Is There a Crisis Management Plan Crisis?
In light of the fallout from the BP oil spill, I scoured the web sites of some of the Fortune 100 and Googled the words “corporate crisis management plans.” I was unable to find any such plans for those corporations. I believe the reason is either the companies keep such plans private or that many companies just don’t have any.
After watching and reading some of the testimony given by the heads of five of the largest oil companies before U.S. Rep. Edward Markey’s Energy and Environment Subcommittee earlier this month, I am inclined to believe the reason is the latter. If you remember, it was during this hearing that Rep. Markey made the following revelation: [Read Markey’s speech here.]
“In preparation for this hearing, the committee reviewed the oil spill safety response plans for all of the companies here today.
“What we found was that these five companies have response plans that are virtually identical. The plans cite identical response capabilities and tout identical ineffective equipment. In some cases, they use the exact same words.
“We found that all of these companies, not just BP, made the exact same assurances.
“The covers of the five response plans are different colors, but the content is ninety percent identical.
“Like BP, three other companies include references to protecting walruses, which have not called the Gulf of Mexico home for 3 million years.
“Two other plans are such dead ringers for BP’s that they list a phone number for the same long-dead expert.”
The idea that multiple oil companies have nearly identical oil spill cleanup plans is disconcerting, especially when you consider that a similar disaster could have struck any of those companies. But the biggest lesson from the BP disaster for boards in all industries is that it seems crisis management plans are not being taken seriously enough by some of the world’s largest companies.
It’s almost as if some directors are saying, “Thank God that wasn’t us,” yet not realizing the next time it could be them. That was part of the message portrayed by T.K. Kerstteter, president and CEO of Corporate Board Member, in his Board Blog this week.
“I can think of multiple examples over the past years where I thought to myself, “Boy, I’m glad I don’t serve on that board today.” One of those early memories was HealthSouth, when I found out that its directors ended up having 52 board meetings over the course of a year during the height of its accounting troubles in 2003.”
He went on to write about the BP oil spill:
“So with all that going on and, unfortunately, no good solution in sight, what might we director types learn as we watch this experience from afar?
“Even without knowing what is going on in the boardroom we can understand the importance of having a crisis management plan. Early responses to the oil leak were not well organized, and spending money on ads that touted what a good company BP was could have been used much more effectively. I like what BP is doing with its claims program, but it took almost two months to have anything organized—not to mention a plan to stop a leak that we all know now can turn into an environmental and economic disaster.”
Apparently, this is easier said than done. In fact, a survey of audit committee members and management of public companies conducted by KPMG’s Audit Committee Institute (The Audit Committee Journey: Adapting to Uncertainty, Focusing on Transparency) between January and March found that the greatest risk management challenge facing their companies is “understanding the velocity of risk events, and preparing for and responding to the impact.” For the record, 30 percent of respondents answered the question that way, and the other possible answers were “understanding the link between strategy and risk (20 percent),” “tracking and reporting on risks (9 percent),” identification of risks (13 percent),” “mitigation of risks (14 percent),” and “assessing risks (14 percent).”
OK. So you’re asking, “what’s a board to do?” Well, all is not lost. There are crisis management experts out there who have experience with such situations,and, as you might guess, they have some advice. For instance, take Bill Patterson, vice president of reputation management for HMS Partners, an Ohio-based communications agency.
In a November 2007 article, “A Crisis Management Plan: Are You Prepared?” which appeared in multiple publications, he suggests a crisis plan have the following elements:
• Name of a company spokesperson
• List of crisis team members and telephone numbers
• List of potential crises
He says such a plan should answer the following questions:
• What is the worst thing that can happen to my organization?
• How will you deal with it?
• What is the reporting process during the crisis?
Although I did state that I could not locate a single crisis management plan of any public company, I was able to find two from private companies, one a concrete foundation contractor from North Carolina and a utility company from Abu Dhabi.
Both plans are about 50 pages long with specific instructions for executives and line workers, including a section for executives to sign off. Granted, they both stress safety since they are potentially hazardous industries.
The concrete company, Wayne Brothers, defines what a crisis is, the purpose of the plan, and how the plan is carried out. It is broken down into nine sections, which includes such areas as a first-hour response checklist, contacts, procedures to follow if there is a fatality or injury, how to deal with disasters or bomb threats, and how to deal with the media and the surrounding community. [Read plan here.]
The utility, Abu Dhabi Water & Electricity Authority, has a table of contents that include such items as policy, objectives, principles for the crisis management system, and a separate manual on crisis management. It alsoincludes appendices on post-crisis management communications and responsibilities, training, triggers, and crisis scenario summaries. [Read plan here.]
Both plans are updated periodically to reflect changes in the environment and the workplace. The utility plan even includes a form that reflects what changes were made and when they were made.
- Gary Larkin
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Mr. Larkin poses a real challenge to corporate board members: Are you content to have your board status on your resume and perhaps receive a nice check now and then, or do you care about the business you signed on to help lead? If your executive team is too busy or too distracted or too indifferent to care about crisis planning and training, are you sure you are associated with the right company? Or are you sure you have the best management?
Every company should have three crisis plans: An operational crisis plan, what do you do when someone pulls the fire alarm, or the tornado or hurricane is bearing down on your plant; A crisis communication plan, who says what, when and how do they deliver the message and to whom: And, a business recovery plan. And in the best of all possible worlds, those three plans should be integrated into one comprehensive plan.
It’s hard to now, for sure, how many companies have useful and tested crisis plans. It’s like asking folks if they watch Public Television. Many say “yes.” But when the ratings come in, they don’t show up. Ask a corporate executive if she/he has a crisis plan and they’re likely to say “yes” because they don’t want to admit they don’t.
Here comes the NEXT big corporate governance issue, for sure, albeit a day or so late and a few tens of billions of dollars short for BP…
I did a similar search for “risk management committees” about three and a half years ago – well before our discovery of how widespread Board deafness and dumbness to risk management issues actually was – and found essentially the same absence of information on company websites and in the 10-K and other proxy info back then…And, yes, just as you posit here, it was because the issues were unaddressed. And in the few instances where risk management was addressed at all, much the same boilerplate ‘mantras’ had been copied and adopted…with “risk management” largely buried in the already overburdened audit committee charters. (Ironically, the best plan I could find back then, and it was a surprisingly robust one, was at an oil and gas exploration co,) I predict that unless companies begin to address this more proactively, shareholder proposals for more disclosures re crisis management will meet or beat the strong numbers we have been seeing on mandatory “succession planning” disclosures.