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The Diligent team
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Crisis management: The do’s & don’ts

February 20, 2020
0 min read
Person deals with crisis on the phone while rushing to board meeting

Abraham Lincoln once said, 'Nearly all men can stand adversity, but if you want to test a man's character, give him power.' Author George Orwell stated something along the same lines, 'The real test of character is how well you treat someone that has no possibility of doing you any good.' Both quotes say a lot about how others view our actions and decisions during times of crisis. Today's corporate leaders continue to be challenged with how to manage external and internal risks that present in complex and interconnected ways. The corporate world has seen its fair share of crises, and any risk can quickly turn into a crisis. By paying attention to a few do's and don'ts, you may be able to preserve your company's value and its reputation.

History has shown us that corporations have taken various approaches in how they responded to crises. Some responses have been more successful than others. Regardless of how boards choose to respond to crises, their decisions could have a significant bearing on the company's stock and its reputation. It's vital that corporate leaders think through the potential ramifications of their decisions carefully.

Examples of Crisis Management Responses

Let's take a look at some examples of corporate responses to crises and how those decisions affected the outcome and their branding.

In February 2017, a man named Brad Reid posted on Cracker Barrel's website, asking why his wife had been fired after working there as a retail manager for more than 11 years. In a nutshell, the national outrage over it went viral. Cracker Barrel's corporate leaders chose not to address it publicly at all. In time, the crisis blew over, and while it hasn't been forgotten completely, it had little or no effect on the company's reputation or profitability.

Chipotle dealt with E. coli outbreaks between 2015 and 2016. To compound matters, a Chipotle executive was arrested for cocaine possession and 10,000 workers sued the company for unpaid compensation. The CEO made public comments about the Centers for Disease Control (CDC) having an unusual and unorthodox way of announcing E. coli outbreaks. He also blamed the media for continually pointing a finger at Chipotle. Chipotle's 'blame others' strategy resulted in an 82% decrease in profits over the course of a year and a drop in the stock price of 15%.

Pepsi's marketing team made a misstep with their commercial starring Kendall Jenner, in which Jenner joins a bunch of marchers to 'join the conversation.' She seemingly shuts the protest down when she hands a can of Pepsi to a police officer. The commercial created an immediate and epic social media backlash, which branded it as the worst commercial ever. The company responded within 24 hours by pulling the ad and issuing a statement that clarified its intent as well as a public apology.

Uber's reputation went from hero to zero after a series of crises that included their CEO serving on an advisory board to President Trump, continuing to operate during a taxi strike, allegations of sexual harassment and outrage over how the CEO publicly argued with a driver over pay. Uber was also sued by Google for stealing technology and using software called Greyball to prevent certain users from using the Uber app. The CEO stepped down from the president's council and launched an investigation into the sexual harassment allegations. The company has responded publicly to every crisis, but the number of problems and apologies are taking a toll on its reputation and branding.

United Airlines took a defensive approach after a gate holder enforced a dress code for passholders when two teenagers attempted to board the flight wearing leggings. United took a defensive stance again when news went viral showing a man being forcibly dragged off a plane. The man had paid for his ticket and was forced to deplane due to overbooking. United lost $800 million within 24 hours of the latter incident.

Do's and Don'ts of Crisis Management

Every crisis is different, and there's no 'one-size-fits-all' approach to crisis management. Although there are no clear decisions about right or wrong approaches to crisis management, it's important for boards to recognize that when the corporate reputation is at stake, the company's market value is also at risk. In research by Weber Shandwick, executives attributed 63% of their market value to their reputation. Risk oversight protects value and that is a critical competency for board members to possess.

Here are a few more do's and don'ts of crisis management:

Do's of Crisis Management

  • Call the board and management teams together immediately to plan a response.
  • Take advantage of the board's diversity and hear all perspectives on the situation.
  • Be aware that reputation is a driver of market value.
  • Make a statement when experiencing more than one crisis at a time or in close succession.
  • Get all the facts before deciding anything to avoid multiple statements and apologies.
  • Monitor the reaction to your response and reconvene to make a decision about whether to take further action.
  • Monitor your company's financial ratings after a crisis.

Don'ts of Crisis Management

  • Don't ignore the situation. If the choice is to remain silent, continue to monitor it.
  • Don't overlook the speed of social media and how it can be a negative or a positive force.
  • Don't make excuses for poor choices in behavior.
  • Don't underestimate how interconnected systems are.

Crisis Management: The Board of Directors Learning from Mistakes

The Weber Shandwick research shows that more than 23 drivers contribute to a company's reputation and market value in significant ways, with not one of them dominating over any of the others. This result clearly demonstrates the correlation between reputation and market value.

Weber Shandwick's Senior Vice President of Reputation Research, Liz Rizzo, recommends taking a multi-faceted approach to risk management. Her team has identified the following five factors that could be construed as lessons:

  1. Every driver of reputation is magnified [by leadership].
  2. Measurement of reputation is key.
  3. Marketing and communications are critical drivers of reputation.
  4. Reputation is strategically communicated to critical stakeholders.
  5. Senior leadership is highly visible.

Because corporate leaders must work within a complex group of interconnected ecosystems, the risks are compounded by a low level of risk competency. These combined forces will almost guarantee a corporate crisis at some point.


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