Headlines in newspapers and on websites around the world detail corporate crises on almost a routine basis. But their effects are far from routine. Such crises — whether in business, government, education or for-profit or nonprofit organizations — can dismantle the foundations and systems of organizations: top management may resign or, even worse, face imprisonment.
Middle management may be fired or demoted. Rank and file workers may be laid off, often with no real hope of returning to their jobs. Stockholders lose money. The public loses confidence. And the average citizen affected by the precipitating event may suffer the most: lost wages, damaged property, personal injury — even death.
Business is well acquainted with crises that include a wide and ever-expanding range of events. These can include extortions, executive kidnappings, product recalls, industrial sabotage, copyright infringement, theft of proprietary information, work-related homicides, workplace bombings, terrorist attacks and natural and man-made disasters. Regular daily operations no longer exist in organizations dealing with crises. Of most importance, however, is that crises can disrupt the perceptions of people in key leadership positions, causing them self-doubt and stress. The result is often the wrong decisions being made at the wrong time.
The Institute for Crisis Management (ICM) provides an annual detailed analysis of major crises, primarily those described in the news media that relate to management. In 2009, ICM states the majority (51 percent) of the crises reported were “management-related.” This suggests that managers and directors of organizations are doing a poor job of leading organizations through crises successfully, despite evidence that the repercussions of such crises may be severe.
Crisis Management Teams
Crisis management is the systematic way in which members of an organization, in conjunction with external stakeholders, work to avoid potential crises and to minimize and resolve those that do occur. Some organizations have specific crisis management teams to deal with any organizational crisis. Other organizations rely on the senior executive team to handle such situations.
With either structure, the individuals involved must be capable of doing the job. They must be flexible and adaptable to continually changing conditions. They must be willing to listen to others and to share their own thoughts and ideas. They must be comfortable working in high-stress situations. The team must also be capable of responding quickly, decisively and effectively.
As the three examples below indicate, some individuals and management teams are successful in identifying and mitigating potential crises, while others fall far short.
EXAMPLE #1 Morgan Stanley: Responding to Crisis:
In addressing a Harvard Business School audience, Robert Scott, then president and CEO of Morgan Stanley Group Inc., recounted his leadership team experience during the World Trade Center attacks on Sept. 11, 2001. However, he cited several factors that allowed the company — then the largest tenant in the World Trade Center buildings — to survive the disaster. Those factors included the company disaster contingency plan and well-trained managers.
Following the 1993 terrorist attack on the World Trade Center, Morgan Stanley had developed an evacuation and contingency plans for relocating its offices and creating a command center to continue operations. Because of those plans and the time leaders in charge of operations had spent drilling in implementation of those plans, Morgan Stanley evacuated its staff from the towers in the 20 minutes between attacks. By the time the second plane dove into what had been the company’s retail security department, employees had already been evacuated.
Of the more than 2,500 Morgan Stanley employees in the towers, just six were lost that day. The company backup site, located 22 blocks away, was activated by 9:20 a.m., and by 9:30 a.m., senior management was relocated to a different backup site that served as the company’s command center.
Scott cited several other actions taken during the crisis that have continued to benefit the company as a whole even after the crisis was over. Most significant was the company’s decision to put the welfare of its people first, which resulted in revitalizing the company and giving it a new sense of unity and purpose.
He also noted the importance of working with people whose judgment he trusted: “You need good, able people in a crisis . . . and you need to make an investment in people long before a crisis ever hits,” said Scott.
EXAMPLE #2 The U.S. Coast Guard: A Culture Designed to Withstand Crisis
Images of the aftermath of Hurricane Katrina in 2005 may be forever etched in the memories of millions of people across the world. It was nearly impossible to avoid media coverage of the devastation of the elderly and disabled suffering along Interstate I-10 or interviews with survivors trapped in and around the Superdome in New Orleans and the fear of residents not knowing when — or if — they would be rescued or whether they could recover from losing everything they owned.
Hurricane Katrina dealt devastating human, financial and structural blows not only to metropolitan New Orleans but to the entire Gulf Coast region. And the response from most local, state and federal officials and agencies was poor at best. Yet, amid the negative criticism aimed at all levels of government, the Coast Guard gave an exemplary performance in its rescue and recovery efforts.
The motto of the United States Coast Guard is semper paratus, "always ready.” Never was this more apparent than with Hurricane Katrina. Admiral Robert Duncan, head of the Eighth District headquartered in New Orleans, was designated to deal with this epic storm. He ensured that the appropriate vessels, including cutters and helicopters, were dispersed before the storm hit. He requested additional manpower from the Fifth District to handle the crisis. As a result, some 1,200 lives were saved before the Federal Emergency Management Agency (FEMA) ever arrived on the scene.
The Coast Guard was able to act and react with such speed and effectiveness because of its organization. Each geographic district has its own command and control center and is empowered to act autonomously to meet whatever situations arise. Commander Richard J. Dein,
USCG retired, reiterated this point to the Association of Contingency Planners, stating, “We don’t have to get approval to execute.”
Thus, the Coast Guard exemplifies an adhocracy culture, which is synonymous with being flexible, adaptive and responsive to external conditions. The autonomy for each district to respond as needed to meet the specific situations in their geographic area allowed Admiral Duncan and his senior executive team learn to address the crisis created by Katrina effectively and efficiently.
They, in turn, allowed their mid-level managers to make decisions that ultimately saved lives and property. This “response-ready network” exemplifies the organizational structure and culture of the senior executive team that is needed to make the right decisions during times of crisis.
EXAMPLE #3 Penn State: A Culture Designed to Crumble Under Pressure
The crisis at Penn State University, arising from the Jerry Sandusky child molestation scandal, illustrates what happens when the executive culture does not allow for effective crisis management.
The dominant Penn State senior executive culture prior to the crisis was a clan culture. Clan cultures are characterized by closely knit family bonds, including the tendency to protect family members or cover up another member’s secrets or mistakes — which characterizes exactly what happened at Penn State.
Gary Schultz, vice president for finance and business, and Athletic Director Tim Curley covered up the allegations related to Sandusky, the football team’s former assistant coach, and either ignored or failed to respond appropriately to allegations that wrongdoing was occurring or had occurred.
According to reporting by ESPN, Schultz, who oversaw the campus police, “never reported the 2002 allegations to any authorities.”
In its report, the grand jury investigating the case stated that Schultz “never sought or received a police report on the 1998 incident and never attempted to learn the identity of the child in the shower in 2002.” Even more important, the grand jury noted that “no one from the university did so, according to ESPN.com in 2011.” That included the legendary Penn State football coach Joe Paterno, although he was not implicated by the grand jury.
Paterno had technically followed school policy by reporting the sexual allegations to university administrators. He did not contact police, however, and did not initiate any other form of follow up, despite stating that the assistant coach who reported the allegations to him had been visibly upset. Because he had not given Paterno the specific details that were later given to the grand jury and because Sandusky was retiring from the coaching staff, Paterno simply referred the allegations to university officials. In effect, he, too, looked the other way, exhibiting classic clan culture.
Though clan cultures have the tendency to produce organizational success, the clan culture at Penn State resulted in Paterno and others making decisions that produced negative and unsuccessful organizational outcomes. The final impacts of this crisis, which thus far has resulted in criminal investigations, terminations, lawsuits and the tarnished reputations of the university and its football program, may not be known for years.
Of greatest importance, however, is that this senior executive team culture harmed the students — the very people the university was supposed to nurture and protect.
Leadership Before and During the Crisis
Crises do not necessarily need to be negative experiences for all organizations. With appropriate planning and preparation and recognition of potential trouble before it actually hits, crises can be used to the advantage of the organizations involved.
One has only to remember that the Chinese character for “crisis” is a combination of the characters for “danger” and “opportunity” to understand the dual nature of these situations. Which side dominates is often a matter of the attitude and focus on a company’s senior executive team concerning crisis management.
If proper leadership is essential to good business, it is crucial during organizational crises. More importantly, proper leadership must be in place before the crisis arrives. Although numerous meanings and understandings of leadership exist, the focus must be on leadership as a process of influence: over the organization as a whole, specific aspects of the organization aligned with a leader’s responsibilities and over other members within the organization.
In responding to crises, organizations take their cues from their leaders. Thus, whether mid-managers are ambivalent or decisive in making decisions is contingent on the senior executive team culture within the organization. These managers are either limited and bound by the culture or released and empowered by it.
The senior executives provide vision and direction for their organizations. Those who are proactive focus on the future; those who are reactive focus on what is occurring or has recently occurred. Reactive leaders address specific situations instead of anticipating and countering future issues before they can become situations.
To address defects latent in organizational culture, senior executives must be willing to take proactive steps to avoid mismanaging crises or experiencing unsuccessful crisis outcomes. They must be open to change. They must be willing to accept constructive feedback from their managers to develop a culture that empowers mid-level managers to make effective decisions during crises.
Corporations, small businesses, nonprofit institutions — all organizations face crises. By understanding how the senior executive culture affects decision-making within the organization, the senior leadership can ensure that all individuals in the organization know and understand their roles in crisis management.
Developing an awareness and understanding of the culture within an organization will allow leaders to be better prepared for overall crisis management, to select and hire appropriate top and middle management personnel and to improve strategic organizational planning. Mid-level managers may also understand their own decision-making processes better, and improve their performance during crises.
Senior leadership can build the kind of culture that will allow their businesses to weather any crisis successfully.
Ken J. Brumfield is a management professor, management consultant and author of S.E.T. Culture: What Every Organization Needs to Know Before Crises Occur, (CreateSpace, 2012), which is available at www.amazon.com.
This article first appeared in the October 2012 issue of Financial Executive magazine.