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,
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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.
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