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In 1989, Exxon Valdez hit submerged rocks and spilled 11 Mn gallons of crude oil into the waters off Valdez in the Prince William Sound in Alaska. It killed thousands of fish and other sea animals, polluted hundreds of miles of coastline. Numerous fishermen lost their livelihood.

In 2013, criminal hackers accessed 40 Mn Target customer credit cards. The impact could have been on more than 100 Mn people. As many as 60 Mn may have had personal information accessed. Target’s profits dropped almost 50% and there was widespread discontent among their customers.

In September 2015, the EPA accused Volkswagen of violating the Clean Air Act by manipulating its engine controls. It enabled the company to be able to pass laboratory emissions tests. Volkswagen’s stock price fell in value by a third in the days following this scandal. Moreover, a US federal judge ordered them to pay a $2.8 Bn criminal fine.

A corporate crisis is an undesirable critical state of a company which can be caused by both external (Target) or internal (Volkswagen) factors. It also threatens the growth and development of the company. Apart from incurring huge losses, a company in crisis becomes a target of the media. It also faces reputation damage to large extents. Competitors use this as an opportunity to defame the company further and poach their clients as well as employees. Clients lose confidence in the company and its management which can be regained only by very prudent planning and strategizing by the management.

According to an article by McKinsey and Company many incidents do not even make the headlines. However, recent evidence suggests that an increasing number of incidents are turning into a full-blown corporate crisis. This could be a consequence of faster information dispersion which is emerging from growing social media activities.

Guidelines to keep in mind during a crisis:

When hit by a crisis the first and foremost step of the company should be to set up a committee which will dig deep into the details of the causes and impacts of the crisis. Taking any steps without having full knowledge of the matter can further amplify the crisis and worsen the situation. It should conduct a Business Impact Analysis(BIA) to determine the top threats to the organization, and rank them in order of importance so that more major threats are dealt with earlier.

Allocation of resources

A company should prepare a budget to include potential costs of downtime. The total expenditure on fixing the root cause (which may be technical or operational), carrying out the recovery plan and paying compensation to all those adversely affected may be very huge and it’s imperative to have a proper budget in place.

They should take necessary steps to identify affected stakeholders to mitigate their risk and avoid disappointment. It is the most sensitive phase of the recovery process. The PR department should apologize for the inconvenience caused. Also, he should remain confident so that they don’t lose confidence in the company. Goodwill payments may be needed to maintain the loyalty of consumers as well as employees.

Stealing thunder is an unusual yet effective method of dealing with a crisis. Under this method, the company itself reports the crisis to the public or stakeholders and takes responsibility for the situation in hand. This helps avoid exaggeration and excessive criticism by the media or its competitors.

Conclusion:

Prevention and preparedness of crisis are as important as Crisis Management. Every organization should have an up-to-date disaster and business recovery plan which should undergo a regular audit. Timely training of key executives should take place in multiple aspects: what to expect, how to handle the pressure and communicate with stakeholders with utmost sensitivity during a crisis. Each employee plays an important role during a crisis. Management needs to prepare and train them too. They should train the employees by conducting mock drills in all functions. Companies should avoid negligence of any kind. Negligence to comply with standards, as in case of Volkswagen, leads to a unwanted surprises!

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