Magazine article Management Review

Crisis Management

Magazine article Management Review

Crisis Management

Article excerpt

CRISIS MANAGEMENT

Because crises arrive in many forms and almost always as a surprise, the term crisis management describes a broad range of managerial challenges. One increasingly common crisis comes from the threat of a takeover.

On the day of last year's stockmarket crash, D. George Harris described his personal experience at SCM Corporation to members of the National Association of Corporate Directors. Harris became president and chief operating officer of this manufacturing company just one one month before a serious takeover bid. Having returned from a week-long trout fishing trip with his 12-year-old son, Harris walked into his apartment as the telephone was ringing. Answering it, he learned that SCM was the object of a takeover bid by Hanson Trust. "Thus began the most traumatic and grueling four and one-half months of my life," he said. "It was an experience that left me exhausted and benumbed, left several close colleagues on the beach, left employees shaken and confused, and left the company, as wel all knew it, gone." He recounted the experience dramatically and gave such solid advice to those facing a similar threat that his remarks have been widely published.

A different kind of crisis may arrive--also suddenly--through a failure of product or process, or even from a perfectly sound product that has been contaminated by others. James Burke, chairman and CEO of Johnson & Johnson, had to deal not once, but twice, with the latter kind of crisis when Extra-Strength Tylenol capsules were poisoned by persons then unknown in 1982 and again in 1986. Union Carbide's management was confronted with and is still working through the Bhopal, India disaster, which resulted from a poison-gas leak in 1984. Despite meticulous measures devoted to safety, outside parties can create disasters for the most well-managed companies.

Other kinds of crises may arise through computer breakdowns or other equipment failure; still others come from human failures of communication or a breakdown of ethical standards. There is no end to the list of causes that can create a need for crisis management.

FINANCIAL EMERGENCIES

The most common crisis faced by managers, however, is the urgent need for a financial turnaround. The company is experiencing a serious negative cash flow. Sales are sluggish, market share is declining, expenses are out of control, and employees--who often comprehend the gravity of the situation and its causes more clearly than top management--are demoralized. Very likely there have been ample indicators available to forecast the crisis, but these indicators, which should have sounded loud alarms in the minds of top management, have been ignored. Now, "suddenly," there is an emergency situation, and it's time for turnaround, crisis management.

Some years ago a commercial airliner unaccountably began a free-fall to earth. During thousands of feet of this fall the aircraft was upside-down. Somehow the pilot managed to right the plane and bring it to a hard landing: Parts of the plane came loose and bounced down the runway, along with what was left of the plane. The aircraft finally came to a stop with its passengers badly shaken and bruised, but all still alive. For the first few days, airline officials thought the pilot deserved a medal for his superhuman skills and coolness under conditions of incredible stress. Upon later investigation, however, it turned out that the fall had been due to pilot error, and the pilot was discharged.

So it is with most corporate financial crises. They may appear at first glance to have been caused by outside factors, but upon closer inspection, the critical factor is often complacent and incompetent management. The chief executive "pilot" had not had his eye on the instruments or his mind on the course. Or there may have been a failure of communication between the CEO and the chief financial "navigator. …

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