Yesterday I heard former GE CEO and legendary business guru Jack Welch espouse his crisis 
management philosophy. Naturally, the news was mainly focused on Toyota. The Squawk Box anchors eagerly wanted to hear Jack’s thoughts on what Toyota should do now and how (if any) crisis management approach can work for the embattled company, at this point. Jack rattled off his five stages that corporate managers typically go through during a severe crisis such as this. I found his comments to be pretty insightful and accurate (based on the many crises l've counseled clients on).
Each stage actually focuses on the worst actions/situation that often occurs when companies make extremely poor decisions (i.e. Toyota). I have to say, from my experience, there are plenty of examples where some of Jack’s stages were not realized because the severe crisis was contained as effectively as possible and some of these behaviors were never exhibited. Here’s what Jack had to say:
Stage 1: Denial – The crisis hits. And, it’s really bad. Most senior executives and their subordinates walk around for days (and sometimes weeks) in complete denial. They believe that their company is too fortunate (and good) and are generally thinking, “Bad things just don’t happen to us.” Toyota had been the shining star within the automotive industry for close to a decade. While Jack wasn’t inside the company, he feels that denial was an absolute reality in Toyota and it helped to create bad decision making (or no decision making at all), which led to bigger and bigger problems.
I’ve seen many corporate executives stay in this denial phase far too long and similar results ensued.
Stage 2: Containment – In the worst case scenarios, Jack points out that even the most capable leaders try to make the problem go away by giving it to someone else to solve. Of course, that never works because the ultimate decisions need to be made at the top (for such severe crises.) Also, those subordinates who now own the problem are left to their own devices to create solutions… and that usually doesn’t end in any type of smart (or sometimes legal) solution.
Quite often, by the time Peppercom has been called into a severe crisis situation, we’re already past the initial containment stage. And, as Jack stated, it’s because someone down the ranks made an awfully bad decision about solving the problem. So, now we’re offering advice as to how to communicate the damage and next steps to key stakeholders.
Stage 3: Shame Mongering – Now the problem is out in the open (which could mean that the media and audiences on the Internet are writing/discussing it).So, human nature takes over and there is a shameless dance of self defense where fingers are pointed and the blame game begins. Jack feels that this stage is very problematic because executives are often too engrossed in protecting their own hide to focus entirely on fixing the problem at hand.
On the flip side (to what Jack said), I’ve consulted with a few really well managed companies where this shame mongering stage never took place. I witnessed senior executives stand up and fully accept responsibility for the crisis at hand. That was refreshing to see.
Stage 4: Blood on the floor – Understanding how Jack managed with an iron fist (and a neutron bomb), I knew the word blood would be highlighted in one of his stages. We’re all familiar with this part. Who is going to “take a bullet” or “fall on his/her sword” for being ultimately responsible for this crisis? Many times, this person will wipe out an entire crowd with him/her before accepting failure. Once the company does this, it is basically telling the world that those responsible have been punished, we’re a better company now and let’s move on.
We’ve seen this happen at Merrill Lynch, Bank of America, General Motors and a variety of other companies that went through the worst of crises in the last 18 months. Quite often, when a crisis reaches that magnitude, the CEO is on the chopping block because a new leader will signify a fresh start.
Stage 5: The crisis is fixed – According to Jack, despite prophecies of doom and gloom, almost all companies that survive a severe crisis are actually better off. The old cliché what doesn’t kill you makes you stronger is ultimately true. Those organizations have hopefully fixed the issues that led to the problem. More importantly, because they made it to Hell and back, managers and employees understand so much better how important it is to understand vulnerabilities and not take as many risks. And, they are all better prepared to manage a crisis, should one happen again.
I agree with this last point except in the case of many Wall Street companies who specialize in financing. While in each case the major crisis hits and then things finally come back to normal, the fact is that because this industry’s risk/reward system is completely out of whack (i.e. making money becomes important at almost all costs,) many companies never really learn (or seem to care) about the next crisis until their leadership finds themselves smack in the middle of one again. And then, it’s just too late.
Each stage actually focuses on the worst actions/situation that often occurs when companies make extremely poor decisions (i.e. Toyota). I have to say, from my experience, there are plenty of examples where some of Jack’s stages were not realized because the severe crisis was contained as effectively as possible and some of these behaviors were never exhibited. Here’s what Jack had to say:
Stage 1: Denial – The crisis hits. And, it’s really bad. Most senior executives and their subordinates walk around for days (and sometimes weeks) in complete denial. They believe that their company is too fortunate (and good) and are generally thinking, “Bad things just don’t happen to us.” Toyota had been the shining star within the automotive industry for close to a decade. While Jack wasn’t inside the company, he feels that denial was an absolute reality in Toyota and it helped to create bad decision making (or no decision making at all), which led to bigger and bigger problems.
I’ve seen many corporate executives stay in this denial phase far too long and similar results ensued.
Stage 2: Containment – In the worst case scenarios, Jack points out that even the most capable leaders try to make the problem go away by giving it to someone else to solve. Of course, that never works because the ultimate decisions need to be made at the top (for such severe crises.) Also, those subordinates who now own the problem are left to their own devices to create solutions… and that usually doesn’t end in any type of smart (or sometimes legal) solution.
Quite often, by the time Peppercom has been called into a severe crisis situation, we’re already past the initial containment stage. And, as Jack stated, it’s because someone down the ranks made an awfully bad decision about solving the problem. So, now we’re offering advice as to how to communicate the damage and next steps to key stakeholders.
Stage 3: Shame Mongering – Now the problem is out in the open (which could mean that the media and audiences on the Internet are writing/discussing it).So, human nature takes over and there is a shameless dance of self defense where fingers are pointed and the blame game begins. Jack feels that this stage is very problematic because executives are often too engrossed in protecting their own hide to focus entirely on fixing the problem at hand.
On the flip side (to what Jack said), I’ve consulted with a few really well managed companies where this shame mongering stage never took place. I witnessed senior executives stand up and fully accept responsibility for the crisis at hand. That was refreshing to see.
Stage 4: Blood on the floor – Understanding how Jack managed with an iron fist (and a neutron bomb), I knew the word blood would be highlighted in one of his stages. We’re all familiar with this part. Who is going to “take a bullet” or “fall on his/her sword” for being ultimately responsible for this crisis? Many times, this person will wipe out an entire crowd with him/her before accepting failure. Once the company does this, it is basically telling the world that those responsible have been punished, we’re a better company now and let’s move on.
We’ve seen this happen at Merrill Lynch, Bank of America, General Motors and a variety of other companies that went through the worst of crises in the last 18 months. Quite often, when a crisis reaches that magnitude, the CEO is on the chopping block because a new leader will signify a fresh start.
Stage 5: The crisis is fixed – According to Jack, despite prophecies of doom and gloom, almost all companies that survive a severe crisis are actually better off. The old cliché what doesn’t kill you makes you stronger is ultimately true. Those organizations have hopefully fixed the issues that led to the problem. More importantly, because they made it to Hell and back, managers and employees understand so much better how important it is to understand vulnerabilities and not take as many risks. And, they are all better prepared to manage a crisis, should one happen again.
I agree with this last point except in the case of many Wall Street companies who specialize in financing. While in each case the major crisis hits and then things finally come back to normal, the fact is that because this industry’s risk/reward system is completely out of whack (i.e. making money becomes important at almost all costs,) many companies never really learn (or seem to care) about the next crisis until their leadership finds themselves smack in the middle of one again. And then, it’s just too late.
On my first day as an employee at J&J, they sat all new staff in a room and before any forms were passed out, before HR processes began, they showed a short subject on how CEO James Burke responded to fatalities stemming from cyanide. 1. He acknowledged to employees and the public that this was a severe issue to be immediately managed. 2. He delegated to nobody at least in PR - he said the company - and he - was responsible. 3. He did not act in self defense. He took the blame, recalled $100 million in goods, and created safety seals for analgesics that are now industry standards. 4. No one got fired. J&J did not position this is a moment of shame. In response, they said they will live up to the credo, or "tear it off the wall." 5. Like Wall Street, this crisis can never be fixed because "tampering" is now a household word. But, J&J regained all market share of Tylenol within two years and remains the industry leader. James Burke was honored by Presidents Reagan and Clinton. Amazing what could have tragically been, had he entered into default positions of denial, containment, shame and blood on the floor.
Posted by: Michael D. | March 24, 2010 at 01:01 PM
Amen, Michael.
That case study is the standard by which all crisis communications/management professionals try to live by.
Thanks
Posted by: ed moed | March 24, 2010 at 01:41 PM
An interesting read Ed, thanks for posting it. Seems to me the old adage of "Honesty is the best policy" holds true for all situations, but especially in ones which are subject to close scrutiny by the public at large.
The Toyota and Tylenol stories would be very similar if Toyota had acted with such open honesty, as it avoids both the stalling (which gets everyone talking more and more negatively), and also the finger pointing. And omitting these stages means that the shame is diminished because the solution comes rapidly and everyone can move on.
Thanks again.
Posted by: Eric Goldman | March 24, 2010 at 06:10 PM
The example of James Burke, CEO of J & J, Managing the 1982 Tylenol Poisoning Crisis, is often cited as a positive example for the captains of industry.
That is most unfortunate for anyone who has a family and friends who remember the gut wrenching terror of 1982, when 7 to 10 people were randomly murdered, wondering if drugs and food everywhere might be deadly, wondering if the next breath might be the last.
The fact that the Tylenol was poisoned inside J & J's own facility, by its own employees, is mass murder, a crime which Johnson and Johnson, headed by James Burke, covered up, with the collusion of the FBI, the FDA and local law enforcement.
The Tylenol murders remain officially unsolved, a crushing 28 years of insult to the Tylenol murder victims families who watched their loved one die.
No one anywhere should take the least pride in how the Tylenol murders where "managed" so that the murderer excaped.
Those who are misinformed, or simply not informed, should visit the most extensive Tylenol Murder Archive on the web http://americanfraud.com
Posted by: James Wm. Lewis | March 25, 2010 at 03:59 AM
Ed,
Thanks for the share and it's always good to see what Jack's up to.
I think there are two more areas that lead to crisis management inefficiency: 1) pigenhole focus on MEDIA management, 2) far too much preperatory focus on the PLAN, versus the capability. I recently wrote about this over at my blog: http://www.jamesjdonnelly.com/2010/03/sharing-a-lament-with-our-bcp-brethren/
I hope these additional thoughts are helpful.
Posted by: J.D. | March 25, 2010 at 09:53 AM
Great points JD. On the first, I also find the opposite. Sometimes the leadership is so scared of the media (or just hoping it will blow over) that they ignore planning or dealing with this key audience.
The second point is dead on.
Posted by: Ed Moed | March 25, 2010 at 11:11 AM