How Leadership Would Manage Crisis

Introduction

“In case of Nestle now taking steps to protect the reputation of the Brand Maggie in the Indian market. How does leadership expected to manage such crisis? Does it end with a communication in such crisis or involve managing risks and what are the adequate steps”.

Such crisis situation is not ruled out for any Company on any particular day. Everyday the business with its leader is expected to be crisis ready. When such crisis hit, it does not give enough time to take stock of the situation and events unfold at a rapid pace. Generally such events leads to chain of events and therefore leaders should be ready to address the solution for the chain rather than working in isolation.

The general tendency of the leaders is to deny initially about its consequences and however, when event goes in full swing then time is short to respond. The business also believe that they are capable of handling the situation using its communication and the legal team but in reality actual event may be more demanding.

Social media also plays a catalyst role in engulfing the fire because the news may spread faster than actual event. One adverse event in New Delhi will reach New York at a faster pace using social media before CEO/CFO could react. It is therefore very important in modern days to address the social media because it can tarnish the image of the Company before the actual rescue begin.

The crisis management should be embedded within the Company’s system enabling its action as soon as the situation demand. In this article we lay down the key steps that the leadership is to unravel as soon as crisis happen.

Crisis Management

Crisis management is a challenging affair due to unknown nature of the event that may unfold, so any preparation in advance may prove to be inadequate. However, action plan and scenario testing do help in developing the better preparedness with confidence. Four steps are identified for the purpose of crisis management
1. Prevention
2. Preparation
3. Response and
4. Recovery.

The prevention and preparedness phases occur as a crisis management improvements are made in anticipation of a crisis event.

Preparation

The objective of this stage is to achieve satisfactory level of readiness in order to respond the emerging situation. This stage start with vulnerability study to determine current and potential areas of weaknesses that may engulf the situation. During this stage full preparation should be done

assuming that the actual event has happened. Any complacency at this stage may prove to be disastrous for the organization.

Mock drill at this stage will provide real life situation gaining commitment from the management team on the individual responsibilities when actual event happen. The actual situation can be very confusing, therefore the focus should also be on clear communication between the management. The key to the success of managing any crisis is to manage different stakeholders, so during the mock drill emphasis on communication should be well taken care off.

There are two extreme examples considering the preparation phase; one is, 9/11 event when the twin tower at the World Trade Centre was attacked. This was the first occasion when the US was attached brutally by the terrorist; there were no advance planning leading up to huge losses of lives and loss of billions of dollars of property. The people were also emotionally disturbed adding the agony.

The other example of good preparation was London Olympic during 2012 which is considered to be success of risk management. London was attacked by the terrorist on 7 July 2005 just a day after it was announced that London will be hosting the Olympic in 2012. The learnings taken from the July and other attacks were used as learning platform so that no untoward incidence happened during the 2012 Olympic.

Prevention

Crisis prevention is a stage where actions are taken in advance so that either the probability of event can be reduced or impact on severity may be diluted. This is a risk mitigation step where to identify the possible events that may damage the Company both in monetary and reputation sense and taking the action to reduce the impact.

A developed risk culture play a pivotal role where senior leadership of the Company work together in the identification of the possible events and creating scenario and stress testing (SST). Such SST helps in identifying the weaker areas within the system and work towards correcting the areas that require amendment. Such advance planning are very helpful when actual event unfold. Fire drill is one such example where Companies prepare themselves for the possible events. London Olympic again fit well into this example of prevention.

Response

Response phase includes actions taken to restore order and prevent further damage in an emergency situation. Response is putting preparedness plans into action. The actual crisis present uncertain situation, no matter how well Companies are prepared in advance. During this period lots of information comes in, some may be trusted and some may not. Therefore, the information should be carefully used, an information interpretation team could be a useful in this situation.

During this phase, there are many stakeholders such as employees, shareholders, parent office, media, social media, regulator, government bodies etc. There expectation should be managed well in terms of regular feed of communication to them. If these stakeholder’s are not managed well then the crisis may blow out of proportion.

To handle such situation, the management may use the mobile technology which can be used to disseminate information to the key stakeholders. It is important to restore the trust of the stakeholders.

During 1993, it was alleged the discovery of syringes and other foreign items in Deit Pepsicans. The first case was reported by an elderly couple from Washington, who had left a Deit Pepsican overnight, and the next morning found a syringe inside.

The second case was reported by a woman just ten miles away from same place, the next day. The Food & Drug Administration, noting that both cases involved a company bottler in Washington State, warned consumers to pour their soda into a glass before drinking.

The company recognized the magnitude of the crisis when the first report from outside the Washington area, and prepared a team of 12 company executives to form the core of the crisis team for the duration of the story. The company showed video news release and press release—with graphics, explaining the mechanics of the production process and the impossibility of inserting foreign objects during that process.

The public relations industry was generally impressed with Pepsi-Cola’s handling of one of the more bizarre crises.

Recovery

Recovery activities take place after an emergency. This phase includes actions taken to return to a normal or an even safer situation following an emergency. This includes getting financial assistance to help pay for the repairs.

During this phase, any investigation that may be required need to set up to identify the cause of the crisis and work towards addressing the root cause to avoid future repeat. Post investigation changes are required to be made in the system and strategies.

A very good example of investigation is 2008 economic crisis where piles of papers have been written to identify the root cause of the problem. Post the crisis, many changes have been made in enhancing the corporate governance, risk based capital and risk management. The learnings are still being implemented so that next such crisis can be avoided.

Where the crisis have hit the society the government agencies may be required to do the investigation. Such event could be big time financial fraud in the bank impacting the account holders. The example is Punjab National Bank Fraud.

Summary

In the crisis situation the management is to act proactively not only during the crisis but also during the preparation stage prior to crisis. The leadership must take proactive steps to do the scenario planning and mock drill to test the level of preparedness and mitigation actions. During the crisis, the management is to act with patience and courage to manage the key stakeholders with proper communication. All major crisis should be investigated for its root cause and its learning should be implemented within the system to its core.

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