Crisis Management
Learning Objective
• What should we do in a crisis?
Outline
• Not paying attention to ethics in crisis management can
cause the collapse of firms.
• How to create a corporate culture to deal with a crisis.
• Analyze the BP oil spill.
Negative Examples
• Union Carbridge in India – poisonous gas leak caused the
deaths of 1000s. The firm has paid $470m in compensation
and several executives have been convicted.
• Starbucks – Charged emergency response teams for
bottles of water after the 9/11 attack – internet based
consumer boycott.
Positive examples
• Johnson and Johnson – nationwide recall of all faulty
products. Turned out to be an isolated criminal act. Now
Tylenol is one of the most trusted brands in the market.
• Starkist – “Dolphin safe” labels in 1990 gave it a
competitive advantage.
Ethical crisis
• “A decisive moment caused by a severe ethical lapse
requiring the firm and its leadership to decide whether to
react based on a set of ethical values and principles or
based primarily on financial objectives.”
• Product defect
• Environmental disaster
• Illegal conduct
• Breaches of human rights
Opportunity
• There is an opportunity for organizations to strengthen and
communicate their commitment to responsible
management
• They can emerge stronger and more productive
BP
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Explosion on Deep sea oil drill killing 11 workers
5 million barrels of oil released into the ocean
Environmental damage to wildlife
Damage to fishing and tourism
Collapse in share value
Trustworthiness
• Honesty, keeping promises, integrity, transparency and
loyalty.
• Management failures in communication, procedures,
training and supervision of employees, supervising
contractors and appreciating risk.
• All undermined trust in BP
• Bp has set up Opentalk a confidential helpline for people to
speak up when the code of conduct is being violated.
Responsibility
• Not trying to shift blame for your mistakes.
• Apologize and prepare to compensate those that have
been harmed by your mistakes.
• BP – tried to blame first the rig owner and then the cement
contractor Halliburton.
• BP – Tried to make residents give up their right to sue.
Caring
• Before the crisis they failed to install a safety device.
• Before the accident a survey showed that 46% of workers
feared reprisals if they raised safety concerns about the
drilling.
• Mr. Hayward went out on his yacht during the recovery
effort.
Citizenship
• Taking reasonable steps to help protect the environment
and helping your community.
• Oil and gas trade body API lobbies against reform and
modernization of safety regulations.
• So an industry self-policing body might not work well.
Respect
• One offshore veteran “If you got hurt they just pushed you
aside and put someone else in”.
• Putting profit before people.
• Drilling vessels contracted on days rates.
• Relentless demands to speed up the process.
Fairness
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BP made a $20billion fund to help pay for the disaster.
Have spent about $40billion.
Not yet clear whether that is fair or not yet.
BP has revenues of $240billion a year.
Ethical corporate culture
1. Establish ethical values
2. Implement an ethics program
3. Give ethical leadership.
Crisis management principles
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Be honest and transparent with information
Remain visible
Accept fault if you are at fault and apologize
Take reasonable steps to fix the problem and stop it from
happening again
Demonstrate sensitivity to those harmed
Ensure the natural environment and local community are protected
Respect the rights of all stakeholders
Ensure timely and fair compensation
Summary
• Everything done by the company and communicated to the
stakeholders should always be based on core ethical
values like trustworthiness, responsibility, caring,
citizenship, respect and fairness.
• Excessive reliance on profit maximization has led to many
crises, e.g. Nike.
• A firm can have an opportunity to show its higher core
ethical values in a crisis.
Questions
• Give 3 examples of causes of ethical crises?
• Give 3 examples of mistakes that were made by BP?
• Give 3 common examples of ethical leadership failures and
the antidotes?