Crisis Communication: how companies deal with their stakeholders?

(Crisis Communication: how companies deal with their stakeholders?)

(MBA ThesisProfessor Joseph Santora)

(Emeline Brul Sup 5 1A46 bd Gaston Birg49100 ANGERS)

August 28, 2011

25,030 Words

Table of contentsAcknowledgement4Executive Summary5Introduction81. Theory about crisis communication111.1 The planning part of crisis communication111.1.1 Defining the types of crises111.1.2 Dealing with stakeholders131.1.3 Crisis history affecting the current crisis161.1.4 Risk communication affecting crisis communication181.1.5 Planning crisis communication along with corporate communication211.2 The action part of the crisis251.2.1 Responding to the crisis251.2.2 Involving the CEO in crisis communication301.2.3 Changing crisis communication because of the internet341.2.4 Helping new technologies for communication teams411.2.5 Protecting the organizations reputation421.2.6 Learning lessons about crisis communication452. Theory of crisis communication applied to real life crises502.1 What to not do in crisis communication502.1.1The EXXON Valdez oil spill502.1.2 Jack in the box562.2 What to do in crisis communication602.2.1 Johnson and Johnson: the Tylenol tragedy602.2.2 Malden Mills and Cole Hardwoods fires71Conclusions77Recommendations89Bibliography93

Acknowledgement

I would like to thank Professor Santora for guiding me through my thesis, enabling me to be more focused on the important parts of my plan.

I would also like to thank all professors from the International School of Management for teaching me new theory on business and communication, and methods of work that I was able to use during the thesis.

Finally, I would like to thank my family for supporting me through my work and encouraging me all along.

Executive Summary

The number of crisis in business and various other areas is rising nowadays because of the changes in technology and in society, and also because of the globalization. As countries and companies depend on each other, when a crisis occurs, more people can be touched by the consequences.[footnoteRef:1] [1: Stephens Malone Bailey 2005]

But why is it so important to act during a crisis? What is at stake? What can companies lose if they dont act quickly?

It is quite simple: their reputation. Business success depends on many things, but mostly on reputation. If people dont trust a company, they wont buy form it.

Even if the company created the brand, it is the consumer who owns it in the end. Organizations have two key assets: the corporate brand and the product brand.

The corporate brand is the institutions image, reputation, financial assets, performance and people. Corporate brand simply tells the consumer what to expect from the company as a whole. The product brand refers to the products and/or services that a company offers on the market. A product or service has its own brand, but its image depends on its corporate heritage.

Consumers have become stronger in the last few years and more demanding. They not only want a product, they want an experience. This is the reason why greater discourse is required between the corporation and its stakeholders, and companies who want to succeed have to communicate the brand message to its prospects, clients, shareholders and stakeholders, but also have them experience it.

There is a need for companies to communicate with their stakeholders. The corporate, political, social and environmental events of recent years have meant that corporate citizens just like their human counterparts can no longer exist as islands. They form part of the society they live in and must ensure that they act as responsible members as well as communicate their actions and intentions. Transparency is the key.

Effective stakeholder communication means talking to the employees, the unions; the governments, the supplier and sharing not just information about the day to day operation, short and medium term plans, but also the corporate vision, mission, purpose and values. This is called a 360 degree communication.

Stakeholder corporate communication can be the reason an investor confronted by two companies stock option will chose one company against another. The frameworks established by effective communication could be the saving grace for a company experiencing an unforeseen disaster.

Corporate communication plays three roles in the evolution of corporate organizations: create the identity, build the brand, and manage the reputation.

Creating the identity involves the creation of a logo, style guides, and internal communication manuals, templates for presentation, annual general meetings, and environmental branding, which means creating a brand presence in the environment of work.

Building the brand is about having products or services that represent the brand and will make a difference on the market.

Managing the reputation is about what people think and feel about the organization. While brand is something that an organization can build its reputation is something it earns. The brand is a promise and the reputation is the result of keeping that promise.[footnoteRef:2] [2: Fernandez 2004]

The brand is a very important item for a company, but its reputation is much more important. If the company keeps its promises, then it will have a great reputation.

But when a crisis occurs, the reputation is at stake, so companies need to protect their reputations, defend them and even restore them if the crisis has been really harmful.

The aim of this report is to see how companies can deal with crisis, using communication to save their reputation and be able to keep on doing business.

Introduction

There are several definitions of a crisis for an organization. Here are some of them, which seem the most relevant to me.

Fink defines an organizational crisis as a situation that can potentially escalate in intensity, fall under close government or media scrutiny, jeopardize the current positive public image of an organization, or interfere with normal business operations including damaging the bottom line in any way.[footnoteRef:3] [3: Stephens Malone Bailey 2005]

Pearson and Mitroff define a crisis as an incident or event that poses a threat to an organizations reputation and viability. A crisis places survival of the organization at serious risk. Crises are composed of five dimensions, which are that they are highly visible, require immediate attention, contain an element of surprise, have a need for action, and are outside the organizations complete control. [footnoteRef:4] [4: Stephens Malone Bailey 2005]

Crises all have the same elements of surprise, of a trigger event and reaction to the crisis. Through the crisis, organizations need to act rapidly, give responses, do damage containing and then recover from the crisis and learn from it.

There is uncertainty in a crisis about how people should react, and there is also uncertainty about blame, public perception, resolution and consequences. The aim of crisis communication is to reduce uncertainty about these matters.[footnoteRef:5] [5: Stephens Malone Bailey 2005]

The aim of crisis communication is to save the reputation of an organization and the people in it. Communication cannot make the crisis disappear. Once the crisis has occurred, it cannot be taken back. But crisis communication is about saving the companys image despite the crisis that it is facing.

In crisis communication, the most important is to make sure that all the stakeholders get the information that they need. These stakeholders are the tenants, vendors and regulators. It is very important to do so because otherwise the company could lose its reputation, its money and in the worst case the business in itself.

In order to have a good crisis communication, companies should plan the case of a crisis and what to do in that case. They have to establish who will set up the crisis communication team, the responsibilities of each member, which one will talk to the press and when. The plan should include possible scenarios of crisis and what responses would be given to each scenario. Making a plan prevents companies to make mistakes because of the panic of the situation, which they would not make when planning a possible event.

When the crisis occurs, members of top management and employees who are related to the crisis have to be informed quickly. Some companies have established a phone tree as soon as a crisis occurs. Other companies make sure that top management is informed and then they handle the situation.

In a crisis, to inform stakeholders various means can be used: phone, text messaging, e-mailing, Facebook, twitter, company blogs, etc. These devices enable the company to inform its stakeholders quickly and to update them on the situation. But using various devices doesnt keep the company from having only one spokesperson, which is critical in crises.

The message that is given during a crisis is very important, as much as who gives it. The company needs to provide as much information as possible, and the message has to be transparent, accurate and compassionate. The spokesperson has to know the facts and understand how the crisis occurred and what will be the consequences. Only in that case can the spokesperson give a clear message. Compassion is also very important because people who are facing the crisis are likely to be scared and angry and will not consider the facts if the company doesnt express compassion. Then the company should explain what plan it will use to respond to the crisis. The aim here is to reassure the stakeholders on the future actions of the company