WHAT BUSINESSES CAN LEARN FROM RECENT CORPORATE SCANDALS
by Janine Reid
Scandals and controversy can devastate a company regardless of size. Janine Reid examines these crises and describes how companies can react to them appropriately. She also provides a checklist of possible situations that can have an adverse effect on your firm.
In the fall of 2000, I wrote an article about the Ford-Firestone crisis and the lessons that the construction industry could learn from the way that Ford and Bridgestone/Firestone handled the recall of Firestone tires implicated in Ford Explorer rollovers. At that time, I wrote that the crisis could — and should — have been avoided. Both companies had ample warning that something was terribly amiss with their product; however, they chose to proceed with a 'business as usual' approach, which resulted in needless suffering and loss of human life.
Unfortunately, the public has witnessed a steady stream of crises since then, from the blowup of the dot-coms to the more recent wave of financial scandals involving Enron, Worldcom, Tyco, Adelphia, and even Martha Stewart. As with the Ford-Firestone crisis, most of these situations could and should’ve been avoided. Granted, most of the current crop of financial scandals have resulted from criminal activity; however, had the built-in checks and balances functioned properly, the fraud might’ve been averted or caught early enough to prevent needless pain and suffering.
As with the Ford-Firestone case, businesses can learn some fundamental crisis management lessons from these situations. Although accounting errors or financial fraud might not be on your radar screen, it’s likely that your company has some areas of vulnerability. To identify these situations, I recommend that you engage in a crisis audit to identify situations that could put your company at risk. By identifying the problems you could encounter before they happen, you should be able to avoid these situations entirely, or at a minimum, prevent them from becoming full-blown crises.
We define the term 'crisis' as 'any incident that can focus negative attention on a company and have an adverse effect on its overall financial condition, its relationships with its audience, and/or its reputation in the marketplace.'
If that definition sounds abstract, review this list of very real situations to identify those that could knock at your door, or knock a hole in it. (See Exhibit 1). Keep in mind that the list is by no means complete. It does, however, suggest important questions, such as what else are you vulnerable to and which crises have the greatest potential of occurring?
If you checked even one of these events, don’t feel like the Lone Ranger. It’s what you do with this information that’s important. If you’ve checked a number of situations, create a 'Top Ten' list ranked from the 'most-likely crisis,' which would be numbered as one, to 'the least-likely crisis,' which would be numbered ten.
Now that you’ve identified potential crises, your next goal should be to: 1) eliminate the possibility of their occurrence, and 2) create a plan to minimize their potential negative effects. This exercise is the first critical step in the crisis management planning process. Completing the exercise and following through could prevent your company from becoming front-page news.
Janine Reid is the founder of the Janine Reid Group, Inc. in Denver, CO. She is the author of three books: Saving Lives! Proven Methods to Eliminate Job-Site Fatalities, Crisis Management: Planning and Media Relations for the Design and Construction Industry andShe has also produced two videotapes on crisis management and working with the news media. Reid can be reached at (303) 322-3211, e-mail [email protected] or visit www.janinereid.com. What To Do When The Sky Starts Falling.
Exhibit 1: Crisis Audit
Natural Disaster
- Lightning
- Earthquake
- Extended severe cold/heat
- Extreme snow/ice conditions
- Flood/drought
- Hurricane/Tornado/Tsunamis
Operations
- Accident involving a company vehicle
- Bomb threat
- Construction delay
- Cost over-run
Employee Safety and Health
- Chronic safety problem
- Exposure to carcinogens
- Injury/fatality of an employee or non-employee
- Personal injury suit
- Regulatory citations
Labor Relations
- Negotiations
- Organizing drive
- Unfair labor practices
- Violent strike/work stoppage
Management Issues
- Contractual dispute with client resulting in litigation
- Death of owner or key employee
- Employee raiding by a competitor
- Loss of key customer
- Crisis in the same industry
- Someone else’s crisis on your property (guilt by association)
- Kidnap, ransom, extortion
- Hostile takeover attempt
- Key employee starts competing company
- Management succession
- Merger/acquisition
- Murder
- Negative publicity due to rumors
- Negative publicity relating to political contributions
- Reorganization/downsizing
- Serious cash flow problems
- Sudden market shift
- Terrorism
- Data/telecommunications failure/loss of critical data
- Design error/issue
- Sabotage by extremist environmental group
- Explosion
- Fire
- Major utility failure
- Neighborhood/community group opposition to a project
- Structural/subsidence collapse
- Environmental Accidents/Liabilities
- Groundwater contamination
- Air quality problem
- Gas leak
- Long-term exposure of toxic chemicals to the community
- Release of toxic chemicals into the air or waterways
Employee/Management Misconduct
- Bribery/kickbacks
- Disgruntled employee
- Executive misconduct/fraud/embezzlement
- Lawsuits from discrimination, sexual/racial harassment
- Murder
- Price fixing
- Sabotage
- Scandal involving top management
- Slander
- Suicide
- Theft/Vandalism
- Workplace violence
Government Affairs
- Legislation and/or regulations that could affect business