, and students of reputation management an authoritative assessment
of past crises—with an eye on best practices as well as a litany of mishandled
events.”

Flora Hung, Hong Kong Baptist University

“Lerbinger takes an inter-disciplinary approach in examining the contexts of
crises. Using cases from around the globe, this book applies a holistic view in
discussing the impacts of a crisis on an organization’s reputation and business
operations. Another added value of this book is that Lerbinger takes the proactive
approach in advising organizations about measures for preventing a crisis from
developing in the first place. This is a valuable book not only for public relations
professionals and scholars, but also for business and management executives.”

Damion Waymer, Virginia Tech

“This text does a great job of capturing the breadth and depth of crisis while
striking the perfect balance between theory and application. The case study
approach that Lerbinger uses is most helpful for students being introduced to cri-
sis management, as well as managers using this as a guidebook or resource.”

Janice Barrett, Lasell College

“A must-read for communication professionals who deal with crises in busi-
ness, non-profit, and government roles, and who are responsible for preserving
and protecting the reputations of their organizations. In this time of intense
media crisis coverage—whether it is tornados, scandals, economic fallout, or
political controversy—every communication professional has to be prepared to
forestall, plan, and manage the sudden, unexpected crisis. This book provides
current, real-life examples of familiar crises and valuable insights into success-
ful strategies for managing crises with the media and all other stakeholders. For
any professor, this book is an invaluable resource.”
Routledge Communication Series
Jennings Bryant/Dolf Zillmann, Series Editors

Selected titles in Public Relations (advisory editor James E. Grunig) include:

Strategic Public Relations Management

Planning and Managing Effective Communication Programs,
Second Edition
Austin/Pinkleton

Gaining Influence in Public Relations

The Role of Resistance in Practice
Berger/Reber

Public Relations Theory II

Botan/Hazleton

Crisis Communications
A Casebook Approach, Fourth Edition
Fearn-Banks

Crisis Management by Apology

Corporate Response to Allegations of Wrongdoing
Hearit

Applied Public Relations

Cases in Stakeholder Management, Second Edition
McKee/Lamb

The Global Public Relations Handbook

Theory, Research, and Practice, Revised and Expanded Edition
Sriramesh/Verč ič
The Crisis Manager

Facing Disasters, Conflicts,

and Failures
Second Edition

Otto Lerbinger
Second edition published 2012
by Routledge
711 Third Avenue, New York, NY 10017
Simultaneously published in the UK
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2012 Taylor & Francis
The right of Otto Lerbinger to be identified as author of this work
has been asserted by him in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilized in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and
explanation without intent to infringe.
First edition published by Lawrence Erlbaum Associates, Inc. 1997
Library of Congress Cataloging in Publication Data
Lerbinger, Otto.
The crisis manager / by Otto Lerbinger.—2nd ed.
p. cm.—(Routledge communication series; 2)
Rev. ed. of: The crisis manager: facing risk and responsibility. 1997.
Includes bibliographical references and index.
1. Crisis management. 2. Conflict management. I. Title.
HD49.L468 2011
658.4'056—dc23
2011018811

ISBN: 978–0–415–89228–5
ISBN: 978–0–415–89231–5
ISBN: 978–0–203–22213–3

Typeset in Baskerville & Gillsans

by Swales & Willis Ltd, Exeter, Devon
Printed and bound in the United States of America on acid-free paper
by Edwards Brothers, Inc.
Contents

Preface to the Second Edition xi

PART I
Preparing for an Era of Crises 1
The Connection Between Risk and Crisis Management 2

1 Understanding Crises 5
Proliferation and Severity of Crises 6
Recognizing a Crisis 8
Characteristics of a Crisis—How Managers Are Affected 10
Crisis as Opportunity 14
The Inevitable Involvement of the Media 15
Potential for Public Exposure of Crises Grows 15
Classifying a Crisis 17
Conclusions 22
Appendix to Chapter 1: Guidelines for Analyzing Crises 23

2 Risk Management: Preparing for the Worst 25

The State of Crisis Preparedness 26
Examples of Crisis Preparedness 28
Surveys on State of Crisis Preparedness 29
Components of Crisis Preparedness 30
Essentials of a Contingency Plan 33
Keep a Log—and Learn from Failures 42
Conclusions 44

3 Crisis Communication 45
The Media Can Damage Reputations 45
Crises of Communication Failure 46
Essentials of Crisis Communication 51
viii Contents

Guidelines for Crisis Communication 53

Conclusions 59

4 Image Restoration Strategies in Crisis Communication 61

Defensive and Accommodative Strategies 62
The Art of Apology 63
Analyzing Crisis Types—Marcus and Goodman Study 66
Two Illustrative Cases: Firestone/Ford and Archbishop Cardinal Bernard Law 67
Conclusions 74

PART II
Crises of the Physical Environment 77
Similarities and Differences 77
Coping with Risk 78

5 Natural Crises 85
Major Natural Disasters 85
Hazard Management Strategies 90
Overview of FEMA’s Emergency Management Strategies 90
Mitigation: Reinforce the Physical Infrastructure 91
Preparedness 92
Quick Response—Activate Contingency Plans 98
Relief and Recovery Efforts 99
Conclusions 105
Appendix to Chapter 5: Major Issues in Relief Efforts 106

6 Biological Crises 111

Characteristics of Biological Diseases 111
Major Cases of Biological Crises 114
Strategies for Dealing with Biological Crises 124
Conclusions 130

7 Technological Crises 131

The Rapid Pace of Growth of Technology 132
Relevance of Risk Analysis 133
Three Recent Technological Crises 134
Hazard Management Strategies for Managing Technological Crises 141
The Future for Dangerous Technologies 150
Conclusions 151
Appendix to Chapter 7: Nanotechnology 152
 Contents ix

PART III
Crises of the Human Climate 155
Application of Issues Management 156

8 Confrontation Crises 159

The Dynamics of Confrontations 160
Case Studies 164
Managing Confrontation Crises 174
Conclusions 183

9 Crises of Malevolence 185

Terrorism 185
Varieties of Malevolent Acts 187
Strategies for Countering Acts of Malevolence 200
Conclusions 206

PART IV
Crises of Management Failure 207
Damaged Relationships 208
Central Role of Ethics 209
Measuring Degree of Success 212

10 Crises of Mismanagement 215

Cases of Mismanagement 216
Strategies for Responding to Crises of Mismanagement 226
Conclusions 233

11 Crises of Skewed Management Values 235

Cases of Skewed Values 236
Strategies for Managing Crises of Skewed Values 246
Conclusions 250

12 Crises of Deception 253

Cases of Management Deception 254
Response Strategies to Crises of Management Failure 270
Conclusions 277
Appendix to Chapter 12: Risk as Seen by Behavioral Economics 278
x Contents

13 Crises of Management Misconduct 281

Major Cases of Misconduct 283
Strategies for Handling Management Misconduct 292
Conclusions 297

PART V
Conclusions 299

14 Learning from Crises 301

Lessons Learned from Crises 303
Organizational Renewal in the Aftermath of a Crisis 310
Don’t Waste a Crisis! 313

Notes 315
Index 365
Preface to the Second Edition

We are living in an era of crises, as daily news headlines remind us. Crises have
become an unavoidable part of our private and organizational lives. Our atten-
tiveness to messages on our cell phones and eagerness to remain in contact with
friends on Facebook or Twitter reflect not only our desire for connectiveness
but also our need to avoid unsettling “surprises.” Over the centuries of man-
ning watchtowers and listening to “Cassandras” to warn us of approaching
enemies and dangers, we share the characteristic of animals always on the alert.
With more things changing in our environment and more alarms sounded, we
recognize the imperative of guarding against crises.
This book’s first edition described this crisis awareness in the following
paragraphs:
As crises become more numerous, visible and calamitous, organizations have
no choice but to accept them as an inescapable reality that must be factored
into their planning and decision-making. This book is written for present and
future crisis managers—men and women who will be drawn into that inevi-
table occurrence and whose performance will determine their organization’s
future as well as their own. It is also written for all managers because the lessons
learned in crisis management add to their qualifications as policy makers and
decision makers.
The stability and predictability sought by managers in their dealings with the
marketplace and socio-political environment are less and less attainable. There
are now so many discontinuities in the business environment that an extrapo-
lation of past trends can no longer be trusted to predict the future. Managers
must learn to make decisions under conditions of high uncertainty and to con-
sider the interests not only of stockholders but of a wide network of stakehold-
ers—people who are affected by a company’s decisions and actions and who,
in turn, can affect the success of the company.
The imperatives of crisis management are still relevant today. But the dan-
gers have become more urgent and the prescriptions more difficult. As the sec-
ond decade of the 21st century begins, crises have become more numerous and
more widespread and hazardous. In addition to businesses, nonprofits have
also succumbed to crisis-producing conduct and, not surprisingly, government
xii Preface to the Second Edition

continues to be rife with corruption and scandals. No organization or person is

immune from crises.
Furthermore, the frantic pace of globalization has spread crises throughout
the world. Some are biological crises, like SARS; others are management fail-
ures, like Sanlu’s baby formula scandal. As crises cross borders, they become
more dangerous because they affect more institutions and people. The best
illustration is the 2008 financial crisis, which, although starting in the United
States, has threatened the economic stability of financial institutions worldwide
and caused widespread hardship. Recovery from such a crisis requires the joint
effort of the private and public sectors of many nations. One consequence is
that the free-market system enjoyed by business will be constrained as govern-
ments impose more regulations.
Several forces and trends create greater uncertainties and possible dan-
gers. New technologies, such as bioengineering, while holding much promise
for feeding growing world populations, continue to face opposition because
their underlying science contains many uncertainties that might pose dangers.
Another development is that new diseases, such as H1N1, seemingly spring
up from nature spontaneously. They must be added to natural disasters as a
threat to life. Because people constantly travel throughout the world, diseases
are readily transmitted globally. This edition of the book includes a new chap-
ter on biological crises as one of the crises of the physical environment.
Climate change is another force that has widespread consequences. It causes
weather-related disasters, threatens the permanency of some land areas, and
endangers the health and lives of all living creatures. Some areas of the world,
not only Bangladesh and Greenland but also regions like Florida, face inunda-
tion. And even as the world land mass shrinks, world population is expected to
increase from the current 6.5 billion to an estimated 9 billion by 2050, creating
the potential for conflict as the availability of many resources, such as wheat,
rice, oil and water, declines.
A case can also be made that the morality and trust that hold organizations,
communities, and nations together are eroding. This is evidenced in the growth
of deception and misconduct in business, government, and social institutions.
These trends and forces create an enormous challenge for the world’s leaders
and managers. Big and rapid changes create conditions that produce crises. A
feature of crises is that they require new approaches and new ways of thinking.
Crisis managers have learned that they must go beyond “single-loop” learning,
which simply finds better ways of doing what the organization is already doing,
and engage in “double-loop” learning which requires them to examine what
can be done to change what is happening. This requires managers to supple-
ment their existing practices with strategies that help them understand and
respond to the new forces. More monitoring of the socio-political environment
and communicating with diverse stakeholders, which are major aspects of crisis
management, will be required. Along with these added activities, organizations
may have to reconsider their goals and values, including the audiences they
 Preface to the Second Edition xiii

serve and the environments in which they operate. Even now, large companies
such as General Electric Co. and Duke Energy Corp. are expressing support for
a climate bill that would curb the use of fossil fuels.1
This reconsideration of basic premises under conditions of high uncertainty
requires an integrated approach to managerial decision-making. Organizations
must ask themselves: Does management concentrate so heavily on market and
economic factors that it ignores political repercussions and social consequences
of decisions? Is management so self-centered that it fails to consider the interests
and concerns of employees, customers, local citizens, and other stakeholders?
Does management have such a bias toward short-term profitmaking that it
ignores what happens to its reputation and, therefore, to its long-term profit-
ability and chances of survival? By withholding important information from
its customers and other stakeholders, does it deliberately or unwittingly prac-
tice deception? Is it so amoral or immoral that it commits misdeeds that are
unethical or illegal? The answers to these questions reflect the essence of crisis
management.

* * *

This book is organized into four parts. Part I deals with the critical subject of
“Preparing for an Era of Crises.” Chapter 1 discusses the meaning and nature
of crises and the economic, political, social and cultural conditions that have
given rise to an era of crises. This book views crises as a threat to an organi-
zation’s most valuable asset—its reputation. The implications of major crisis
attributes—uncertainty, suddenness, and time compression—are discussed.
Because crises require speedy decision-making, all that can be decided in
advance should be anticipated, which is the subject of contingency planning—
preparing for the worst—in Chapter 2.
Careful and responsible crisis communication is an indispensable activity in
all crises because continued operations and safeguarding of one’s reputation are
at stake. Chapter 3 discusses the basics of crisis communication. A major devel-
opment is that crisis specialists no longer restrict themselves to communications
through the traditional print and broadcast media. They increasingly employ
the new media of email, blogs, Facebook, Twitter, YouTube, MySpace and
other applications in the Internet. More attention is also given to communica-
tion with specific groups, such as employees and government agencies. This
edition of the book has also added a new chapter (Chapter 4) that discusses new
image restoration strategies and the art of apology that are needed in dealing
with aggrieved individuals and angry people.
Part II in the first edition included chapters of all seven types of crises. This
typology was the core of the book. Its intention was to enable a manager to
identify the type of crisis faced and then to choose the most effective response
to it, much as a physician prescribes appropriate remedies to an illness that has
been diagnosed.
xiv Preface to the Second Edition

In this revised edition, the different types of crises are divided into three parts:
those dealing with the physical environment (Part II), those dealing with crises
of the human climate (Part III), and those dealing with management failure
(Part IV). The sequence generally moves from crises over which humankind
and management have little control to those over which they have much con-
trol. The first two groups refer primarily to external forces and the third primar-
ily to internal causes.
The crises of the physical environment in Part II include natural crises, which
are universally recognized, and two others: biological crises (a new chapter—
6) and technological crises. Biological crises share the characteristic of natu-
ral disasters in that they seemingly spontaneously spring up from nature and
threaten life. They also require some of the same responses as natural disasters.
Chapter 7 on technological crises deals with humankind’s application of the
physical sciences to advanced technologies—aerospace, nuclear, biotechnol-
ogy, and nanotechnology—rather than routine industrial accidents.
Part III, Crises of the Human Climate,2 deals with individuals and groups
that seek change in a target organization’s policies and actions—or, sometimes,
want to harm an organization. Chapter 8 discusses a variety of confrontations
by labor unions, environmental groups, animal groups, and others—confron-
tations that are often considered normal in our democratic society. Conflict
resolution strategies have been developed to resolve contentious issues. When
confronting groups use radical tactics, they escalate to crises of malevolence,
which are discussed in Chapter 9. Malevolence, moreover, includes violent
groups that engage in terrorism and other means to achieve their goals, which
includes the desire to harm institutions and people.
Part IV, Crises of Management Failure, includes four chapters: crises of mis-
management (Chapter 10), crises of skewed management values (Chapter 11),
crises of deception (Chapter 12), and crises of management misconduct (Chap-
ter 13). Chapter 10 is new in this edition, added because so many crises are
simply the result of negligence and misguided or poor management. It serves as
an overview of some basic management principles, which when violated expose
incompetence or negligence. Chapter 12 highlights two major crises of decep-
tion in this decade: Enron Corp. and the financial system. Deception is made
easy when billions of dollars, Euros and other currencies can be transferred
to anywhere in the world in a matter of seconds. Some deceptions became
outright fraud and therefore serve as examples of misconduct in Chapter 13.
This chapter includes a discussion of Madoff’s Ponzi scheme and other forms of
misconduct, such as bribery and corruption.
Each of the typology chapters (Parts II, III, and IV) defines the distinguish-
ing features of a particular type of crisis, provides illustrative cases, and, most
important, discusses management response strategies and tactics most relevant
to each type of crisis. Some crises may fall entirely under one type, such as an
earthquake, which clearly qualifies as a natural crisis. Other crises will primar-
ily be of one type but contain elements of one or more other types. All crises
 Preface to the Second Edition xv

contain elements of management failure. For example, Hurricane Katrina was

unquestionably a natural disaster, but it was also a case of management fail-
ure because governments on all levels inadequately prepared for such a cata-
strophic disaster nor effectively responded to it.
The response strategies of each chapter draw on a wide range of disciplines:
hazard management, risk assessment, engineering, social psychology, sociology,
political science, economics, public relations, and general management. This
interdisciplinary nature of crisis management presents a learning challenge to
all managers and explains why group decision-making is often desirable.
The purpose of three chapters in the first edition of the book, titled “Improv-
ing Management Performance,” was to discuss the integrative concepts of these
disciplines. The first chapter was on “risk management and communication;”
the second on “ethics: a moral code for executives,” and the third on “issues
management and stakeholder relationships.”
In this revised edition these integrative concepts are discussed in the context
of where they apply. For example, risk management is mainly applied to tech-
nological crises. Managers learn to overcome the arrogance of expert knowl-
edge by understanding that people are subjective in their assessment of risks,
which explains why risk communication has become a specialized field. Ethics
is included in the introduction to crises of management failure in Part IV, but
it has general application throughout the book. Managers must learn how the
basics of a sense of right and wrong behavior must be incorporated into their
organizational cultures and overseen by their governing boards. Issues manage-
ment is mainly applied to crises of confrontation and malevolence. The broader
insights of issues management are also applied to improving surveillance of
early warning signs of crises.
This revised edition includes more references to the growing manage-
ment literature on crises; for example, on repairing relationships within and
between organizations. Reference to the newly recognized field of behavioral
economics—which shows the danger of assuming that people act rationally—
is also included in Chapter 12 on deception.
Part V, “Conclusions,” summarizes the management and communication les-
sons learned from crises and shows how crisis management contributes to the
practice of everyday management. A crisis manager is one who can assimilate
and synthesize many kinds of information, who is able to work with a wide variety
of individuals and groups both inside and outside the organization, and who can
take a long-term as well as a short-term time perspective. As the many crises pre-
sented in this book are examined and reflected upon, the crisis manager becomes
aware of the dangers inherent in existing management thinking and acting. The
hope is that by seeing the limitations of these approaches, managers will be ready
to accept new modes of thinking and behaving that will reduce the likelihood of
crises and, more generally, improve the quality of decision-making.
Various groups of professionals will find selected chapters of particular
interest to them. Public relations professionals will find the chapters on crisis
xvi Preface to the Second Edition

communication and image restoration strategies (Chapters 3 and 4) especially

helpful. Executives and engineers in the chemical industry and bioengineering
will find Chapter 7 on technological crises particularly relevant in determining
public reaction to new technologies or devising better safety and security mea-
sures. The accounting profession will recognize the need for renewed efforts
to provide greater transparency of financial information to prevent bankrupt-
cies and panic. The book’s overriding purpose is to inspire all managers to
enlarge their perspectives and response repertoires to include those of the crisis
manager.
Part I

Preparing for an
Era of Crises

The word crisis is embedded in our vocabulary. People are increasingly saying,
“I have a crisis,” rather than “I have a problem.” They seem to realize that
today’s problems are graver and more difficult to cope with. The media reflect
this situation as shown by a Nexis search of the word crisis that yields almost
one thousand entries for just one week.
Crises are more omnipresent because humankind has been pushing out on
all kinds of boundaries. Geographically, missionaries have gone to all corners of
the world. So have enterprises that obtain resources from all over the world and
seek to sell their products and services in world markets. Their supply chains
are long and distribution centers span the Earth. World population is growing
rapidly putting a strain on resources of all kinds, including food. The British
economist, Thomas Malthus, appears more frequently in journals because he
warned that population growth would outstrip the production of food.
Another push has come from population shifts as people move to more
hospitable and beneficial regions, often causing problems of assimilation and
coexistence of differing cultures. Communication channels have extended to
all corners of the Earth, making it easy to obtain almost any kind of informa-
tion, but also making it difficult to conceal problems and wrongdoing. Marshall
McLuhan’s global village has truly materialized. Change produces strains that
can easily erupt into crises. Just as plates on faults of the Earth’s crust cause
earthquakes, tension points caused by human interaction can flare up.
Awareness of crises has grown as science discovers new mysteries both in
outer space and the inner space of cells. Astronomers have shown what a small
part of the universe Earth is, and environmentalists warn how fragile it is. We
are warned that asteroids from outer space can collide with Earth and decimate
living creatures, as happened to the dinosaurs. Physicists, using colossal facilities
with such awesome names as “heavy ion relativistic collider,” seek to discover
the smallest unit of matter and how the Earth was created by the “big bang”
millions of years ago. In the meantime, medical researchers and psychologists
are using MRIs to penetrate the intricacies of the brain. They are discovering
that humans are not as rational as commonly thought and are instead “wired”
to respond emotionally to crises just as their evolutionary predecessors did.
2 Preparing for an Era of Crises

Science and technology are opening up new areas that create both uncertainty
and vulnerability.
Human beings may become overwhelmed by the changes and accompany-
ing risks they encounter. They may recognize entropy—a trend toward disor-
ganization—or sense that chaos is near. Some people may respond by engaging
in risk aversion, blotting out unpleasant stimuli. This reaction carries the same
danger as the psychological state of repression. Awareness of the actual dis-
turbance disappears, but it nevertheless manifests itself in unhealthy and dys-
functional attitudes and behavior. Rational problem solving is impeded. People
may engage in rational concentration on the important task at hand and simply
ignore, at least temporarily, “peripheral” matters. Economists have long used
the magic wand of peribus paribus—let other things remain the same—to do this.
They also limit their cognitive burden by thrusting some variables under the
heading of externalities. These solutions, however, do not work during a crisis,
because a crisis is a holistic event that combines a wide variety of variables. One
of the purposes of risk management—and contingency planning—is to try to
identify the operative variables.
The purpose of Part I of this book is to understand the nature of crises, how
to prepare for them, and how to limit the damage. Chapter 1 describes the
types of crises organizations and the people in them are likely to face; also the
stress caused by the key characteristics of crises—uncertainty, suddenness, and
time compression. Chapter 2 discusses how the surprise accompanying crises
can be reduced through risk management planning—deciding in advance what
the most likely threats are and how they can be averted or minimized. The
essentials of a contingency plan, which deals with specific crisis situations, are
outlined so that organizations can prepare for the worst. Chapters 3 and 4 deal
with an unavoidable aspect of a crisis—how it is reported by the both tradi-
tional and social media. The aim of an organization is to preserve its reputation
and ability to continue to function effectively.

The Connection Between Risk and

Crisis Management
Crisis management begins with risk management planning—asking about all
the “what ifs” that might occur to an organization and the dangers it faces in its
socio-political and human environment. Crisis management overlaps with risk
management in focusing on the following concerns and activities:

• Reducing vulnerability to natural disasters;

• Engaging in surveillance for biological diseases;
• Considering such “upstream” measures as alternative technologies to
lessen the chances of a technological disaster;
• Evaluating an organization’s vulnerability to confrontation;
• Establishing surveillance systems to warn of possible malevolent acts;
 Preparing for an Era of Crises 3

• Reevaluating optimistic risk analysis premises to ward off crises of skewed

values and crises of deception; and
• Intensifying detection and control systems to discourage management
misconduct.

The objective of these concerns and activities is reducing the risk faced by
an organization. These risks may take the form of loss of sales, reduction in
a company’s share value, destruction of human capital, an intensified regula-
tory environment, and loss of reputation. Like risk managers, crisis managers
identify these risks, assess them, and seek to mitigate them. Some differences in
degree exist, however, between the two types of managers. Risk managers are
better trained to assess risks involving mathematical calculations—they know
about “quants.” Crisis managers know what to do when vulnerabilities turn
into actual crises. They know how to communicate with the media, deal with
government authorities, and limit damage to an organization’s other stake-
holders. They know how to protect and repair an organization’s reputation.
The best crisis managers—those with a knowledge of management—also know
what changes are needed in corporate governance, organizational culture, and
information technology.

Three Obstacles Facing Risk Recognition

The joint message of risk and crisis management is that managers must have
the courage to acknowledge the risks they face and to deal with them straight-
forwardly. They must overcome several kinds of mindsets that obstruct the hon-
est analysis of risk: fatalistic attitudes, belief in a “naturalistic syndrome,” ego
defenses, fear of disrupting group relationships, and unwillingness to impede
the achievement of immediate goals.
A fatalistic attitude asserts that what will happen is bound to happen. It is
most clearly manifested in attitudes toward natural crises. Public authorities and
the public often feel that certain disruptions and disasters wrought by nature
are inevitable and must simply be endured. Closely related is the naturalistic
syndrome, which makes people accept the forces and consequences of nature
and dissuades them from intervening. For example, a woman in New England
voted against fluoridated water in the belief that “nobody should fool around
with God’s water.” And there are still some economists and businesspeople who
want to let business cycles follow their natural course, believing that thereby sick
businesses will be weeded out and healthy ones allowed to survive. For this rea-
son, some free market advocates opposed the plan by the Federal Reserve Bank
and the Treasury Department to bail out major banks and financial institutions
when the financial system was on the brink of collapse. The main trouble with
such mindsets is that the possibility of human intervention is forfeited.
Blindness or resistance to risk is further explained by ego defenses, which
ward off unpleasant and threatening information and events, as well as
4 Preparing for an Era of Crises

“affiliative constraints” that disrupt group relationships. Regarding the latter,

Irving Janis warns:

Whenever a crisis arises, policymakers are likely to seek a solution that will
avert threats to important values in a way that will not adversely affect
their relationships with “important people” within the organization, espe-
cially those to whom they are accountable, and that will not be opposed by
subordinates who are expected to implement the new policy decision.3

A final reason for the unwillingness to face risks is the reluctance to interfere
with the achievement of immediate goals. As seen with the procrastination
on the O-ring of the Challenger spaceship, fatal flaws in design were tolerated
so that the organization could move forward unimpeded. As discussed in
contingency planning and crises of skewed values, management must be will-
ing to consider “worst-case scenarios” in its risk assessments. It must encour-
age engineers and line managers to give greater weight to safety factors and
not treat negative evaluations as disruptive of team loyalty or akin to whistle
blowing.

Looking Toward the Future

Comprehensive crisis management looks beyond the immediate crisis event
and preceding contingency planning with the aim of reducing the incidence of
future crises and strengthening an organization’s ability to cope with those that
do occur. Many of these efforts involve improved communications during a
crisis; others involve the post-crisis phase of rebuilding.
The positive side of crises is that they prepare an organization for change.
The Chinese symbol for crisis is taken earnestly, for it signifies opportunity as
well as danger. The trauma of a crisis provides the stimulus and motivation
for rebuilding, improving, and even transforming the organization. Its mem-
bers develop a readiness for change. Resistance is reduced because change is
legitimized. For this reason many a leader has maneuvered an organization
into a crisis state even when there was no real crisis. By such devices as rear-
ranging and reinterpreting statistics, license is obtained to undertake draconian
measures.
Certainly when a crisis erupts, top management should seize the opportunity
to restructure company thinking. Management must determine what organiza-
tional changes are needed, e.g., strengthening corporate governance, setting up
new units, revising managerial roles, improving control systems, and instilling a
new organizational culture. These have been among the response and renewal
strategies discussed in conjunction with the various crisis types discussed in this
book.
Chapter 1

Understanding Crises

Each year the news media report on natural disasters, biological diseases, tech-
nological mishaps, human conflicts, and management failures. When these
events are severe and threaten vital values, they are classified as crises. Unfortu-
nately, they seem to be happening more frequently and threatening to become
more catastrophic. Humankind and no type of organization are immune from
them.
In recent years, crises of management failure were the most numerous and
widespread. Leading the list was the financial crisis of 2008, which started in
the United States and caused the collapse of Bear Stearns, Lehman Broth-
ers and several smaller banks, such as IndyMac. It was accompanied by the
scandal of Bernard Madoff whose illegal Ponzi scheme accounted for losses
of over $50 billion. These were accompanied by a cascade of stories about
food poisoning from beef, tomatoes, jalapenos, pancake mix, bottled water,
and melamine-tainted eggs. A meat company, Topps Meat Co., which had
been in business more than 60 years, was forced out of business in early
2008.
The more familiar type of crisis, natural disasters, continued to menace
people. Major ones were the May 2008 earthquake in Sichuan, China, which
killed over 80,000 people and left over 5 million homeless; the Indian Ocean
tsunami in 2004 which killed almost 230,000 people and displaced 1.7 mil-
lion; and Hurricane Katrina in 2005 which caused widespread destruction to
the city of New Orleans and its environs. Another kind of crisis, malevolence,
manifested itself on a global scale by terrorism and on a local level by violence
in the workplace and schools. The Virginia Tech massacre in 2007 dramati-
cally demonstrated that no type of organization was immune to violent acts.
Managers in all kinds of organizations are slowly—all too slowly—recogniz-
ing the likelihood that at some time they will face a crisis. They must be ready,
at an instant, to serve as crisis managers. They must acquire a crisis mental-
ity that recognizes unwanted uncertainty and risk and a readiness instantly to
respond to an erupting crisis.
6 Preparing for an Era of Crises

Proliferation and Severity of Crises

The environment surrounding people and organizations is becoming increasingly
complex and unstable. Too many things are changing: all products, not only high-
tech, have shorter life cycles; new technologies such as bioengineering and nano-
technology embody risks that are increasingly difficult to calculate; government
regulation, deregulation and reregulation continue to change the rules of the mar-
ketplace; competition is intensifying and has become global; consumerism, civil
rights, animal rights, and other social movements require greater and quicker
social responsiveness; concern about global warming is causing the substitution of
the heralded goal of economic growth with the goal of sustainable growth. When
these challenges overwhelm the ability of managers to cope with them, a crisis
occurs. Their aim is to restore predictability and stability in the environment so
they can concentrate on regular operations to achieve organizational goals.

Trends That Promote Crises

Pressures of the Free-Market System

Managers are taking larger risks to meet the incessant pressure from stockhold-
ers to meet quarterly profit goals. Furthermore, incentive systems, especially
in the financial industry, have the perverse effect of encouraging risk-taking.
Executives are rewarded with bonuses when they meet or surpass profit expec-
tations and increase stockholder value. In the banking industry, mortgage origi-
nators earn a flow of commissions by processing a greater number of mortgages.
They do so without risk to themselves because mortgages are “securitized” and
passed on to other financial institutions. They rationalize that they can avoid
short-term and long-term risks and thereby avert a crisis.
This mentality expresses faith in the automatic functioning of the free-mar-
ket system, heralded in the U.K. by Margaret Thatcher and Ronald Reagan
in the United States. With the slogan “Get Government Off Our Backs,” they
convinced citizens that economic growth and prosperity would follow. It did,
but not for everyone and not without spawning a series of financial crises. In the
mid-1980s some banks, notably Continental Illinois, faced runs on their depos-
its. By the end of the 1980s savings and loan associations collapsed by the doz-
ens. In December 2001, Enron, the United States’ seventh largest corporation,
filed for bankruptcy. And to top them all, the financial crisis of 2008 threatened
the economies of the United States, Europe, and many other nations. The free-
market system is now on trial, threatened by government regulations intended
to avert future financial and economic crises.

Globalization
Globalization fosters crises in a variety of ways. On a human level, international
travel accelerated the spread of SARS in 2002 as travelers from China flew
 Understanding Crises 7

to international airport hubs in Toronto, New York and London, and then
to dozens of further destinations. The same dispersion occurred with “toxic
securities” sold by U.S. investment and commercial banks that infected finan-
cial institutions in Europe and elsewhere. Bank failure virtually bankrupt
Iceland.
Increasingly, firms in one country are linking with suppliers and customers
through a complex nexus of strategically critical interfirm relationships.4 As
supply chains become more distant and longer, they become vulnerable to all
kinds of disruptions. Some are caused by natural disasters. The earthquake in
Taiwan in 2004, for example, destroyed factories and seriously disrupted the
supply of motherboards, chipsets, and an array of other vital computer parts.
When breaks occurred in three vital undersea Internet cables that connect
South Asia to the outside world, India’s call centers and companies dependent
upon them discovered their vulnerability. Some call centers were forced to shut
down for hours, if not days.5 A 2007 study by Accenture, a global management
consulting firm, found that 73 percent of the executives interviewed had expe-
rienced a serious supply-chain disruption in the past five years. Boeing’s embar-
rassing two-year delay in rolling out its Dreamliner jet has been attributed to its
aggressive strategy of outsourcing parts of the plane, such as the tail section, to
hundreds of suppliers.6
The usual recommendation for avoiding disruptions is to build redundan-
cies, but such efforts are often delayed in a world of cost-cutting. Corpora-
tions are advised to seek resilience through planning, flexibility and creative
management of risk.7 Some companies have decided to “go back to the future”
by reviving “vertical integration”—a strategy whereby a company controls
materials, manufacturing and distribution. Boeing is partly doing this, having
bought a factory and a 50 percent stake in a joint venture that makes parts for
the troubled airliner. It also bought a factory in Charleston, South Carolina,
that makes the rear fuselage sections for the Dreamliner.8

Nonprofits No Longer Immune

Nonprofit organizations are not immune to crises, especially scandals. In 2007,
a new CEO of the American Red Cross was forced out six months after taking
the job when he admitted to an inappropriate personal relationship with an
employee.9 Even universities are no longer immune. The dean of the Univer-
sity of San Diego’s business school resigned after being arrested for trying to
buy cocaine. His misconduct was ironically at odds with the school’s descrip-
tion of its M.B.A. curriculum as being “focused on developing socially respon-
sible leaders who make thoughtful decisions that impact their organization and
the world at large.”10 The value of reputation can’t be overstated says Angel
Cabrera, president of the Thunderbird School of Global Management. “All
we’ve got as business schools is our reputation.”11
8 Preparing for an Era of Crises

Severity of a Crisis
Crises are described by the amount of damage caused immediately and over
periods of time: a few days, weeks, months, years, or permanently. Expert judg-
ment is required to assess the impact of a crisis. The media typically describe
the severity of a crisis by reporting on the number of deaths and injuries, loss of
property, and other financial losses such as drop in sales. Other consequences
should also be added. A comprehensive study, covering public-profit, private-
nonprofit, and private-profit organizations, listed these:

• major restructuring of an organization;

• severe budget cutbacks/shortfall;
• intense scrutiny from regulators;
• potentially damaging civil litigation;
• re-election/reappointment of CEO;
• forced resignation of executive;
• public protests;
• intense scrutiny by regulators;
• major relocation of operations;
• political controversy.12

The severity of a crisis increases when not only parts of an organization are
affected but the entire system. Accordingly, Thierry C. Pauchant and Ian I.
Mitroff in Transforming the Crisis-Prone Organization define a crisis as “a disruption
that physically affects a system as a whole, and threatens its basic assumptions,
its subjective sense of self, its existential core.”13 By the system as a whole they
mean an entire plant, organization, or industry, rather than a self-contained
part of that system. Three Mile Island and Chernobyl, for example, threat-
ened the environment and undermined the future of the entire nuclear power
industry. Pauchant and Mitroff recognize that managers must become aware
of the faulty foundations of their basic assumptions if they are to avert a severe
crisis.

Recognizing a Crisis
A manager knows when a crisis hits. It may be visibly apparent in an explosion
or tidal wave, or it may be known when a phone rings that reports an accident
or incident. The news media may be the first to report an event and ask for
details, such as when a customer becomes ill after eating in a company’s restau-
rant. A cable news show, eager to be the first to disclose an incident, may report
on insider trading by a company’s top executive. A staff member may discover
that its products are attacked on Facebook or a blog. In all these situations, a
manager must immediately decide whether the situation merits a crisis desig-
nation. If he or she senses “big trouble,” then it’s a crisis. It’s a serious crisis if
 Understanding Crises 9

the organization’s very existence is imperiled. The crisis then demands full
attention as normal activities are placed on autopilot or suspended.

Formal Definitions
Formal definitions of a crisis help a manager to recognize when he or she faces
a crisis. Definitions contain a combination of these elements:

• the event is sudden, unexpected and unwanted;

• decisions must be made swiftly;
• it is a low-probability, high-impact event;
• it has ambiguity of cause, effect and means of resolution;
• it interrupts the normal operations of an organization;
• it hinders high-priority goals and threatens an enterprise’s profitability,
growth, and survival;
• it may cause irreparableness and degeneration of a situation if no action is
taken;
• it creates significant psychological stress.14

This book’s definition emphasizes a common denominator of most crises—that

an organization’s reputation is endangered. Thus, this book’s definition is that
a crisis is an event that brings, or has the potential for bringing, an organiza-
tion into disrepute and imperils its future profitability, growth, and, possibly, its
very survival. This definition explains why crisis communication is sometimes
mistakenly confused with the larger scope of crisis management. Reputation is
an intangible asset that increases an organization’s financial value and the price
of its products and service. Loss of reputation is a very serious matter. When a
crisis occurs, the worth of an entire organization and its future prospects goes
through a process of swift reassessment by its investors, other stakeholders, and
the public. As Warren Buffett stated, “It takes 20 years to build a reputation and
five minutes to ruin it. If you think about that, you’ll do things differently.”15
Reputation represents people’s awareness of a person or organization, favor-
able attitudes toward it, and positive attributes associated with it. All the past
contacts of an organization with its various constituents contribute to its repu-
tation, as do advertising and other communication campaigns. Reputation is
included in the bookkeeping account called Goodwill, which is listed as one
of the intangible assets on an organization’s financial statement. The value of
Goodwill is reflected in the higher price a buyer is willing to pay beyond the
value of its physical assets.
Reputation can be eroded in a matter of hours through a crisis event. A study
by Charles J. Fombrun, executive director of the Reputation Institute, and
Naomi A. Gardberg shows the decline in the post-crisis market value of several
companies that have faced highly publicized crises. After product tampering
of Tylenol in 1982, Johnson & Johnson lost $l billion (14 percent), and again
10 Preparing for an Era of Crises

in 1985 after a second tampering event, $1 billion. In the first week after the
Exxon Valdez oil spill, Exxon Corp.’s value dropped $3 billion (5 percent). And
after scientists hinted at a link between cell phones and brain cancer in 1995,
Motorola suffered a $6 billion (16 percent) drop.16 As Fombrun and Gardberg
explain, “Clearly these market losses incorporate investors’ expectations of
future cleanup, legal and reparation costs. They also factor in anticipated losses
from weakened perceptions among current and potential customers, employees
and communities.”17

Characteristics of a Crisis—How
Managers Are Affected
The mental and emotional state of a manager facing a crisis situation further
describes a crisis. He or she may experience uncertainty, confusion, and even
chaos, which is accompanied by a sense of “loss of control” and even panic.
Three aspects of a crisis are particularly responsible: suddenness, uncertainty,
and time compression.

Suddenness
A crisis always appears to arise suddenly, as emphasized by Bart J. Mind-
szenthy, T.A.G. Watson, and William J. Koch’s book, No Surprises: The Crisis
Communications Management System.18 Other authors also refer to suddenness.
James E. Lukaszewski, a corporate communications counselor, states, “Crises
generally happen explosively in an instant,”19 and Chris Nelson, senior vice
president/director, North American issues & crisis management network at
Ketchum, states, “Today, an issue can go from zero to 60 overnight.”20 In
the famous Tylenol case, Johnson & Johnson could not foresee when some
malevolent person would taint its Tylenol capsules with cyanide. Neither
could Pepsi Cola foretell when someone spotted a syringe in a can and
blamed Pepsi for its presence. These crisis events seemed to occur instanta-
neously.
The suddenness or unpredictability of a crisis, however, should not be over-
stated. Antecedents must be considered. There may have been an incremental
build-up of problems or the presence of a dangerous or risky condition, such as
the neglect of safety measures by BP in the Texas refinery that led to an explo-
sion in 2005. Such crises, called “smouldering crises,” build up over time until
an accident occurs. As the Institute for Crisis Management explains, “They are
the kind of issues and problems that could be spotted and fixed before they ever
get big enough and out of control.”21
When this build-up is gradual and small, managers deny signs of an
approaching crisis, much as a frog placed in water that is very gradually heated
is unaware that it is about to be cooked to death. Denial is a common behav-
ior when a person or organization wants to avoid unpleasant experiences.22
 Understanding Crises 11

Managers erect defense mechanisms against receiving unpleasant information

that threatens their core assumptions.
When a crisis follows this slow, cumulative pattern, the danger is that a man-
ager may be unaware that the accumulated total of the increments has reached
a crisis threshold. A manager may have had weak and sporadic early warning
signals that consciously or unconsciously were ignored. It is human nature that
when everything seems to be going well, there’s no incentive to look for trouble.
That task is left to outsiders—a government official, a whistle-blower, a public
interest group, or the media. To avoid surprise and maintain control, organiza-
tions need monitoring systems to keep apprised of developments.
One of these monitoring systems is issues management. Many organizations
have instituted systems to identify warning signals of controversial issues that
have the potential of turning into crises. These systems include the four-step
process of issue scanning and monitoring, issue prioritization, issue analysis,
and strategy formulation. From a crisis management viewpoint it is important
to establish a threshold for each issue—under the steps of prioritization and
analysis—that would alert management to take action.23
A growing difficulty is that the complexity of issues is increasing, says Kanina
Blanchard, director of global issues & industry affairs for The Dow Chemical
Company. One of the issues that will need to be watched, he says, is biodiver-
sity, which has long-term consequences. Another complication with issues, as
Chris Nelson of Ketchum notes, is that organizations such as Earth First! and
People for the Ethical Treatment of Animals (PETA) “aren’t always looking for
solutions. Their goal is to keep issues alive.”24

Uncertainty
Management rationalizations for ignoring unpleasant information come easily
because of a second characteristic of a crisis: it deals with uncertainties—and,
sometimes, unknowns. Especially when an organization’s environment is com-
plex and unstable, managers may have difficulty in obtaining sufficient informa-
tion about environmental factors and in predicting external changes.25 When
this happens, managers tend to lose their normal mental reflexes or framework
in thinking about a problem, as Patrick Lagadec excellently describes in his
Preventing Chaos in a Crisis: Strategies for Prevention, Control, and Damage Limitation.26
He explains how established boundaries are crossed into the unknown as a
wide variety of inside voices and external agencies and stakeholders become
involved—also how rules of the game are ignored as uncertainty corrupts nor-
malcy.
To ascertain uncertainty is difficult, but some attempts to predict the like-
lihood of certain kinds of crises can be made by estimating statistical prob-
abilities, giving attention to those occurring most frequently. Such reckoning,
however, carries the danger that managers will give insufficient attention to
low-probability events. The likelihood of a Chernobyl nuclear disaster or of an
12 Preparing for an Era of Crises

Exxon sea captain crashing his supertanker onto a well-marked reef is figured
to be highly remote.
Executive attention to these low-probability events tends to be minimized in
favor of activities related to obtaining short-term “bottom line” results. Only
when a crisis occurs does management learn the hard way that low-probability,
high-impact events must be taken seriously. Managers then recognize that envi-
ronmental monitoring activities and risk assessment are a first-line of defense
against the surprise element of a crisis. They are compelled to replace defense
mechanisms and a siege mentality with an attitude of openness to information
about the organization’s internal and external environments.
It is easy to understand that a person wants to deny unpleasant informa-
tion, especially when it deals with remote possibilities expressed in statistical
probabilities. But procrastination only multiplies the causes and conditions that
produce crises. Managers should not wait to recognize the reality of an impend-
ing crisis until after unwanted events reach a critical threshold as a result of an
accident, confrontation, legal suit, or public disclosure.

Time Compression
The seeming suddenness of a crisis amid great uncertainty aggravates already
difficult decision-making with the urgent need to make decisions rapidly lest
a situation further deteriorate. This time compression adds to the enormous
stress and anxiety that a crisis causes among managers at all levels. Manage-
ment is now put to the test. Can it, within a restricted time frame, limit the dam-
age caused by the crisis and regain control under conditions of high risk and
uncertainty? Can it control the media’s bias toward bad news and sensational
news? Every affected manager becomes a military commander under battle
conditions. Anxiety, which is a generalized fear of the unknown, prevails.
When decisions are made under stress, pressure on individuals is extraordi-
nary as they are pushed to the limits of their capacity and organizational sys-
tems are strained. Although psychologists say that a moderate degree of stress
enhances problem-solving ability, too much of it distorts a person’s sense of
reality and contaminates sound decision-making. Lagadec lists several specific
effects of high stress and anxiety:

• judgment may be affected, sometimes creating a tendency to consider ideas

that would normally be dismissed;
• individuals’ personality traits become exaggerated (for example, an anx-
ious person becomes very anxious);
• a siege mentality may set in with those in charge withdrawing, doing noth-
ing, saying nothing, and becoming inert;
• the search begins for a scapegoat;
• instability sets in and decision makers may adopt the latest opinions they
have heard; and
 Understanding Crises 13

• management turns defensive, declaring in reflex fashion that “everything is

under control.”27

Three psychological theories—cognitive, psychoanalytic, and trauma—shed

further light on the stress aspects of a crisis. Cognitive theory sees crises as
“highly uncertain, complex, and emotional events,” during which people are
limited in their information-processing capability.28 Consequently, “crises
arise or spiral out or control because executives, managers, or operators have
responded irrationally and enacted errors of bias and other shortcomings in
their information processing and decision making.”29 Because of these cognitive
limitations, individuals require organization-based solutions.
Psychoanalytic theories suggest that personality disorders, mental health
and defense mechanisms contribute to an organizational crisis, as illustrated by
the Challenger explosion.30 Excessive optimism and system pressures may have
inhibited some concerned parties from prohibiting the liftoff. As for trauma, the
third psychological factor, a variety of crises show that some people are trauma-
tized and require psychological counseling. Christine M. Pearson and Judith A.
Clair explain that a crisis can undermine a person’s beliefs—that “bad things
can’t happen to me,” that “doing the right thing will yield good things”—and
replace a sense of worth and control with a feeling that they are “weak, helpless,
and needy.”31 Too much stress distorts a person’s sense of reality and contami-
nates sound decision-making. A person may feel so tired, depressed, and angry
that it is difficult to get things done.

Restoring Equilibrium
In summary, the impact of these crisis characteristics is that a person’s or
organization’s equilibrium is disturbed—something has gone wrong that can
cause unwanted and undesirable consequences. Having been disturbed, a
metaphorical stable rocking chair moves back and forth treacherously. An
unstable situation has been created in which the “system” is not at rest and,
at the extreme, might cause chaos and suffering. There is a sense of “loss of
control.”
To reestablish control and restore equilibrium requires that the forces that
caused the crisis and upset the equilibrium be removed. Using the rocking chair
metaphor again, a window through which winds came might be closed or the
chair might be relocated so that people wouldn’t stumble on it. A second way
to respond to a crisis is to alter the forces themselves. This is what organizations
do when they lobby to change the outcome of issues that affect them. Third,
an organization may change the way it functions and relates to these forces. It
might, for example, appoint a new leader, which is a common practice when
a crisis is caused not by outside forces but by poor organizational policies and
practices, or negligence and other forms of mismanagement. Such a new leader
could use the crisis as a justification for making changes in the organization.
14 Preparing for an Era of Crises

Sometimes an existing leader will contrive a crisis, e.g., a financial deficit, so

that opposition to change is reduced or removed.

Crisis as Opportunity
As the Chinese symbol for a crisis indicates, a crisis denotes both danger and
opportunity. Danger is fully recognized by managers, but a greater understand-
ing is needed of when a crisis becomes an opportunity. The value of perceiv-
ing a crisis as an opportunity is that it encourages reflection and learning. Joel
Brockner and Erika Hayes James explore the idea that crises have the potential
to be a catalyst for positive organizational change.32 They distinguish between
two types of managers:

(1) managers who perceive only threats argue that they sense more control
and less uncertainty and can accordingly undertake such actions as cost-
cutting, budget tightening, and other restrictive activities; and
(2) managers who recognize opportunities and are more likely to change their
mindsets and behaviors to accommodate a situation.

The second type is better able to make necessary changes in an organization.

Managers who are not solely outcome- and process-focused are more likely
to recognize opportunities. Organizations that tolerate and legitimate orga-
nizational failure create a learning climate and enable managers to develop
competence by acquiring new skills and mastering new situations. A learning
orientation elicits more adaptive responses to adverse conditions.
A manager’s perception of a crisis as an opportunity is influenced by an
individual’s and organization’s values. People engage in self-regulation, which
is the process of trying to match behaviors and self-concepts with appropri-
ate goals and standards. In doing so they can be promotion-focused or pre-
vention-focused. The former is favored because it encourages the opportunity
orientation; it is a “playing to win” form of self-regulation, not a “playing to
not lose” one.33 Opportunities are also more likely to be seen when they appear
attainable. Trying to build a new infrastructure in the large area of tsunami-
ravaged Asia is not as readily attainable as rebuilding in and around New
Orleans.
Another factor that influences the perception of opportunities is the person-
ality and perceptions of managers. Those individuals with a strong sense of
self-efficacy are more likely to see opportunities. This orientation also prevails
when crises are perceived as less severe or less public, and crises for which
an organization is less perceived as being responsible. An organization’s belief
system can also foster positive views on the part of employees, such having an
optimistic (“can-do”) attitude.34
 Understanding Crises 15

The Inevitable Involvement of the Media

It often seems that an event becomes a crisis only when it receives a “bad press.”
Therefore, an immediate concern of a crisis manager is how the news media
and, nowadays, the social media, describe and treat the crisis event. The media
serve as a “multiplier,” for they can grossly amplify the damage of a crisis. At
risk is the reputation of an organization and its managers, their legal liability,
and likelihood of government intervention. For this reason, most counseling
firms that offer crisis management services mainly refer to their crisis commu-
nication capability.
In their concern to safeguard the reputation and credibility of their compa-
nies, therefore, managers must become sensitive to the role of the news media
and social networking, which indisputably have the power to build or destroy
reputations, and doubly so during a crisis. The news media are attracted to
crises because they are part of the five C’s that define news: catastrophes, crises,
conflict, crime, and corruption. Bad news sells and the public expects the media
to serve as “watchdogs” to alert them to impending dangers.
What events the social media—blogs, Facebook, Twitter—choose to cover
and how the potential cadres of reporters treat an event is a source of further
uncertainty.

Potential for Public Exposure of Crises Grows

The proliferation of crises is likely to increase because organizations now oper-
ate in an information society in which people are “wired together” on a 24/7
basis in one gigantic global village. What happens in Cairo, Egypt, is reported
immediately on CNN and Al Jazerra. Terrorist killings in Mumbai, India, first
appeared on Facebook. With so many onlookers, accidents and disasters can-
not be concealed. A head-in-the-sand approach is no longer plausible.
Aerial photography, which allows citizens to comb city streets for shops, res-
taurants and other locations, is a further source of exposure. Microsoft’s Virtual
Earth and Google’s Google Maps and Google Earth vie to offer the best aerial
views of the Earth. Although their interest is in tapping into a pool of adver-
tising by local businesses, the services can be used by the media or any other
watchdog, as well as by ordinary people, to observe and report on questionable
behavior.35
Government sources provide another source of exposure of organizational
misdeeds. Various regulations require organizations to disclose ever-increas-
ing amounts and kinds of information to the public and, thereby, to the news
media. Reams of other information that are filed each year with the federal
government are, with some exceptions, readily available to the public through
the Freedom of Information Act. Congressional hearings, especially follow-
ing crises, lead to further demands for information and disclosures, and when
lawsuits are filed more information is made public.
16 Preparing for an Era of Crises

One of the newest and most far-reaching requirements is that companies

producing or storing certain hazardous substances must report the type and
amount of such material to the Environmental Protection Agency, which in
turn makes it available to the media and the public. This is mandated by the
Emergency Planning and Community-Right-to-Know Act of 1986 (Title III) of
the Superfund Amendments and Reauthorization Act, known by the acronym
SARA.
Research by public accountability groups provides the public and the media
with another source of information. Groups like the Interfaith Center on Cor-
porate Responsibility and the Council on Economic Priorities are especially
active in gathering and disseminating information about the practices of U.S.
corporations. By confronting corporations and other organizations, public
interest groups attract media attention and can trigger a crisis.
Whistle-blowing is initiated by individuals who are close enough to a situa-
tion to know what is going on. They may be bothered by their consciences or
motivated by self-gain through rewards offered by the government or private
foundations. They are sometimes roused into action by public interest groups
and spokespersons, notably Ralph Nader, who have urged conscientious
employees to “blow the whistle” on their employers. Because employees in the
private sector work under “at will” contracts, the federal government and some
states have provided protection to such employees.

Growth of Crisis Industry

Public relations professionals are always involved in crisis management because
a crisis endangers an organization’s reputation. They provide information to
the media and respond to blogs with an eye toward how the reputation of the
troubled organization will be affected. They also know the importance of com-
municating with all stakeholders of an organization: stockholders, employ-
ees, government officials, the local community, suppliers, dealers, and others.
Besides handling crisis communications, public relations professionals help pre-
vent crises by identifying issues that might erupt into crises and by helping to
inculcate organizational ethics and a regard for social responsibility. They also
participate in contingency planning and devise strategies to enable an organiza-
tion to repair its reputation and damaged relationships.
Most PR firms list crisis communication/management as one of their services.
In June 2008 Burson-Marsteller opened an Issues & Crisis Group in Washing-
ton, D.C., with a staff comprised of former White House, congressional, and
political employees to counsel companies on crisis communications, corporate
social responsibility (CSR), litigation, and hostile media environments. In 2009
a new practice was launched within the group that focuses on product-related
issues and crises, such as recalls, regulatory communications, and stakeholder
engagement.36 A regional firm, Wilson Group Communications in Colum-
bus, Ohio, offers crisis management counseling and training, including media
 Understanding Crises 17

training workshops, mock disasters, and crisis planning.37 Some firms combine
security services with crisis management because of current concern about
national security.
The programs of some professional associations reflect an interest in crisis
management. For example, the New York Society of Security Analysts held a
conference on “Anatomy of a Corporate Crisis: Managing Distress.” Speakers
included corporate turnaround executives who talked about finding value in a
distress situation; bankruptcy attorneys on bankruptcy protection and credi-
tors’ and debtors’ leverage and rights; and lenders and investors on strategies
and views that help companies look for danger signs in a company’s financial
statements and operations.38

Classifying a Crisis
Crisis managers can more easily decide on the most appropriate and effective
response to a crisis by immediately classifying it according to its type based on
its symptoms. This approach is similar to that used by the American Medical
Association (AMA) in its Family Medical Guide.39 The reader is told to track down
the significance of a particular symptom, either on its own or in combination
with other symptoms, to a logical conclusion, i.e., what should be done about
it? For example, a person with a temperature of about 100 degrees Fahrenheit
has the symptom of a fever. Further symptoms are then examined to determine
the remedy. If a person has a headache and/or aching bones and joints, a viral
infection is suspected. The remedies that should be considered are immuniza-
tion along with antibacterial, antibiotic, and antifungal drugs.40
The AMA approach can be applied to organizational crises. A mass dem-
onstration (the symptom) in front of company headquarters would be classified
as a confrontation type of crisis. Appropriate questions can then be asked (as
with a fever) about who the demonstrators are, what organizations, if any, they
represent, what their grievances or demands are, whether they are using lawful
or unlawful tactics, whether they have attracted media attention, and so on (see
Chapter 8). The crisis manager can then decide whether to seek police inter-
vention, answer the demonstrators by holding a press conference, meeting with
their leaders, negotiating, or otherwise engaging in conflict resolution.
To help in such diagnoses, crisis consultants and crisis books list a wide assort-
ment of crisis types from which to choose. W. Timothy Coombs synthesized
various typologies into the following list:

• natural disasters;
• malevolence;
• technical breakdowns;
• human breakdowns;
• challenges;
• megadamage;
18 Preparing for an Era of Crises

• organizational misdeeds;
• workplace violence;
• rumors.41

Most of these types are helpful in determining what action to take. Others, how-
ever, are best classified as a subset of a crisis type in that they provide a further
explanation of why a certain type of crisis occurred, or indicate the magnitude
of a crisis. For example, in this book workplace violence is understood as an
act of malevolence with various possible causes: frustration, rage, or a feeling
that wrong was committed. Human breakdowns, or errors, are associated with
practically all types of crises; e.g., the human error explanation of the Three
Mile Island accident, which otherwise is best understood as a technological cri-
sis. Megadamage, such as the Exxon Valdez oil spill, tells us that a large area was
affected by the spill, but not the cause of the spill. Experts are bound to disagree
on the utility of different typologies. The ultimate test is whether the diagnosis
and naming of a typology sheds light on the kinds of questions that should be
asked and whether the process points to appropriate responses and recovery.
In this book, crises are classified into three major parts: crises of the physical
world, crises of the human climate, and crises of management failure. Each
part contains several specific types of crises, which are the key basis of classifica-
tion.

Crises of the Physical World: Nature and Technology

Natural Disasters
Natural disasters and catastrophes still dominate many definitions of a crisis.
These include earthquakes, tornadoes, landslides, tidal waves, storms, floods,
droughts that menace life, property, and the environment. The big disasters in
recent years have been the Indian Ocean tsunami in 2004, Hurricane Katrina,
which devastated New Orleans in 2005, and the earthquake in China in 2008.
They attest to the continuing vulnerability of humankind to what have been
called “acts of God.” Such a description, however, increasingly does not hold
public authorities blameless. People in stricken areas ask why communities
were not better prepared, why not enough advance warning was given, and
why emergency response was slow or inadequate.
World population growth and the search for natural resources has extended
to less hospitable and geographical areas, resulting in high concentrations of
people, buildings, and waste near places where floods, storms, volcanic erup-
tions, and earthquakes occur. More reports are published about unsustainable
ecological trends. Most troubling are rapid population growth and the eco-
logical damage caused by “the developing world’s rush to enjoy First World
living standards.”42 This theme was graphically reiterated by Pope Benedict
in a speech to a youth rally in Sydney, Australia, in July 2008, when he said,
 Understanding Crises 19

“Reluctantly we come to acknowledge that there are also scars which mark
the surface of our earth, erosion, deforestation, the squandering of the world’s
mineral and ocean resources in order to fuel an insatiable consumption.”43
Global warming has become the major global issue that threatens the health
of people and the sustainability of coastal regions. An increasing number of scien-
tists warn of the depletion of the ozone and the greenhouse effect. At first called
alarmists and resisted by the business community, scientists have amassed over-
whelming evidence that global warming is in fact taking place. The arguments
are summarized in Al Gore’s film, An Inconvenient Truth, and supported by such
evidence as receding glaciers, the melting of icebergs in the Arctic, the shrinking
of Greenland, and the decline of the penguin population in the Antarctica.
Eminent groups of scientists now declare the reality of global warming and
most assert that it is caused by human activity. Global warming raises the inci-
dence of natural disasters. More hurricanes are expected in the Gulf region as
the waters of the South Atlantic become warmer and generate higher velocities
of hurricanes. So many hurricanes followed Hurricane Katrina in 2005 that the
National Hurricane Center ran out of names and had to turn to Greek letters.
Hurricanes are expected to become more destructive, with a doubling of storms
in the higher 4 and 5 categories on the Saffir-Simpson scale usually employed by
meteorologists.44 Low-lying coastal regions, such as in Bangladesh, may become
uninhabitable within the century, and major shifts in suitable agricultural areas
will occur. The positive benefits are that agricultural regions in northern areas,
such as Canada, will expand and Arctic waters will remain open to navigation
year round. The negative effects of global warming are that the melting of the gla-
ciers will not solve the looming problem of a world shortage of water, which could
cause whole swaths of the Middle East and Asia to run dry within 40 years.45
Global warming is also a reminder that, along with globalization of econ-
omies, the threat to the environment has increasingly become more global.
“What were once local problems of pollution have now merged into a huge
general threat to the planet’s delicately balanced ecosystem,” writes the Guard-
ian.46 Some writers foresee catastrophe. In Collapse: How Societies Choose to Fail or
Succeed, Jared Diamond reports 12 unsustainable ecological trends, including
global warming and rapid population growth, and hopes that the problems will
not be resolved “in unpleasant ways not of our choice, such as warfare, geno-
cide, starvation, disease epidemics, and collapses of society.47
In recent years more attention is being given to another kind of natural crisis:
the biological crisis as illustrated by the continuing scourge of AIDS, the spread
of SARS, the onset of the Mexican flu, and the fear of new diseases from future
mutations for which vaccines do not exist.

Technology
In developed societies, the source of hazards has shifted drastically from
nature to technology.48 As technology has become more complex and closely
20 Preparing for an Era of Crises

linked, the chances of malfunctioning multiply and the consequences become

bigger and more profound. Charles Perrow, a management expert on technol-
ogies, presents the case that the potential for technological failure and recovery
from failure is so great that some technologies, such as nuclear power,
should be totally abandoned, and others, like marine transport, should be
restricted.49
Perrow identifies two features of modern technology that make it so risky.
One is its complexity, not only in the technological components but in sub-
systems and larger systems; the other is the tight coupling of these sub-systems,
so that malfunctioning in one sub-system will trigger unpredictable reactions in
other sub-systems in the entire interrelated system.50

Crises of the Human Climate:

Confrontation and Malevolence
Crises are caused in the human realm because people’s expectations continue
to rise globally and when their satisfaction is curtailed or frustrated they turn
to aggressive acts. More broadly, the social and political environment has also
heated up. Government has been playing an increasing role in the economy as
measured by the rise in the number and kinds of regulations.51 These regula-
tions no longer deal with problems in specific industries but deal with such
issues as minority rights or the environment that cut across all industries and
institutions. They encourage further social action.
Following the pattern of technology, the human and social environment has
also become more complex, interrelated, and tightly coupled, with the result of
being more conflict-prone. As people have become better informed and edu-
cated, they demand safer and more reliable products, a lower-risk work envi-
ronment, equal job opportunities, pay equity, and many other rights. Swayed
by the mass media, satellite communication, and computer networks, people
have joined social action groups which often resort to confrontations and,
sometimes, to acts of malevolence.
These groups are intent on pressing their demands and exposing corporate
and government wrongdoing. They focus on a wide variety of real or imag-
ined grievances and make new demands based on changed values and new
expectations of business behavior. These groups vie with one another to gain
media attention and to promote their causes. The Public Interest Profiles man-
ual of the Foundation for Public Affairs classifies 250 of the most influential
public interest groups concerned with problems in such areas as civil/human
rights, community improvements, consumer/health, corporate/governmental
accountability, the economic system, energy/environment, and public policy.52
Corporations are consequently confronted by these adversary groups on a vari-
ety of issues. Some confrontations escalate into crises because these groups have
learned that the use of crisis-provoking tactics are effective in attracting media
and, therefore, management attention.
 Understanding Crises 21

Another source of crises are the malevolent acts of governments, groups,

and individuals. Extremist persons and groups use terrorism and other forms
of violence to force compliance with their demands or to punish a perceived
source of evil. The demands may be purely selfish, as with extortionist plots.
Often the targets appear to be chosen at random; other times the most visible
and vulnerable target is chosen. Not only do these crises of malevolence add
to a company’s risk of doing business but they create enormous uncertainty.
Management’s ability to monitor violence-prone groups and to predict their
actions is exceedingly limited.
Many companies have faced expropriation of property by hostile regimes,
extortionist attempts by criminals, computer break-ins and contamination
by computer viruses, malicious rumors about a company or its products, and
product tampering. Furthermore, world tensions and ideological conflicts have
resulted in terrorist acts not just against government targets but against private
organizations.

Crises of Management Failure: Mismanagement,

Skewed Values, Deception, and Misconduct
The rising incidence of natural and biological disasters and the cumulative bur-
den of pressures from the social and political environment has placed an enor-
mous burden on managers. But their own behavior is the cause of a third type
of crisis, called crises of management failure, which has grown enormously in
the past few decades.
Powerful market and financial pressures have tempted managers to engage
in questionable behavior, such as illegal overseas and political payments, fraud,
embezzlement, and other unethical practices. Pressure has further been height-
ened by government regulations, increased global competition, and hostile
takeovers. Managers have been taking greater risks to score high profits and
to survive. They have been willing to risk their reputations and, more broadly,
public confidence in business. Too little value is apparently assigned to these
intangible values, partly because short-term goals prevail over a long-term time
perspective. The seeds are thereby sown for more government intervention in
the economy as the loss of public confidence in business removes the protective
shield that allows business to manage itself. In a world that is changing so rap-
idly, everything, including public goodwill, is likely to be seen as transient. Such
tunnel vision has created many crises of management failure and exacerbated
other kinds, such as confrontations with social action groups.
In addition to ordinary mismanagement, three subtypes of management fail-
ure prevail. The first deals with skewed values, when managers are excessively
concerned with the “bottom line” and interests of stockholders and themselves
at the expense of other stakeholder interests. The Exxon Valdez oil spill remains
a prime example of the sacrifice of environmental values. The second type deals
with deception, as exemplified by Enron and the 2008 financial crisis. The third
22 Preparing for an Era of Crises

type deals with unethical, illegal, and even criminal specific acts of management
misconduct. Bernard Madoff’s Ponzi scheme and bribes paid by Siemens to
obtain business are recent examples of misconduct.

Conclusions
The incidence and severity of crises is rising with the complexity of technology
and society. Fewer crises remain unpublicized as the number of society’s watch-
dogs increases. Wise managements, therefore, are devoting increasing atten-
tion to an understanding of crises—their causes and dynamics, vulnerability
to them, ways of reducing their incidence and, if they do occur, lessening the
damage they cause to lives, property, and that precious intangible asset called
reputation. It is the purpose of this book to support the endeavor to make crisis
management a part of every manager’s responsibility and capability.
If risk management and contingency planning have been conscientiously
applied, the following criteria of a successful crisis outcome will have been
met:

(1) early detection of signals of a crisis so that appropriate responses are

brought to bear;
(2) incident is contained within the organization and there are no injuries or
deaths;
(3) business is maintained as usual during and after the crisis;
(4) learning occurs: policies and procedures of an organization are changed as
a result of the crisis and lessons are applied to future incidents;
(5) reputation is improved by the organization’s effectiveness in managing the
crisis;
(6) resources are available from the organization or external stakeholders;
and
(7) evidence is ample of timely, accurate decisions grounded in facts.53

Management needs to develop a crisis mentality that recognizes that:

(1) a crisis can happen any time;

(2) risk must be factored into business planning and decision-making;
(3) monitoring and feedback systems must be developed to provide a warning
system;
(4) relationship building with stakeholders should take place as part of build-
ing a strong crisis infrastructure; and
(5) a crisis manager function should be established, as a full- or part-time posi-
tion depending on the size of an organization and its vulnerability to crises.

In addition, this book endeavors to make crisis management a part of every

manager’s responsibility and capability.
 Understanding Crises 23

Appendix to Chapter 1: Guidelines for

Analyzing Crises
A crisis must be seen from the perspective of a particular person or organiza-
tion that is seen as the cause of a crisis event. For chroniclers of crises, the fol-
lowing outline of what should be observed and reported upon is helpful:

1. Describe crisis event

• The 4 W’s (who, what, where, when?)
• Who or what precipitated the event?
• Typology of event
• Profile of affected organization and its key managers
2. Impact of crisis
• Deaths, injuries, property damage
• Financial costs: sales, stock value
• Lawsuits
• Organizational reputation
• Broader effects, e.g., environmental and “social costs”
• Media and Internet coverage of event
• Extensiveness
• Accuracy and fairness
• Context/perspective
• Assessment of cause and organization’s handling of crisis
3. Context of crisis
• Related economic, social, and political issues
• Legal and regulatory
• Recent experience of actors involved
• Public opinion
4. Response
• Was contingency plan, if any, implemented?
• Immediate action taken
• Crisis communication efforts
• Other action taken, e.g., curtailing advertising
5. Post-Crisis
• Aftermath communications
• Rebuilding efforts
• Changes in societal institutions
• Evaluation of organization’s strategy, actions, and communications