1. Effective Crisis Management Examples Effective crisis management occurs when an organization employs skillful planning and a proactive r...
1. Effective Crisis Management Examples
Effective crisis management occurs when an organization employs skillful planning and a proactive response to avert a crisis entirely, limit its severity and duration, or turn it into an opportunity. These examples feature organizations that responded with transparency and agility.
2. CPG Product Crisis Management Example: Tylenol Product Tampering
In 1982, seven people in the Chicago area died after taking Tylenol capsules poisoned with cyanide. The tampering was believed to have occurred when someone injected the chemical into capsules and returned them to store shelves.
The deaths remain unsolved, but the way Johnson & Johnson handled the episode has become a teaching case study for effective crisis management at Harvard Business School and elsewhere. In 2003, Fortune magazine named James Burke, the company’s CEO at the time, as one of history’s greatest CEOs for the way he handled the scare.
Below are some highlights of Johnson & Johnson’s handling of the crisis:
Fast and Decisive Action: According to a book on the case by Harvard Professor Richard Tedlow, on the afternoon of the first two deaths, the company halted all product advertising, sent 450,000 messages to hospitals, doctors’ offices, and other stakeholders, and established toll-free hotlines for consumers.
At a cost of more than $100 million, the company recalled all products from store shelves — one of the first nationwide recalls — even though government officials felt that doing so was excessive. Additionally, Johnson & Johnson issued warnings to consumers not to take its pain reliever.
Honesty and Integrity: Despite evidence that the poison was introduced via store shelves, Johnson & Johnson did not try to evade blame. As a result, Burke was praised for his honesty. His integrity stood out in the context of the post-Nixon era and the forthright handling of the Three Mile Island nuclear disaster.
The company became a pioneer in developing tamper-proof packaging, and eventually moved away from capsules to a more tamper-resistant caplet. Burke was candid in expressing regret that the company had not done so right away.
3. Healthcare Crisis Management Example:
Global Pandemic While the global pandemic that began in late 2019 challenged many organizations, the calamity also highlighted examples of strong crisis management. The Cleveland Clinic Abu Dhabi operates as a U.S. medical center in the United Arab Emirates.
The hospital faced COVID-19 early in its migration beyond China. The clinic responded quickly in order to both expand its emergency capacity and continue providing care for cancer and transplant patients, as well as for those with other complex needs.
Dr. Rakesh Suri, CEO of Cleveland Clinic Abu Dhabi, says that forming a crisis management team (that included individuals from all levels of the organization) was a critical step, as doing so enabled the hospital to act with agility. The medical center also coordinated with other local hospitals to maximize resources and play to each institution’s strengths.
The executive team took extra steps to take care of staff, including talking honestly about their emotional challenges and providing sleeping rooms, meditation space, online workouts, nutritious food, counseling, and childcare.
An in-depth case study on the hospital surfaced several lessons, including the importance of preparing for worst-case scenarios, leaders empowering their teams to solve problems innovatively, encouraging candor, proactively engaging all stakeholders, and taking care of physical and mental well-being. In business, companies had to pivot quickly as the pandemic changed the marketplace.
A 2020 Harvard Business School study of 350 senior executives in China who faced the crisis early found some key commonalities among those who managed effectively, including the following:
1. Improve decision-making by moving away from the hierarchical model.
2. Collaborate in new ways with customers, suppliers, regulators, and even competitors.
3. Support remote work by changing company culture to prioritize trust and results over command-and-control and physical presence.
4. Ask employees to self-select for challenging assignments in order to get maximum ownership and motivation.
5. Embed new learning and innovative digital strategies that arise in a crisis into your organization’s muscle memory.
4. Examples of Bad Crisis Management (and What They Teach Us)
In contrast, examples of poor crisis management are usually marked by fundamental errors in preparation or execution of an emergency plan — and sometimes both. Often, these problems compound, which only multiplies the scale of the crisis.
This is especially true in so-called black swan events — incidents that are extremely rare, have severe consequences, and are generally perceived in hindsight to have been obvious to happen. Since the likelihood of a black swan event occurring is low, leaders may dismiss the risk (if they are even conscious of it).
But, the grave consequences of black swan events can pose a much larger threat. Following are real-world examples of weak crisis management and the lessons crisis managers can take from them.
5. Natural Disaster Crisis Management Example:
Hurricane Katrina In August 2005, Hurricane Katrina hit the U.S. Gulf Coast and flooded New Orleans, causing more than $100 billion in property damage and killing more than 1,800 people. Even though the hurricane began as a natural disaster, the scale of the catastrophe was manmade. Various analyses of the response, including a report by Congress, focused on weak aspects of the crisis management and highlighted the following important lessons:
i. Preparation Is Key: In 2006, a study by the Army Corps of Engineers found that the levees built to protect New Orleans from flooding were incorrectly engineered, poorly built, and insufficiently funded. Additionally, government officials who were aware of the storm forecast did not make provisions to evacuate residents who did not have cars or could not afford bus fare, which left tens of thousands of vulnerable people stuck in the city. The government also didn’t position enough emergency supplies in New Orleans ahead of the storm.
ii. Train Your Crisis Team: The Federal Emergency Management Agency (FEMA) was led by officials who were political appointees and had no experience in disaster management. A congressional review found that agencies handling the response were unsure of their roles and responsibilities. Government agencies failed to learn from a drill of a similar hurricane hitting New Orleans the previous year.
iii. Simplify Communications and Decision Making: Federal and local crisis managers struggled to communicate due to equipment failure and incompatible technologies. Confusion among different levels of government paralyzed decision making. Ultimately, the crisis plan was too complex — with 29 federal agencies playing a role, duties were unclear and too much red tape hampered efforts.
iv. Act Quickly but Not Rashly: About $2 billion spent by FEMA in Hurricane Katrina was wasted or fraudulently claimed, according to a New York Times analysis. In many ways, this was a symptom of a poorly planned and executed crisis response. For example, FEMA ordered $100 million in excess ice that truckers shuttled around the country for weeks while the agency tried to figure out where it should go (after storing it for two years, the government melted the ice). Additionally, the agency spent $7.9 million to renovate a former army base as a shelter in Alabama that only 10 people stayed at (the shelter closed within a month). Half of the mobile homes ordered as temporary housing — at a cost of $430 million — went unused.
6. Industrial Disaster Crisis Management Example:
Bhopal Gas Leak In 1984, a toxic gas leak from a Union Carbide India pesticide plant in Bhopal, India killed up to 30,000 people from immediate and long-term effects (according to estimates) and injured about 575,000. The accident is one of the world’s worst industrial disasters.
The leak was caused by the introduction of water into a chemical tank, which resulted in a heat-generating, runaway reaction. Several inquiries found evidence of company negligence, but an internal analysis blamed employee sabotage.
Researchers have written extensively about the accident, and some of the lessons cited are universally helpful in crisis management, including the following:
i. Rehearse Emergency Procedures: The plant did not have an emergency plan, and plant operators did not know how to handle an emergency. No effective public warning system or public education about the risks were in place.
ii. Prioritize Crisis Readiness: The company reduced training and staffing at the plant to save costs. Supplies of gas masks were inadequate, and several plant safety mechanisms were either deactivated or faulty. Additionally, several experts found that there weren’t enough operators for the unit to function safely. On the night of the accident, the supervisor delayed investigating an initial small leak until after a crew break, rather than being proactive.
iii. Share Information: A U.S. Union Carbide plant found earlier in the year that a runaway reaction in the chemical tank could happen, but they didn’t communicate it to the India plant. When the leak occurred, plant staff did not inform senior managers or local authorities.
Most of the information on the chemical involved, including how to treat exposure, was proprietary and was not disclosed. So, public health authorities and hospitals in Bhopal did not know immediately what victims had been exposed to (and therefore couldn’t provide the best antidotes).
For in-depth case studies on the Bhopal accident, see Union Carbide Corp.’s site dedicated to the tragedy, as well as “An Analysis of the Bhopal Accident” and “The Bhopal Disaster and Its Aftermath.”
Example:
BP Deepwater Horizon In 2010, BP’s Deepwater Horizon oil-drilling rig in the Gulf of Mexico exploded, killing 11 employees and causing an oil leak that lasted for three months. This is the biggest oil spill in U.S. history.
The oil spill devastated the environment and tourism. Damage to the environment has been long-lasting — one study valued the impact at $17.2 billion. The spill also caused billions of dollars in negative economic impact on tourism in the region. Meanwhile, the financial toll for the company included the following costs:
i. Through early 2020, BP paid about $70 billion in clean-up costs, legal settlements, and fines.
ii. In the two months after the spill, the company’s shareholders lost $105 billion as its stock price plummeted.
iii. For a time, the company’s survival was in question. Its bonds crashed in value, and the company had to stop paying dividends for three quarters.
iv. In the United States, the BP brand faced a backlash from consumers, and BP gas stations saw sales drop 10 to 40 percent in the immediate aftermath of the spill.
v. BP had to reduce its business spending for years, which analysis said put it behind competitors such as Shell, whose brand value rose 24 percent that year, according to Interbrand. BP dropped from the second-largest global oil company in 2010 to fourth, where it has remained.
Example: Wells Fargo For
14 years, until the practice was exposed in 2016, hundreds of thousands of Wells Fargo employees opened customer accounts without consent to meet sales targets and generate fees for the bank. The financial consequences included the following:
i. The bank paid more than $7 billion to settle government investigations and private lawsuits.
ii. Wells Fargo lost business from the state governments of California and Illinois, as well as from the cities of Chicago, Philadelphia, and Seattle, among others who cited the illegal behavior as the reason.
iii. In response to the scandal, in 2018, the Federal Reserve imposed a limit on the bank’s growth, putting Wells Fargo at a competitive disadvantage and costing it an unknown amount of potential increase in customers and loans.
iv. The company lost $220 billion in stock market value in the two and a half years after the enforcement action. The stock hit a 10-year low in May 2020, faring far worse than its peers.
v. The bank has racked up heavy expenses related to the crisis, including legal fees, investigation costs, and spending on an ad campaign aimed at restoring consumer trust.
7. Crisis Management Lesson:
Live Up to Your Company Values to Avoid Scandals According to the government, Wells Fargo executives were aware of the abuses as early as 2002, but failed to act despite espousing a culture of integrity.
The executives imposed such aggressive sales targets for staff that many employees said they felt they had no choice but to engage in the illegal practices. The government is pursuing some individual executives for their roles.
Example:
Equifax In 2017, Equifax, a credit reporting bureau, suffered a data breach that gave hackers access to sensitive personal information for 147 million consumers. The incident was the most expensive data security breach to date. In 2020, four members of China’s People’s Liberation Army were indicted in the United States in the breach.
i. The company had $1.7 billion in legal settlements, fines, fees for consultants, lawyers, and investigators, and the cost of providing credit monitoring and identity protection to consumers.
ii. In the week after Equifax disclosed the breach, the company lost $5.3 billion in market valuation as its stock price declined 31 percent.
iii. For the first time ever, a credit rating agency downgraded its outlook on a company over cybersecurity concerns. A credit rating downgrade increases a company’s borrowing costs. Moody’s dropped its rating on Equifax to negative from stable in 2019, two years after the breach, citing continued high costs related to the hack. Moody’s further projected that the spending would continue to hurt Equifax’s profitability
Example:
Facebook In March 2018, a whistleblower told two newspapers that a British firm called Cambridge Analytica had bought data about 87 million users and their friends without their consent from Facebook. The company used the data to build voter profiles that Cambridge sold to election campaigns, including Donald Trump’s presidential run.
The episode sparked a scandal over user privacy at Facebook, the biggest of many. CEO Mark Zuckerberg was called to testify before Congress. The company faced investigations by regulators in the United States and Britain, as well as lawsuits from several jurisdictions. The financial repercussions included the following:
i. The U.S. Federal Trade Commission imposed a $5 billion fine against the company — the largest ever. The FTC said Facebook’s behavior violated a previous consent decree with the agency. The Securities and Exchange Commission fined the company $100 million and British regulators fined 500,000 pounds.
ii. Engagement on Facebook dropped by 20 percent in the months after the scandal, a metric that affects the company’s ad revenue.
iii. Facebook users’ confidence in the company dropped 66 percent in the weeks after the scandal broke and Zuckerberg testified before Congress, according to a Ponemon Institute survey. Some users quit Facebook (including 3 million Europeans) in the subsequent months over privacy abuses. The hashtag #DeleteFacebook began trending on social media, and public support for tighter regulation of social media grew.
iv. Growth in Facebook revenue and users dropped in the quarter after the Cambridge Analytica affair. The company’s stock valuation lost $130 billion in two hours after the news, weakening the social network’s forecast further.
v. Facebook sustained a drop in brand value of 6 percent (about $2.9 billion) for the year to $45.2 billion, according to Interbrand.
8. Crisis Management Lesson:
Apologize When you are Wrong U.S. investigators found that Facebook violated consumer trust by allowing a third party to collect users’ personal data without their knowledge.
The data collectors also violated Facebook policies that required deleting the data. Facebook CEO Zuckerberg was silent for five days before issuing a statement acknowledging that mistakes had been made. Facebook users heavily criticized the response, prompting Zuckerberg later to say, “I’m sorry” in media interviews.
IT experts said the response was slow and underwhelming. Critics faulted Facebook for technical decisions that resulted in app developers being able to access information about users’ friends, saying safeguards were inadequate. Commentators such as Tufts University cybersecurity expert Susan Landau also criticized Facebook for not taking legal action against Cambridge Analytica and for failing to inform users whose data was taken until well after the news broke.
The company placed full-page newspaper ads, made changes to data-handling practices, and implemented other reforms, but consumer trust remained damaged. Analysts said Facebook’s gestures, including its lack of apology, rang hollow and came too late.
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