Effective Crisis Management

M anagers, consultants, and researchers have traditionally focused on problems of financial performance and growth, but have paid little heed to the effective management of corporate crises. The negative effects of organizational and industrial activities have been treated as minor "externalities" of production. It can be argued that until recently, it was unnecessary to focus on such crises. Today, however, such crises as pollution, industrial accidents, and product defects have assumed greater magnitude. The consequences for many corporations-like Johns-Manville and A. H. Robins-have been near or actual bankruptcy. Corporate crises are disasters precipitated by people, organizational structures, economics, and/or technology that cause extensive damage to human life and natural and social environments. They inevitably debilitate both the financial structure and the reputation of a large organization. Consider the following examples: * In 1979, the Three Mile Island Nuclear Power Plant had an accident leading to the near meltdown of the plant's reactor core. The accident not only cost Metropolitan Edison-the company that owned the plantbillions of dollars; it altered the fate of the nuclear power industry in the United States.' The plant owners and operators paid $26 million in evacuation costs, financial losses, and medical surveillance; the estimated cost of repairs and the production of electricity via other means was $4 billion. * In 1982 an unknown person or persons contaminated dozens of Tylenol capsules with cyanide, causing the deaths of eight people and a loss of $100 million in recalled packages for Johnson & Johnson. In 1986 a second poisoning incident forced JJ compensation settlement is likely to be between $500 million and $1 billion. In addition, the company was forced to sell 20% of its most profitable assets to prevent a takeover attack mounted by GAF Corporation, which had acquired Carbide's undervalued stock after the accident.2 * In May and June 1985 deadly bacteria in Jalisco cheese caused the deaths of 84 people. The company that produced the product was forced into bankruptcy. The list of recent corporate disasters is virtually unending. It includes executive kidnappings; hijackings, both in the air and at sea; hostile takeovers; and such acts of terrorism as the bombing of factories and warehouses. Most recently, slivers of glass have been found in Gerber's baby food. Contac-an over-thecounter cold remedy-has also been the object of product tampering. Such incidents now happen on an ever-increasing basis. Further, the interval between major accidents is shrinking alarmingly.3 The number of product-injury lawsuits terminating in million-dollar awards has increased dramatically in the past decade: In 1974 fewer than 2,000 product injury lawsuits were filed in U.S. courts; by 1984, the number had jumped to 10,000. In 1975, juries had awarded fewer than 50 compensation awards of greater than $1 million each; in 1985, there were more than 400 such awards. The costs of productand production-related injury is one factor in the current liability insurance crisis. Many forms of liability insurance have simply vanished, and all forms of liability insurance have become so expensive, they are available only for small coverages. The purpose of this article is to argue that while the situation is grave, it is far from hopeless for managers, researchers, and consultants who are prepared to confront the problem directly. While no one can prevent all disasters-let alone predict how, when, and where they will occur-organizations can adopt a systematic and comprehensive perspective for managing them more effectively. Anything less than such a perspective virtually guarantees that an organization will be less than prepared to cope and recover effectively from a crisis.