Crisis Management

What should we do in a crisis? Learning Objective

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. Outline

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. Negative 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. Positive examples

“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 Ethical crisis

There is an opportunity for organizations to strengthen and communicate their commitment to responsible management They can emerge stronger and more productive Opportunity

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 BP

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. Trustworthiness

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. Responsibility

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. Caring

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. Citizenship

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. Respect

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. Fairness

1. Establish ethical values 2. Implement an ethics program 3. Give ethical leadership. Ethical corporate culture

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 Crisis management principles

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. Summary

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? Questions