Lecture 12 Crisis effects Conflict Management Dealing with

Lecture 12 Crisis effects & Conflict Management: Dealing with Issues, Risks, and Crises 1

The Changing Nature of Business Crises Catastrophes Casualty accidents Environmental 1990 5. 5% 4. 8% 7. 8% 2001 5. 0% 4. 6% 1. 8% Class action Consumer action Defects/recalls Discrimination Labor disputes White collar crime Workplace violence 2. 2% 2. 8% 5. 4% 3. 3% 10. 3% 20. 4% 3. 8% 23. 1% 2. 6% 14. 9% 2. 7% 12. 4% 7. 8% 12. 3% 2

Crisis Survey of Fortune 500 Executives • 89% of Fortune 500 execs believe that crises are inevitable today • 50% of F 500 execs do not have a crisis management plan • Of those who have had a crisis, 42% STILL do not have a plan! • yet… 97% felt confident that they could respond well to a crisis • less than 25% of Global 2000 Enterprises have a business continuity plan • only 50% have tested their disaster recovery plans • only 63% of businesses with continuity plans have enterprise wide plans • only 20% of plans are shared with critical third parties 3

WTC Business Fallout • An estimated 14, 600 businesses inside and around the World Trade Center were impacted by the disaster • 13. 4 million square feet of space in six buildings in and surrounding the WTC complex were destroyed • 36 miles of new cable had to be installed by Consolidated Edison • 652 companies occupying 28. 6 million square feet of space were temporarily or permanently displaced by the destruction • 200, 000 Verizon Communication lines were knocked out by network failures • 12, 000 Con Edison customers had their power cut • Indirect impact to U. S. businesses has been estimated at $151 billion in the first year 4

…and the King’s business fares no better… (UK statistics) • 90% of businesses that lose data from a disaster down within 2 years of the disaster • 80% of businesses without a well structured recovery plan close within 12 months of flood or fire • 43% of companies experiencing a disaster never recover • 50% of a company experiencing a computer outage are forced to close within five years • 43% of companies that have a business continuity plan do not test it annually • 80% of companies have not developed CM to provide IT coverage for business continuity • 25% of financial institutions have no continuity plan • 40% of companies that have CM plans do not have a team dedicated to disaster recovery • 58% of UK organizations were disrupted by 9 -11, with 13% severely affected shut 5

Early Warning Systems don’t work if you don’t use them • Only 23% of businesses have no early warning of some kind; about 75% of crises result from inappropriate action or inaction by top management • 13 months before the 3 -Mile Island disaster a senior engineer warned of the pending accident • Evidence of threats against the US, use of planes as weapons, and infiltration by Islamic terrorists to the US were all known before 9 -11 • Years before Enron collapsed, Arthur Anderson found $51 million of accounting problems in Enron’s books • Executives Cynthia Cooper of World. Com and Sherron Watkins of Enron both tried to give warnings of accounting irregularities before the crisis • Roger Boisjoly, O-ring engineer for Morton Thiokol warned that there was “blow-by” on the Challenger shuttle O-rings 6

When crises occur, they are disruptive. A survey of Fortune 500 execs showed: • 72% crises escalated • 72% were subject to close media scrutiny • 32% received government scrutiny • 55% interfered with normal business operations • 52% damaged company bottom line • 35% damaged company’s reputation & image 7

Companies that did not have a crisis plan performed poorly over time 8

Conflict Management: Dealing with Issues, Risks, and Crises • Public Relations is involved in “influencing the course of conflicts to the benefit of the organization and, when possible, to the benefit of the organization’s main constituents. ” • The use of public relations to influence the course of a conflict is called “strategic conflict management. ”

Competition v/s Conflict • It is important to understand the differences between the two. • Competition can be defined as when two or more groups or organizations vie for the same resources. In business these “resources” could be sales, market share, contracts, employees, and ultimately, profits. • In the nonprofit sector, the competition might be donations, grants, clients, volunteers, and even political influence.

In competition/conflict, a sense of mission and conviction is needed: • That your organization’s behavior is honorable and defensible • Your organization is ethical • Your organization’s mission is worthy • Your advocacy of the organization has integrity • Your organization works at creating mutual benefit whenever possible • “Fight the good fight!”

Phases of the Conflict Management Life Cycle • • Proactive Strategic Reactive Recovery

Proactive Phase • This phase involves activities and thought processes that can prevent a conflict from arising or from getting out of hand. • One way is through “environmental scanning”—the constant reading, listening and watching of current affairs with an eye to the organization’s interest. • Issue Tracking– attention becomes more focused and systematic through, for example, the daily clipping of news stories • Issues Management– when an organization makes behavioral changes or creates strategic plans in ways that address the emerging issue • Crisis Plan– the first step in preparing for the worst– an issue or event that has escalated to crisis proportions

Strategic Phase • An issue that has become an emerging conflict is identified as needing concerted action by the PR professional. • Three broad strategies take place in this phase: – Risk communication – Conflict-positioning – Crisis management

Strategy Phase Three Strategies: – Risk communication—dangers or threats to people or organizations are conveyed to forestall personal injury, health problems, and environmental damage – Conflict-positioning—strategies to favorably position the organization in anticipation of actions such as litigation/lawsuits, boycott, adverse legislation, elections, or similar events that will play out in the “court of public opinion. ” – Crisis management—a plan of action for dealing with worst case scenario crisis situations

Reactive Phase • This is when an issue or conflict has reached a critical level of impact on the organization • Now PR professionals must react to events in the external communication environment as they unfold.

Reactive Phase Strategies can include: – Crisis communications—implement your crisis communication plan – Conflict resolution—techniques used to bring a heated conflict, such as collapsed salary negotiations, to a favorable resolution (PR people employing strategies to assist negotiation or arbitration efforts to resolve conflict, for example) – Litigation public relations—employs communication strategies and publicity efforts in support of legal actions or trial

Recovery Phase • In the aftermath of a crisis or a high profile, heated conflict with a public, the organization should employ strategies either to bolster or repair its reputation in the eyes of key publics. • Two ways: Reputation management and image restoration

Recovery Phase: Two Approaches – Reputation management—includes systematic research to learn the state of the organization’s reputation and then taking steps to improve it – Image restoration—strategies to help a company’s or organization’s reputation that has been damaged by the poor management of issues or controversies, or callous responses to a crisis

How to Communicate during a Crisis Put the public first Take responsibility Be honest Never say “No comment” Designate a single spokesperson • Set up a central information center • • • Provide a constant flow of information • Be familiar with media needs and deadlines • Be accessible • Monitor news coverage • Communicate with key publics

How organizations respond to crises: • • • Attack the accuser-confront, challenge, threaten Denial-there is no crisis! Excuse-minimize responsibility; no control/harmful intent Justification-minimize crisis- no serious damage/injury Ingratiation-take actions to appease publics involved Corrective action-steps taken to repair damage; prevent from happening again • Full apology-take full responsibility, ask forgiveness

Summary • • • Dealing with Issues, Risks, and Crises Competition v/s Conflict Phases of the Conflict Management Life Cycle Crisis Management Examples

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