How Companies Can Prepare for — and Emerge Stronger from — a Crisis

Silence is not profitable. That is a point of departure for Enrique Alcat, author of And Now What? (Empresa Activa), one of the most popular Spanish-language books on crisis management. In times such as these, Alcat says, it is imperative for a company to know how to use the media and other communications tools to explain to the broader community why, for example, it is laying off workers despite the fact it is profitable, or why it is relocating production to another region where labor is cheaper. In an interview with Universia Knowledge@Wharton, Alcat proposes a list of rules that companies should keep in mind if they want to survive turbulent times.

Universia Knowledge@Wharton: Are executives generally prepared for dealing with communications during periods of crisis? What are the main mistakes they make, and how can those be avoided?

Enrique Alcat: The head of an influential American business weekly used to repeat again and again that the main activities of a chief executive must be strategic planning and communications. The reality is that only in the best of cases, the chief executive of the organization is focused on strategic planning. And the latter subject, communications, still continues to be “science fiction” at most companies: They limit their activities to several press releases a year, a few meals with reporters and some public relations events for the media. Communications is a basic tool in the management of any company, so you need to use specialized professionals who know the complexities and the special language of business and corporate education. Few people nowadays dispute the importance of a financial director, a marketing director or a human resources director in any organization that has professional standards. Yet few companies recognize the need for and value of a good communications strategy.

Communications is critical for solving or minimizing the impact of any crisis. Corporate image, as perceived by consumers and the marketplace, is the sum of a series of actions and the accumulation of details [over time]; a bad decision or a newspaper headline can do away with the work of many years and the credibility gained day by day. Sooner or later, 95% of all companies suffer a crisis that has a negative impact on their public image, their credibility and their bottom line. But only 10% of all companies that suffer a serious problem take advantage of that situation to correct their mistakes, draw proper conclusions and wind up stronger. “Crisis” is the most often repeated word in the global business press, no matter how well or poorly things are going. The enormous majority of companies do not know how to manage a crisis from the viewpoint of communications.

UK@W: How can a seemingly negative action, such as laying off workers, not wind up destroying the image of an executive or the company?

E.A.: Closing a factory, making personnel “cuts,” recalling a defective product from the marketplace, environmental contamination, the theft of privileged information, corruption as a form of management, business mergers, mass layoffs, sending jobs offshore — as well as human failures that have consequences for the health or security of consumers: All these things generate news that equally affects companies — whether they are family-owned, small, mid-size, or multinational — and they require the direct and professional intervention of responsible parties in those companies. It’s about prevention and preparation.

Some of these painful situations can be attributed to business planning, but in almost every case, crisis comes without warning, and it takes everyone by surprise. Managers, entrepreneurs and the people who are ultimately responsible for these events live every day convinced that these sorts of misfortunes only happen to other people, and that they will never happen to them. This is a big mistake because these sorts of things happen every day.

UK@W: How do we prepare ourselves for something when we don’t know when, how or where it will happen? 

E.A.: Prevention is the key. Prevention means planning for all possible scenarios and knowing how you are going to react in each case. Prevention means not leaving management to improvisation or brilliant ideas of the moment, or leaving things up to any particular manager, whenever a company finds itself immersed in a crisis.

UK@W: What are the first steps a company should take when facing a crisis? What are the things it should never do?

E.A.: Most companies, when they deal with a crisis, react very nervously and not methodically. They tend not to think things over or find the people who are responsible, nor do they allow those people who do understand what’s happening to assess the situation. As if this weren’t enough, they manage the crisis all by themselves. Professionalism involves being prepared beforehand, with a crisis management team and a manual of processes (which experts call a “Manual of Crisis and Reputational Risks”), which specifies what must be done, who must do it and how to manage the team.

Every company must be prepared for dealing with a crisis by choosing appropriate spokesmen, working out key messages and arguments that explain their basic ideas; devising alarms and detection systems; managing internal flows of information; and managing emotions and attitudes. In addition, companies can use training courses and crisis simulations as practical tools to apply what they learn in theory.

I managed one crisis situation in the past that seems all too current. It was the first large-scale case of a sports team that [was discovered] using drugs. It was the 1998 Tour de France, about ten years ago, and the team that was then the leader in cycling, the Festina team, had to withdraw because of this practice — an episode which has since been repeated as if the appropriate lessons were not drawn.

The Spanish watch company, Lotus-Festina, always believed in the excellence of that sport. Part of its budget was used not only to sponsor a team but also to sponsor [the Tour de France]. This company, among so many others, didn’t know what a crisis manual was. They didn’t know what they needed to do when they were literally on the verge of disappearing [as a company] because of the damage their image suffered for several months from widespread [negative] headlines — not only in the Spanish press but around the world. Not surprisingly, these moments of tension, and the enormous negative impact, equally affected the cyclists, the company’s sports division and its senior management. Miguel Rodriguez, president of Festina, wrote something to me that I reproduced in my book, And Now What? This phrase says it all: “I learned that in times of crisis, it is not enough to be in no way responsible for the situation that caused it. Nor is it even enough to demonstrate that [fact], because what ultimately remains and what counts is for the customer to perceive things the right way. With a good communications plan, you can achieve that result.”

In effect, an uninterrupted crisis communications plan, running for more than half-a-year, made it possible for the Lotus-Festina group not only to avoid being destroyed, but to position itself as the leading watch brand in Spain, and the third-largest in Europe.

UK@W: Could you provide some examples of companies that have shown skill at communicating during a crisis, and others that have not? What were the outcomes in each of these cases?

E.A.: Saying that “we are holding a meeting” or that “I don’t have anything to say” are approaches that have to be completely abandoned and replaced by rigor and professionalism in the event of any crisis. When facing a crisis, whatever it is, it is better to communicate, however little, rather than to refuse to speak. And to communicate at the outset, even if you don’t have enough information, rather than wait until you have much more information — when public opinion about your company has already been “frozen.” And, of course, not to lie. So many crises could have been overcome with time if managers simply had not fallen into the easy and counterproductive option of lying, which is something that is inseparable from the human race.

We all remember Arthur Andersen, the big accounting firm, which evaporated into air following the Enron Case. Once more, crisis management was the determining factor. Despite the fact that a great deal of information was manipulated and hidden, and accountants committed many crimes, the possibility always remained that the truth could be told, no matter how hard that would be. And, quite possibly, the company could have been saved if the firm had dismissed a number of people who betrayed its confidence, if they had imposed major fines on them, and if the company had not lied about the situation…. Festina had said at a one moment that its cyclists were not using drugs. They had to say that, and the judges and authorities said it…. [But] we cannot forget that reality and truth ultimately prevail.

When facing a crisis, the first thing to do is to convene an urgent meeting of a “crisis committee,” which should include, at a minimum, the chief executive or, in his absence, some senior corporate executive such as the chief counsel, the human resources director and a specialist in communications. This requires having dealt in advance with the possibility that the company could face a crisis. Companies continue to think about collecting money and selling, but they don’t have a plan for dealing with a crisis. That’s because of their simplistic view that “we are doing a good job, and nothing has ever happened to us; and when it does happen, we’ll [deal with it].”

Time is critical. You must try to gain time by obtaining the maximum amount of information before the crisis committee adopts its initial measures. If these decisions are [based on wrong information], they can determine any measures that are taken in the future.

Earlier, I mentioned an accounting firm, and now I’ll mention another firm that did know how to manage the crisis over time, and which continues to follow its “crisis instruction manual” very carefully. I am referring to the so-called “Windsor case” [the Madrid building that was destroyed in fire in 2005], which involved accusations by Deloitte, the owners of the building, and the reinsurance companies [located] there, who knew how to react in a very short time, in the fastest and most professional way possible. They had a crisis manual, and they had done simulations. That’s all that needs to be said: You can have the worst misfortune, but if you are prepared, you can turn the situation around. And if you are not, you lose time looking for the guilty parties rather than analyzing solutions.

You need to issue your first messages, despite the absence of information, and if you don’t have any message, you at least need to “demonstrate” unequivocally that you want to be transparent. You also need to focus your information on objective facts while avoiding opinions and estimates. You have to escape the temptation of standing firm or blaming third parties when you can’t confirm who is responsible. Impulse and improvisation are bad advisors. Never manage a crisis all by yourself. Trust in your team, lead the process, and try to lessen the tension in the environment. Simply said, there is no probability that you can correctly manage a crisis without the help of specialists.

When facing a crisis, you need to avoid paralysis and avoid saying nothing at all in response. One common problem is to do nothing and wait for time to resolve the problem without putting even the least possible strategy on the table. You cannot let hours pass without informing those who are affected; the media, society, authorities and so forth. Nor should you blame others or, even less, those who have no way of defending themselves, in an attempt to deflect attention or create confusion about sharing blame, and not confront the subject seriously and rigorously. Looking at the past so you can find the origins of the crisis, and avoiding the present and future steps that you must articulate — these things only let the crisis slip out of our hands. Researching the facts will tell you in good time what you [really] have to say.

Relying on contacts at the highest level to slow down or stop the crisis does not usually provide any results. Politicians, the communications media, shareholders and influential friends do not “stop” any crisis. On the contrary, the impact can be even more counterproductive.

You have to be diligent about the moves you make. While it is important not to make precipitous moves, you have to be just as aware that during a time of crisis, time moves more rapidly than usually and everyone involved is waiting for effective solutions and accurate information in as little time as possible.

You must always tell the truth. You can never profit by lying, and in every time of crisis, everyone finds that out, sooner or later. In addition, the truth always helps your reputation and provides economic benefits, when all is said and done.

You cannot expect that a crisis will disappear in one stroke. There are preconceived steps for minimizing the impact of a crisis that you need to follow so that you don’t make a false move. In addition, you cannot resolve a crisis just by placing one page of advertising in the newspapers. That is not an effective communications strategy.

UK@W: Is it possible to emerge stronger from a crisis?

E.A.: Yes. Here are ten rules for doing so:

1.  Always tell the truth. Call things by their right name, without using euphemisms, and be responsible. Never lie.

2.  Silence isn’t profitable. In times of crisis, companies have the moral obligation to inform everyone. When you refuse to answer questions, it strengthens the negative perception [of your company], because if you don’t tell people what you are doing, others will talk about what you are not doing.

3.  Take the opportunity to start again. Every crisis is an opportunity to regain your balance and correct mistakes. Companies look too much at their own problems when, in fact, every company has areas in which it can improve.

4.  Prepare and prevent. The correct way to manage a crisis is to be prepared. Crises come without warning. A company that is prepared will be spared very high economic and personal costs.

5.  Be Proactive. Two common mistakes are to be paralyzed by fear or to let time pass without taking any measures. In times of crisis, you always need to maintain a proactive role and take the reins of the situation before others take it.

6.  Communicate confidence. The goal in any crisis to bring the company back to the situation where it began. To do that, you need to manage perceptions so that the public that is affected recovers its confidence [in your company].

7.  Form a crisis committee. The people who comprise the committee must be very aware what they have to do at any moment; leave nothing to improvisation.

8.  Maintain internal and external communication. If what you say to the outside world is important, what you say “within” the company must be no less important. Your personnel must be informed about the measures that your company is pursuing. If they find out from outside parties, that leads to poisonous rumors.

9.  Manage emotions. A crisis affects people. Rather than giving priority to economic factors, you must be aware of its impact on health and security, especially in serious cases.

10. Have a crisis communications manual. This is the best tool for dealing with any crisis. This is the list of instructions that every company must have when it faces anything unforeseen. Unfortunately, in the enormous majority of companies of whatever type or size, this tool is most notable for its absence.

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