Two spectacular cases that represent contrasting approaches to crisis management are bound to crop up in discourses on crisis and reputation. The first is lauded as a prime example of excellent crisis handling. The company not only emerged from the crisis with flying colors but its business metrics and reputation received a tremendous and long-lasting boost. For decades, this case has entered countless textbooks and professional guidebooks as the ideal crisis management model.
Tylenol is a successful painkiller produced by Johnson & Johnson that is sold over the counter, much like Panadol in Indonesia, which shares the same generic substance. In 1982 disaster struck, several people died after consuming the drug. Investigations revealed that in some locations Tylenol was laced with cyanide, a deadly chemical. Whoever did it was obviously driven by malicious intent. However, the fact that the company was not to blame did not absolve it from the ensuing negative impact on its reputation.
At the time, Tylenol was the best-selling over-the-counter analgesic that dominated the segment with a market share of 35%. The Chief Executive Officer of Johnson & Johnson, James Burke, took swift and drastic action that is unprecedented, so he had no direct references to turn to for guidance. He boldly decided to recall all Tylenol products across the United States while transparently announcing what happened and was unfolding. Significantly, he urged the public to stop taking the drug immediately until further notice.
During the crisis resolution process, the company continued to transparently announce every action on a regular basis while immediately getting to work on innovative tamper-resistant packaging that could not be manipulated without leaving any trace. These actions cost the company hundreds of millions of dollars, and, compounding the situation, Tylenol’s market share plummeted to 7%. However, by acting transparently and demonstrating its sense of responsibility, seemingly at a tremendous financial cost, Johnson & Johnson was rewarded by regaining public trust.
The situation began to show signs of improvement after two months, and Tylenol’s market share recovered in just one year. The CEO’s decisive steps in taking a series of costly actions proved to be effective in overcoming the crisis, it turned around the adverse condition, and its reputation soared to new heights. Sales not only rebounded but increased. The stock price of Johnson & Johnson rose to new records as a reflection of public trust among individual and institutional investors.
Be Mindful of what you say and do
The second case is also widely known and has become a staple in textbooks on crisis management in a negative sense as something not to be emulated. It concerns the actions and statements of the CEO that escalated the company’s crisis. The mishap befell Tony Hayward, CEO of giant oil & gas company British Petroleum (BP), not that long ago, in April 2010. So, people aged 30 and above surely remember this case that made the headlines for months on end.
Deepwater Horizon was a gigantic offshore drilling rig chartered by BP to extract oil at 1.5 km below sea level, about 70 km offshore in the Gulf of Mexico. Unbeknownst to the crew, a dangerous leak was developing, that ultimately ended up in a massive explosion or blowout, as it is called in the industry. This tragic incident took the lives of 11 rig workers; 17 others survived but sustained injuries and psychological trauma. The blast could not be contained, and the rig sank a few days later.
Oil & gas drilling is a high-risk operation. While safety procedures have improved tremendously over the years, blowouts may still occur as they are an inherent hazard in the industry. Therefore, oil & gas companies are expected to anticipate blowouts and be ready to deal with them at all times. The accident caught everyone by surprise, although BP, one of the largest oil & gas companies, has operating procedures for dealing with blowouts and other industry-specific disasters as well as commensurate corporate communication measures. The inept handling of the latter made a tragic industry incident almost spin out of control.
Ironically, the CEO of the company made the bad situation worse. About a month after the blowout, his nonchalant remark that the oil spill caused by the blowout was but a tiny drop in the vast ocean caused an uproar. This statement is unacceptable under any circumstance, but as carcasses of millions of fish and seabirds coated in oil and mud accumulated on the beaches, it became apparent that this incident was a severe environmental calamity. It was the largest oil spill in history, and his careless words became indelibly imprinted in collective memory.
Other statements he made exacerbated the crisis. One of the most often quoted is that he “wanted his life back” to express his exhaustion. This statement was taken as a sign of irresponsibility and immaturity, and worse, as totally lacking empathy for the families of the eleven workers who lost their lives while working for the company. Under all circumstances, but even more so during crises, CEOs must be mindful of their words and deeds as they are constantly scrutinized by all stakeholders. Ultimately, BP had no choice but to relieve Tony Hayward of his duties and appoint a new CEO.
The business metrics of BP reflected the precipitous decline of public trust in the company. Immediately following the incident stock price of BP plunged from US$60 to US$27, and after three years, it gradually crawled to US$47. Financial recovery was a tedious and lengthy process that took years. BP spent billions of dollars on environmental rehabilitation, fines, and compensation for a multitude of damage caused. These costs would be incurred regardless of who was at the helm of the company at the time. However, the verbal blunders have earned the company little sympathy.
Leadership is Key
The two incidents cited in this article underline leadership’s central role in crisis management. Good leadership elevates the company’s reputation when facing a crisis. Conversely, lousy leadership will make the situation much worse. It is incumbent upon the CEO as the person in charge of effectively managing the company to ensure that the company and him- or herself are ready and well-prepared to face crises that can happen anytime.
The actual test of a CEO’s leadership capability is in facing and overcoming crises. Arguably, CEOs have not demonstrated their full capabilities yet if they have not faced and successfully managed a crisis. Reputation and crisis management are among the most essential responsibilities of a CEO. The department that deals with corporate communication and other executives may provide valuable assistance in preparing and dealing with crises. However, managing and leading the company out of a crisis is the sole responsibility of the CEO that cannot be delegated to anyone else.
Chairman & Chief Consultant, Kiroyan Partners
This article has been published in PR Indonesia magazine 98th edition issued on May 2023, page 56-57.
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