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Sep 12 2007 1:05PM EDT

Armchair Crisis Management: The 3 Big Questions

Jack Flack has already issued his humility disclaimer on the subject Armchair Crisis Management, so now it's time to pop off.

Every time some company gets into trouble, and the story just seems to get worse each day, Jack gets the same three questions from non-flack friends and colleagues.

Question #1 -- How could they have been so stupid/evil to do that?

The "that" is a specific violation of public trust, usually something like building a car with an exploding gas tank, distributing contaminated food, or charging you $49.95 so that you can give lead paint to your children. And because the "that" is reported with the pitiless simplification inherent to news, it does beg the question of how such a vile or bone-headed decision could have been made. For instance, how could they have decided to make lap-top batteries that catch on fire?

The reality, of course, is that usually such a "decision" was never made. There was never a time when the CEO leans across the table and tells his executive committee, "I think we should use the battery that erupts into flames instead of the one that doesn't."

Yes, particularly as the global economy opens us to every corner of the world, there are probably a few companies that operate like Dan Ackroyd's old Irwin Mainway slimebag, shamelessly pushing "Johnny Human Torch" Halloween costumes for kids (oily rags and lighter included).

But the greater reality is that most American companies are fairly obsessed with avoiding potential liabilities, with the legal department often running rough-shod over the rest of the organization in fulfilling its role as the proverbial "sales prevention department."

So how does it happen? Usually the violation is the manifestation of several unconnected decisions that force a company into unknown territory. A new product roll-out is accelerated for competitive reasons, and thus new suppliers have to be hastily engaged to meet the deadline. Meanwhile, the purchasing department finds a new binding compound that helps the company meet its annual cost-reduction goals, while the product design guys in the manufacturing department introduce a slight change that makes the substitution of such a compound disastrous, in that the product seams now won't hold. And then... I'm making up all that, of course, but you get the point. You'd think it would all be coordinated, but it's not, as silos grow taller and stronger in even the best-managed companies.

Sometimes the violation comes because new information or fast-rising social trends make undoing old decisions very hard, or at least very slow. For instance, when GMOs first started becoming a public concern in Europe a dozen years ago, every global food company suddenly found themselves dependent on a supply chain infrastructure laced with liabilities. Sure, you can make the decision to go with GMO-free corn, but what if there isn't enough available on the market, and what if the suppliers can't really guarantee its GMO-free?


Question #2 -- Why are they handling the situation like such morons?

A week into the crisis, when the initial story is starting to get old, and the world has determined that it can survive the violation, the narrative starts to shift its focus on to how the company is handling the crisis. The company often looks slow, defensive and generally clueless about why the world is mad at them.

Why? While every major company has nice, thick crisis management manuals on their credenzas, reality usually presents a few common obstacles that disrupt the seemingly simple procedures.

Timely information. It's often harder to get than you'd think. Need to know if that batch of a half-million cases of cookies is contaminated so you can make a definitive statement? Great, the lab process for that particular contamination takes only four days before the color of the petri dish will give you your answer. Can it be rushed? Nope, not if you want legitimate results. Four days later, of course, your carcass has already been roasted to the bone.

Internal turf wars. Who should handle those petri dish tests -- Headquarters Quality Control, the local manufacturing technicians, or the supplier that sold you the ingredient in question? Sometimes the fight is over who gets to do it, and sometimes the fight is over who is going to be forced to do it. As the conversations go on, the clock ticks.

Aversion to boldness. Because the information is spotty and the risk is high, the usual corporate reticence elevates. And because the situation is border-line, caution calls for the avoidance of culpability by neither denying or confirming anything specific about the violation. The lawyers stoically inform their colleagues that we'll simply have to endure "a few bad headlines," while the flacks gloomily take their posts behind the stacks of sandbags.

Victim-mentality. Because the company sees the facts from its own self-interested, highly nuanced perspective, it often feels unfairly victimized by the news media and government officials. Often this manifests itself in a defiant CEO, who cowers the flacks by barking things like, "Don't they know our standards are so much higher than our competitors," or "We've sold a billion of these things and only had 12 consumer complaints." The logic is understandable, but also usually suicidal.

Question #3 -- They'll never be able to recover, right?

It depends. The intensity of the media coverage often correlates to the prominence of the brand. It's one thing if generic toys are discovered to be dangerous, but the story is so much more interesting if its Barbie or GI Joe that's got a problem. That's the downside. The upside is that the brand usually has significant strength built into it, and thus can recover quite well if handled right. And, because brand marketing tends to be their strength, the offending companies usually prove to be quite effective at rebuilding the brand, even if their initial handling of the crisis was slow and clumsy. Some, like Hedge-Fund Thinkist James Altucher, even advocate buying the stock while the company is deep in the crisis ditch.

Now, as for the Mattel story...


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