Wednesday, June 26, 2019

Paying the price for not having a crisis management plan

David Trumble

When a modern-day crisis unfolds, gone are the days where executives can assemble in a war room to assess the potential damage and then take their time to formulate a response to appease the media and, more importantly, assuage the fears of their loyal customers – their most treasured asset.

According to the global management consulting firm McKinsey & Company, the word “crisis” is 80 times more likely to be associated with an organization now than during the preceding decade. What has changed? The answer can be found in the evolution of how information is disseminated now versus 10 years ago.

Look at recent events that have drawn negative attention, such as the mass shooting at the MGM Grand in Las Vegas, airliner crashes, security breaches and weather-related catastrophes. For better or for worse, information now is transmitted at lightning speed vis-à-vis smart phones by “citizen reporters,” whose damaging comments, often accompanied by photos, can be instantaneously posted on megawebsites such as Facebook, Instagram and Twitter.

The latest statistics on these digital channels is truly mind-boggling.  According to a joint report by PR News and Dataminr, a real-time digital media monitoring company, YouTube viewers have access to over 500 million hours of videos each day. Twitter has more than 300 million monthly active users with tweets posted at rate of 6,000 per second. Snapchat has more than 10 billion daily video posts.

In a virtual instant, customers can turn against brands they have otherwise shown loyalty to for years. A single negative experience in the digital age can trigger a domino effect, with a gang mentality. Consider what happened to Uber when Travis Kalanick, the founder and former CEO, was accused of harassment. Many of its users deleted the app in favor of a competitor.

Beyond reputational damage, companies must consider potential financial losses. A 2018 Pentland Analytics study states that companies involved in a crisis can “lose an average of 5% in shareholder value.”  The study goes on to report that “for the world’s five most valuable brands, Apple, Amazon Google, Facebook and Microsoft, more than half of their respective market valuation is based on reputation.”

Billionaire investor Warren Buffet has been famously quoted stating, “It takes 20 years to build a reputation and five minutes to destroy it.”  Buffet goes on to say, “If you think about it, you’ll do things differently.”

The largest marine oil spill in history took place in 2010 when an explosion tore through a drilling platform owned by British multinational oil and gas company, BP, in the Gulf of Mexico.  BP's stock fell by 51% in 40 days on the New York Stock Exchange plummeting from $60.57 on April 20, 2010, to $29.20 on June 9, its lowest level since August 1996. Shortly after the oil spill, BP announced recovery efforts that included setting up a new unit to oversee management of the spill and its aftermath. Nearly a decade later, BP stock is trading in the low $40’s, still struggling to climb back to its pre-spill value.

One of the most financially devastating blunders on social media took place last summer when Tesla CEO Elon Musk tweeted that he had “funding secured” to take the publicly traded company private at a price of $420 a share.

That single tweet initially sent the stock surging while simultaneously triggering an investigation by the Securities and Exchange Commission. As reported April 19 by Bloomberg, Musk and Tesla resolved the dispute by agreeing to each pay $20 million without admitting to wrongdoing.  Today the stock is trading at roughly 55% of its value before the crisis.    
Doing things differently, as Buffet suggests, starts in the C-suite by having a crisis management plan in place with a team of professionals charged with the execution of the plan.  In a situation where minutes matter, the plan must offer clearly defined action steps.  

Critical components to effectively managing a crisis are:

  • Commitment by the senior leadership to put a plan into action
  • Definition of what constitutes a crisis
  • 24/7 digital media monitoring
  • Established communications channels to convey information, in real time
  • Training at all levels
  • A recovery campaign to rebuild trust

Even the best-intentioned companies with crisis management plans in place can fall short by neglecting to review their plans frequently, providing training at all levels and reinforcement with periodic crisis simulation drills.  

These precautionary measures are a small price to pay in comparison to the immediate loss of valued customers, declining share value and expensive lawsuits that are likely to drag down the organization for months or years.

David Trumble is principal of Integrated Crisis Management Solutions, an organization composed of security operatives and communications professionals offering risk assessments, streamlined emergency protocols, management training, customer/media relations and recovery programs.

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