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 News | November 21, 2008 |
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The phoenix phenomenon: active crisis management
Every cloud has a silver lining, writes Randal Dennings – so long as you have a good umbrella
Recent Australian corporate history is replete with examples of corporate calamity and crisis. Hoaxters, fraudsters, intense competition and fundamental changes in business strategies increase the likelihood of the occasional corporate crisis.
Yet, a strange phenomenon becomes apparent. Many corporates emerge strengthened from the crisis while some merely succumb.
While there are no doubt many and varied reasons why the different outcomes are manifested, having regard to each separate business affected, it seems that those corporates that had a crisis management plan and had implemented crisis preparation and training before the crisis actually struck were far more likely to emerge strengthened than those that did not and merely trusted to luck.
Society has been shocked and saddened by the various terrorist attacks post September 11. Equally, many have been inspired by the manner in which some corporations have continued their proud traditions of service despite incredible difficulties.
This ability to continue business and even to emerge strengthened from a crisis is sometimes called the Phoenix Phenomenon. This likens the strengthening effect of a crisis to the mythical bird of antiquity who was supposed to be regularly destroyed on a funeral pyre only to rise from its ashes in the freshness of youth.
An article published in The Australian Financial Review quoted Mr Alan Schaefer (the head of Glaxo SmithKline during last year’s Panadol extortion crisis) as saying, “Aside from the business dynamics that you must deal with, it is a tremendous learning experience for any executive … I had been trained in crisis management … and been through media training and full-blown crisis management exercises. But that doesn’t fully prepare you for a real crisis”.
The article further noted, this notwithstanding, that Glaxo was now clawing back its marketshare. The result, he said, was: “You have a much better understanding of yourself and your organisation”.
Is crisis management the same as risk management?
Many are of the view that the best crisis management technique is to have an adequate risk management and compliance system in accordance with the appropriate Australian Standard, namely AS4360 (risk management) and AS3806 (compliance programs).
However, it can be argued that to have an appropriate risk management and compliance strategy, a corporate must also possess a comprehensive crisis management plan.
A crisis management plan (CMP) needs essentially to do two things: establish the crisis management team that will in need be activated to deal with crises; and to establish operational plans, instructions and structures to manage the business in light of the onset of a crisis.
What should the crisis management plan contain?
The plan must identify a pre-selected crisis management team (CMT). Ideally, the team will be a multidisciplinary one and should contain personnel which can bring to bear skills in at least the following disciplines: management, human relations, public relations, a wide range of technical and operational skills, legal, insurance management, and insurance claims.
Ideally, the plan will call for a small core team whose sole purpose is to determine whether a ‘crisis’ exists. Crisis in this context means the occurrence of circumstances that prudently should not be dealt with on a business as usual basis by the corporate.
Obviously the nature and extent of the particular crisis will determine which personnel from the wider crisis management team will be selected for involvement in the crisis at hand
While each corporate will have its own CMP, there will be three elements that will be common to them all: managing the crisis, managing the business and managing the fallout.
Managing the crisis
In many experiences, simply managing the crisis is itself a full time job. To be done well this involves identifying the various aspects of the crisis and scoping its nature and extent. Liaising with senior management and scoping response and resource allocation is just as important. As is ensuring consistent internal and external communication during the crisis (such as presenting a consistent public face). Media management, customer management, supplier management and employee management are all crucial to good crisis management. Managing the regulators and government, as well as other stakeholders, is of equal importance. Implementing, reviewing, monitoring and evaluating crisis response is an essential step in ensuring that your CMP is fine-tuned. Closing off the crisis as well as reviewing and evaluating the causes of the crisis and the corporate response to that crisis is the final step.
Managing the business
Given that, by definition, crises may well be significantly diverting of corporate time, attention and resources, a major risk is that the corporation takes its eye off the ball with respect to its own business and in that regard suffers a ‘double whammy’.
Not only is the business destabilised by the crisis and its consequences but the rest of the business is starved of its ability to continue to perform by a lack of management attention and corporate resources. Accordingly, relieving senior management with the primary responsibility of the day-to-day management of a crisis enables the business to continue to be actively managed.
Additionally, a continuing focus on ‘business as usual’ will reduce the possibility of corporate paralysis caused by the crisis. Further, this attitude of getting on with the business inspires confidence both internally and externally.
In short, customers will still be served, employees remunerated and challenged and regulatory obligations maintained during the crisis period.
Managing the fallout
A major function of the CMT is to record and retain evidence of the causes and consequences of the crisis and in particular the actions of the corporate and the damages and losses it has sustained. Thus, insurance claims and compensation mechanisms either to be made by or to be received by the corporation can be swiftly and appropriately managed.
Also, due to the inclusion of insurance skills in the CMT, the possibility of unintentional loss of any insurance coverage by inappropriate actions or lack of liaison or consultation with insurers will be minimised.
External lawyers’ involvement in and participation on the CMT, not only provides an objective view to the corporation but also assists with the possibility of use of the doctrines of legal professional privilege.
It is strongly advised to regularly review your risk management programs. A key factor in that review is the adequacy and continuing ‘peace time’ testing and strengthening of the corporate’s CMP. We have assisted as external advisers with many of our institutional clients in establishing, reviewing and advising on crisis management issues. Regularly, we have been appointed by clients to be a part of the client’s CMT during the crisis itself and we have often hosted crisis simulations, mock trials (post crisis) and provided on-site crisis training.
In short, the failure to ‘crisis test’ your company and implement CMP’s in ‘peace time’ may result in your corporate phoenix remaining smouldering in the ashes.
Randal Dennings is a partner with Clayton Utz.
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31 January 2006
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