Harvard
Business
Review
On
Crisis
Management
...
Managing Crisis You Tried to Prevent
Norman R. Augustine

Originally published in November – December 1995
Reprint # 95602

A Harvard Business Review Paperback

Managing the Crisis You Tried to Prevent

Managing the Crisis You Tried to Prevent

Norman R. Augustine
Executive Summary
NEWS REPORTS ANNOUNCING that yet another business has stumbled into a crisis—often without warning and through no direct fault of its management— seem as regular as the tide. And the spectrum of business crises is so wide that it is impossible to list each type. On a single day this year, the Washington Post reported a series of crashes suffered by American Eagle Airlines, the bankruptcy of Orange County, and Intel’s travails with its Pentium microprocessor. Other noteworthy crises have been the Challenger space shuttle explosion, the
“incident” at the Three Mile Island nuclear reactor, and the series of deaths resulting from cyanide adulteration of Tylenol capsules.
Fortunately, argues Norman Augustine, almost every crisis contains within itself the seeds of success as well as the roots of failure. Finding, cultivating, and harvesting that potential success is the essence of crisis management. And the essence of crisis mismanagement is the propensity to take a bad situation and make it worse. Augustine has distinguished six stages of crisis management and makes recommendations for dealing with each: avoiding the crisis, preparing to manage the crisis, recognizing the crisis, containing the crisis, resolving the crisis, and profiting from the crisis.
Augustine concedes that only the truly brave or the truly foolish would make the claim that one person, sitting atop a corporate hierarchy, can successfully guide the daily actions of thousands of employees. But, he argues, the one aspect of business in which a chief executive’s influence is measurable is crisis management. Indeed, the very future of an enterprise often depends on how expertly he or she handles the challenge.

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There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life is bound in shallows and in miseries. -William Shakespeare
... .........
From this incisive passage in Julius Caesar, Shakespeare shows himself to be not only a brilliant poet and dramatist but also an excellent businessperson. For as regular as the tide are headlines announcing that yet another business has stumbled into a crisis —often without warning and sometimes through no direct fault of its management. Earlier this year, a single day’s copy of the Washington
Post reported the almost unprecedented series of crashes suffered by American
Eagle Airlines; the possible connection between some of the crashes and aircraft built by the French company Avions de Transport Regional; the bankruptcy of
Orange County, California, stemming from speculation in leveraged derivatives; and Intel’s travails with its Pentium microprocessor. All in all, a good day for bad news. Business as usual, some might say.
The airline, financial securities, and computer industries are, of course, not alone in facing crises. And the tribulations of 1995 are hardly unique. Throughout history, there has been no shortage of business crises. In 1637, speculation in
Dutch tulip bulbs peaked at today’s equivalent of more than $1,000 per bulb and the market collapsed under its own weight, presenting financially wrenching crises for speculators and their backers. In 1861, the infant Pony Express met its sudden demise when Western Union inaugurated the first transcontinental telegraph. In 1906, the San Francisco earthquake devastated the city and its banking community —except for A.P. Giannini, whose small Bank of America continued making loans during the crisis and went on to become one of the world’s largest banks. In 1959, the Food and Drug Administration seized a tiny part of the nation’s cranberry crop because it contained a small residue of weed killer, causing the bottom to drop out of the cranberry market right in the midst of the Thanksgiving season. In the 1970s, a number of large insurance companies faced possible bankruptcy as a result of the Equity Funding scandal when they discovered that they had been paying off large sums to nonexistent policyholders. In the past few years, a trusted manufacturer of baby food admitted that its “apple juice” was actually flavored sugar water; syringes inexplicably turned up in the cans of a popular cola brand; and a major oil company’s obsolete drilling rig became a rallying point for a radical environmental group.

Almost every crisis contains within itself the seeds of success as well as the roots of failure.
Almost every crisis contains within itself the seeds of success as well as the roots of failure. Finding, cultivating, and harvesting that potential success is the

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essence of crisis management. And the essence of crisis mismanagement is the propensity to take a bad situation and make it worse. Many would argue, for example, that President Richard Nixon’s cover-up of the Watergate break-in created a bigger crisis than the original transgression alone would have produced. It is reasonable to ask at this point, What qualifies Norm Augustine to talk about crisis management? Did he take courses in the subject? Does he have an advanced degree in crisis management? Has he published scholarly papers on how to contain crises successfully?
Regrettably, the answer to all those questions is no. No diplomas hang in my office effusively declaring in Latin my expertise in “crisisology.” When it comes to crisis management, I am a graduate only of the school of hard knocks. But I have acquired quite a bit of scar tissue over the years as a result of an impeccable sense of timing that has often put me in exactly the wrong place at precisely the right time. Consider that I:
• began my engineering career somewhat inauspiciously by witnessing the first rocket for which I had any responsibility explode ignominiously after a
250- millisecond flight—a mere 240,000 miles short of the moon!
• joined the secretary of defense’s staff in the Pentagon just as the
Vietnam War engulfed the nation;
• joined the mammoth LTV Corporation during the very week in which the founder and CEO, James Ling, was ousted and bankruptcy suddenly loomed on the horizon;
• rejoined the government as a presidential appointee just in time to witness the resignation of the president of the United States;
• was confirmed as assistant secretary of the army just one month before a war erupted in the Middle East and right before the government of South
Vietnam collapsed;
• served as under secretary of the army during a variety of crises such as the “tree cutting” confrontation in the Korean demilitarized zone, when some believed that the U.S. response would likely trigger World War III;
• assumed responsibility for the largest operating unit of Martin Marietta just as the corporation was confronted with a hostile takeover attempt;
• joined the board of a major bank just before the nation’s banking industry imploded; • joined the board of a major petroleum company just before one of its processing facilities exploded;
• became CEO of the largest defense R&D contractor in the nation shortly before the collapse of the Berlin Wall and the subsequent free fall of the
U.S. defense budget;
• assumed the chairmanship of the American Red Cross just as a series of once-a-century natural disasters struck the nation—including earthquakes, floods, fires, and hurricanes—and at a time when military conflicts were

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breaking out all over the world and unfounded concerns were arising that the nation’s blood supply had been contaminated with HIV.
As a result of this flawless sense of timing, I have assembled ample evidence that there is no magical 9-1-1 number you can call to extricate yourself from such predicaments. You get into a fix; you get yourself out of it. It’s that simple. There is no way to run the sausage machine backward and get pigs out of the other end. After all, if the solution were easy, it wouldn’t be a crisis.
In business as in life, crises come in as many strains as the common cold. The spectrum is so wide that it is impossible to list each type. Product-related crises alone range from sudden outright failures (the collapsed walkways in the newly built Hyatt hotel in Kansas City, Missouri, in 1981) to unanticipated side effects
(lung diseases associated with asbestos) to gradual obsolescence (gas lamps, slide rules, citizens band radios, mimeographs, and buggy whips). Some product crises are completely beyond the control of management. Consider the experience of a major brewing company when a bottle of its premium beer purchased in Florida was found to contain a dead mouse. This rodent became more famous than Mickey until it was determined to be uniquely a native of
Florida whereas the beer had been bottled in Colorado.
Another category of business crisis results from accidents, such as airplane and train mishaps, that result in loss of life and erode public confidence. These incidents often attract negative publicity out of proportion even to their tragic consequences. For example, it would take two 747 crashes per week to equal the number of people killed on U.S. highways in the same period, but automobile crashes rarely make headlines the way airplane crashes do. One category of accident, which we might call technologically charged, involves the failure of advanced technologies that the public had come to believe were foolproof. This category includes the 1967 Apollo spacecraft fire, in which three astronauts died, the 1979 “incident” at the Three Mile Island nuclear reactor, and the 1986
Challenger space shuttle tragedy.
In this era of burgeoning technology, crises stemming from engineering failures will continue. I vividly recall, in the agonizing hours after the Challenger explosion, poring over the initial flight data when it appeared that Martin
Marietta’s hardware had caused the failure. As it turned out, our external fuel tank was not the culprit. But the soul-searching we endured was not an experience any of us soon forgot.
There also are crises that arise from labor disputes, such as those confronted by
Kohler, International Harvester, Caterpillar, major-league baseball, and the U.S. air-traffic-control system. And there are crises that stem from financial difficulties—a sudden lack of cash—such as those encountered by Chrysler in the 1970s, the savings and loan associations in the 1980s, and a number of department store chains in the 1990s. Finally, there is the mother of all business

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crises, one that Martin Marietta experienced at close range: the hostile takeover attempt. In analyzing the gamut of business crises, we can distinguish six stages of crisis management. Stage 1: Avoiding the Crisis

Next week there can’t be any crisis. My schedule is already full.
—Henry Kissinger while Secretary of State
The first stage, not surprisingly, is prevention. Amazingly, it is usually skipped altogether, even though it is the least costly and the simplest way to control a potential crisis. The problem may be that crises are accepted by many executives as an unavoidable condition of everyday existence.
This chronic carelessness stems from a blind spot common among business executives—and especially chief executive officers: They actually believe that they are in control of their companies’ fortunes. The one redeeming virtue of this blind spot is its ultimately positive effect on the executive’s humility. Remember when the chairman of New York’s Consolidated Edison, Charles Luce, reassuringly announced during a television interview in July 1977, “The Con Ed system is in the best shape in 15 years, and there’s no problem about the summer.” Three days later, the entire New York metropolitan area was plunged into 24 hours of darkness in the legendary “Blackout of ’77.”
Perhaps the best place to begin the search for prevention is suggested in one of my newer laws, which I discovered after my book of laws was published:
Tornadoes are caused by trailer parks. Although this may at first seem a dubious proposition, there is empirical evidence to back it up.
Survey the landscape continuously for “trailer parks.” That is, make a list of everything that could attract troubles to the business, consider the possible consequences, and estimate the cost of prevention. This exercise is, of course, not much fun, which probably explains why relatively few businesspeople carry it out. Obviously, some of the items on the list will prove to be outside a CEO’s control —but the response to those items is very much within it. Lacking control over the origin of a problem does not exempt you from living with its consequences. Why do major corporations encounter so many crises? It is useful to point out that General Motors has about the same number of employees as San Francisco has citizens; that AT&T is about the same size as Buffalo, New York; and that
Lockheed Martin is the size of Spokane, Washington. Executives must keep in mind that almost any one of thousands of employees can plunge an entire corporation into a crisis through either misdeed or oversight, as the recent

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collapse of the venerable Barings Bank made abundantly clear. This type of employee is addressed in my Law of the Cross-eyed Discus Thrower: He seldom wins any prizes, but he sure keeps the crowd on its toes.
Discretion and privacy can be critical to avoiding some kinds of crises, such as those that result from leaks during a sensitive negotiation. Although Lockheed
Martin and its predecessors have been credited with an uncanny ability to keep plans private when they need to, even these organizations have almost always fallen short of perfection. In the case of Martin Marietta’s $3 billion purchase of
General Electric Aerospace in 1993, secrecy was maintained for 27 highpressure days, only to have the newsbreak into the media two hours before the planned announcement. As for Martin Marietta’s and Lockheed’s negotiations with each other, the companies stayed out of the newspapers for five and a half months but suffered a leak at midnight before the planned 8 a.m. announcement.
And even those relative successes were not without their unsettling moments.
For example, during the discussions between GE and Martin Marietta, officials met mostly in a special work area on the fifty-third floor of an office building in
Rockefeller Center. Nearly 100 people who came to be known as the “hole in the wall gang” were hidden away there, pursuing the legal, financial, operational, and personnel aspects of the deal—hoping they would not be noticed in the everyday activity of Manhattan. Work continued virtually around the clock, with meals served at all hours right in the work area. You can perhaps imagine the collective chagrin when the chief financial officer of GE walked out of the building into the virtually empty streets of New York at about 3 a.m. only to be greeted by a man who suddenly erupted from a manhole and remarked, “Oh, the meeting up on 53 must be over,” and then disappeared into the manhole just as quickly as he had appeared. To this day, his identity is not known.
If you need to maintain secrecy, limit involvement to as few people as possible and certainly only to those whose discretion can be trusted absolutely. Each participant should be required to sign a nondisclosure agreement. Negotiations should be conducted as quickly as is practicable. Finally, as much apparent uncertainty as possible—engineers would say “noise”—should be inserted into the process so that any accurate leak will be drowned in a sea of false leads.
Even so, you should expect everything to leak anyway. You will seldom be disappointed. Managements thus lead highly precarious existences, but they can minimize their organization’s exposure to risk by making clear to employees what behavior is expected of them. The challenge is to be clear in our own minds what we truly want from employees. We usually cannot seek revenue growth without also expecting increases in expenses; we cannot encourage risk taking and then be surprised if some of the risks result in greater exposure. In the preventive phase, an executive must try to minimize risks and to be certain that those that must be taken are commensurate with the returns expected. The risks that cannot be

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avoided must be properly hedged. The real problem, however, is that perfect

prevention is perfectly unattainable.
Stage 2: Preparing to Manage the Crisis

Today my stockbroker tried to get me to buy some 10-year bonds. I told him,
"Young man, at this point I don’t even buy green bananas."
—the late congressman Chet Holifield, when he was getting on in years
Most executives, preoccupied with the market pressures of the present quarter, are not inclined to pay much attention to planning for future crises. This brings us to the second stage of crisis management: preparing for that circumstance when prevention doesn’t work— that is, making a plan to deal with a variety of undesirable outcomes if disaster does strike. It is instructive here to recall that Noah started building the ark before it began to rain.
Steven Fink, a prominent management consultant, wrote in his book Crisis
Management that everyone in a position of authority "should view and plan for the inevitability of a crisis in much the same way [one] views and plans for the inevitability of death and taxes: not out of weakness or fear, but out of the strength that comes from knowing you are prepared to play the hand that fate deals you." His survey of the Fortune 500's CEOs found that senior managers may suffer from a severe lack of crisis preparedness but certainly not from a lack of confidence that they can handle a crisis. Eighty-nine percent of those who responded said that crises in business are as inevitable as death and taxes, yet
50% said they did not have a plan for dealing with crises. Nevertheless, fully 97% felt confident that they would respond well if a crisis occurred. These CEOs are generally the sort who hide their own Easter eggs. They remind me of my young son many years ago at the start of his soccer season, who arrived in uniform at the breakfast table to announce, "We're really gonna get 'em this year. Last year, we were too overconfident."

When preparing for a crisis, it is instructive to recall that Noah started building the ark before it began to rain.
We must make plans for dealing with crises: action plans, communication plans, fire drills, essential relationships. Most airlines have crisis teams at the ready, along with special telecommunications and detailed contingency plans. Almost all

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companies today have a backup computer system in case a natural disaster or other catastrophe disrupts their primary system. At Lockheed Martin, we maintain at a central location all the supplies we need to communicate in writing with every member of each key constituency group. A letter can arrive at the home of each of 170,000 employees or 45,000 shareholders within two or three days. As it happens, Martin Marietta used this system on a number of occasions.
Elizabeth Dole, president of the American Red Cross—an organization whose very purpose is to deal with crises—points out another important advantage of anticipating and planning for crises. She recently told me, "The midst of a disaster is the poorest possible time to establish new relationships and to introduce ourselves to new organizations. . . . When you have taken the time to build rapport, then you can make a call at 2 A.M. when the river's rising and expect to launch a well-planned, smoothly conducted response."
And practice counts when planning for the unavoidable. In August 1989, a 1,000 member joint federal-state emergency disaster team tested an earthquakereaction plan in San Francisco. A scant six weeks later, the powerful Loma
Prieta earthquake struck the city, collapsing buildings and starting fires. It is likely that many lives were saved as a result of the relatively smooth handling of evacuations and medical emergencies.
One of the darkest moments of my own career occurred because we did not prepare an adequate contingency plan. Martin Marietta was on the verge of closing the General Electric Aerospace deal – a deal that had been put together on a handshake with Jack Welch of GE and that moved forward quickly. In a midnight meeting a few days before the sale was to take place, evidence suddenly appeared that the Justice Department might not approve pivotal elements of the transaction because of alleged antitrust concerns. Had the transaction cratered at that point, it is likely that GE and Martin Marietta stockholders would have lost overnight approximately 2 billion in market value that they had gained when the combination originally was announced. As Casey
Stengel once said, “I’ve had no experience with that sort of thing, and all of it has been bad.”
At that might night hour, Martin Marietta’s top two executives – both engineers – learned to their chagrin that the definition of high probability is highly subjective.
To the dozen or so lawyers from some of the nation’s most prestigious – or, at least, most expensive – firms, high probability meant considerably more that fiftyfifty, perhaps even a 70% chance of success. To the engineers, it meant more like 99% or better.
Thus the leadership of each company suddenly found itself plunged into a predicament that it had considered extremely remote until that moment.
Fortunately, we were able to put together the evidence needed to resolve the
Justice Department's questions and thereby save the deal. When the merger

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finally won approval, both companies9 executives empathized with Winston
Churchill’s remark, "Nothing in life is so exhilarating as to be shot at without result." In preparing for crises, it pays to search for subtleties—the second-order effects.
I once asked the legendary aviator General Jimmy Doolittle to name the greatest hazard that pilots faced in the pioneering days of aviation. His answer was unexpected but no doubt accurate. "Starvation," he replied. Drills like the one in
San Francisco help identify these second-order effects because the devil is in the details and the cost of overlooking them can be high. For example, in the aftermath of Hurricane Andrew in 1992, the telephone companies discovered that one of the principal shortages in southern Florida was not poles, wires, or switches but day care centers. Many of the phone companies' field-operations employees had children and relied on day care. When the centers were destroyed by the hurricane, someone had to stay home to take care of the children—thereby reducing the workforce at the moment when it was needed the most. The problem eventually was solved by soliciting retirees to tend ad hoc day care centers, thereby freeing working parents to assist in restoring the telephone network. Experience suggests a number of useful preparations for dealing with an upheaval: establishing a crisis center, making contingency plans, selecting in advance the members of the crisis team, providing ready and redundant communications, and—most important—testing those communications. As the
United States government has learned in circumstances ranging from the attack on Pearl Harbor to the capture of the Pueblo by North Korea, the best-laid plans are worthless if they cannot be communicated.
Stage 3: Recognizing the Crisis

If you can keep your head when all about you are losing theirs, it’s just possible you haven’ t grasped the situation. —humorist Jean Kerr

This stage of crisis management is often the most challenging: recognizing that, in fact, there is a crisis. Executives who refuse to face reality should be mindful of the bright if inexperienced chemistry student who warned, "When you smell an odorless gas, it’s probably carbon monoxide." In general, you need to understand how others will perceive an issue and to challenge your own assumptions.

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Companies sometimes misclassify a problem, focusing on the technical aspects and ignoring issues of perception. But it is often the public perception that causes the crisis. In the case of Intel Corporation’s tribulations with its Pentium microprocessor in late 1994, the college professor who first discovered that the chip had trouble performing complex mathematical calculations precisely contacted Intel to report the anomaly he had observed. So confident was the company in its product that it reportedly gave the professor a polite brush-off.
Turning to the Internet to see if others could confirm the problem he had encountered, he triggered an avalanche of some 10,000 messages, including such scathing jokes as "Why didn’t Intel call the Pentium the 586? Answer:
Because they added 486 and 100 on the first Pentium and got 585.999983605."

Companies sometimes misclassify a problem, focusing on the technical aspects and ignoring issues of perception.
The root cause of the crisis was that Intel had reacted to a technical problem when it really had a public relations problem. The ensuing media coverage was devastating, featuring such headlines as "Intel. . . the Exxon of the Chip
Industry," "Firm Reverses Itself on Pentium Policy," "Humble Pie," and "Intel to
Replace Its Pentium Chips." CEO Andrew Grove later said, "To some people,
[our policy] seemed arrogant and uncaring. We apologize for that." Shortly thereafter, the company was reported to have taken a $475 million charge against earnings. Meanwhile, the millions of Internet users had been treated to such derisive jokes as "It’s close enough. We say so" and "You don’t need to know what’s inside." Ironically, once the company did offer to replace the chip, few users accepted. Only an estimated 1% to 3% of individual consumers (who constitute two-thirds of the purchasers of computers with Pentium chips) took up the offer. It wasn’t that people wanted a new chip; it was just that they wanted to know that they could get a new chip if they wanted one. As everyone knows, banks don’t want borrowers to pay off their loans; they just want to know that borrowers can pay off their loans.
The problem in this stage of crisis management is that perception truly does become reality. We saw this principle at work last summer in the seemingly straightforward plan of Royal Dutch/Shell Group to dispose of the Brent Star oilstorage rig by sinking it in a deep area of the Atlantic Ocean. Despite the approval of the relevant governments and the blessing of many environmentalists, the plan was suddenly thrown into disarray when Greenpeace protesters attempted to land a helicopter on the oil rig’s deck. The company responded by

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trying to keep the helicopter away with water cannons. As the Wall Street Journal reported the controversy, "Shell had made a strategic error. In a world of sound bites . . . one image was left with many viewers: A huge multinational oil company was mustering all its might to bully what was portrayed as a brave but determined band." Whatever the reality of the situation, Shell found its plan foundering on the shoals of worldwide media perception.
A variation on this theme is a syndrome that I call crisis creep. W e experienced it at Martin Marietta last year in a particularly embarrassing incident. We were castigated by a media outlet that accused one of our major plants of charging the government for the cost of a Smokey Robinson concert for its employees. That’s not how the company would have characterized the situation, but it’s pretty much the way it was coming across in the local media. Soon the national media began to pick up the story, and several members of Congress threatened to hold hearings. As the situation was explained to me, our company’s employees voluntarily contribute some 10 million hours of unpaid overtime each year, a donation that primarily benefits customers—in this case, the government. As a token of appreciation, the company had over many years developed the custom of occasionally doing something special for employees: giving their children tickets to the Shriners' Circus, holding a family picnic, or taking groups to see the local baseball team in action. Company accountants had assured management that the practice of including such events in the cost of products was altogether legal, fully disclosed, and fairly common as a commercial practice. Further, it constituted only about one one-hundredth of l% of the cost of the products being sold—an amount greatly offset by the overtime the employees contribute.
As the explanations continued, I couldn't help but think of Groucho Marx's penetrating question "Are you going to believe what you see or what I'm telling you?" A reasonable question to ask my earnest colleagues was. If we are so thoroughly in the right, why is it that in a city with a population of more than 1 million we can't find one person who doesn't think we are dead wrong? Somehow, without realizing it, the company had crossed the threshold from family picnics to Smokey Robinson concerts and, in so doing, offended the public's sensibilities. We quickly issued a public apology for our lack of sensitivity, indicated that all the costs incurred would be taken out of the corporation's profits, and promised that we would never again make the same error of judgment. Once those steps had been taken, the drumbeat of criticism ceased almost overnight.
But sometimes even stronger warnings of impending crisis go unheeded. For example, nearly a decade before the Hubble Space Telescope was launched,

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two different tests conducted by the manufacturer of the telescope’s primary mirror indicated that something was wrong with the precision of its surface.
Shortly after the launch, the "Trouble with Hubble" began publicly when the spacecraft was discovered to suffer from nearsighted-ness. The mirror manufacturer’s engineers had been so confident in their design that they simply had disregarded the test results. Similarly, before the failure of the Challenger, a series of memorandums to the solid rocket motor company’s management from various of its engineers contained such impassioned pleas, highly unusual for technical documents, as "HELP! The seal task force is constantly being delayed by every possible means." Another memo implored, "If we do not take immediate action to ... solve the problem with the field joint. . . we stand in jeopardy of losing a flight along with all the launchpad facilities." As history records, those calls went unheeded. The words of Demosthenes seem to apply: "Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true."
There are, of course, positive examples of management’s recognizing crises as they develop and moving effectively to resolve them. Procter & Gamble’s response to the early fears that Rely tampons might be causing toxic shock syndrome is such a case. Most observers give high grades to P&G for stopping production and withdrawing the product from the market based on the relatively tenuous but disconcerting evidence becoming available. The management’s quick and coura-geous actions to protect the health of those who use P&G products—and, not incidentally, the company's reputation— proved far more important over the long term than the hundreds of millions of dollars that the decision must have cost over the short term. The company avoided long-term damage by putting into practice a principle generally embraced by business executives but all too often overlooked during a crisis: The interests of the customer must come first. Obviously, when it came to their health and safety, P&G's customers' greatest concern was whether they truly could trust the company whose products they had been using for years. P&G put trust and open communication with customers above all other corporate concerns and emerged a long-term winner.

Asking the people responsible for preventing a problem if there is a problem is like delivering lettuce by rabbit.
Experience suggests that we listen to people throughout the organization when looking for information about a crisis. In the words of Bellcore CEO George
Heilmeier, "The natives have the maps." Thus the phrase We have had an incident, when spoken by the head of any operating entity, should be one of the most recognizable alarms in a CEO's repertoire. Similarly, when an engineer reports, "We have experienced an anomaly," he or she usually means that there has been a collision between a space rocket and a commercial jetliner and the debris has landed on a nuclear power plant.

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In the recognition stage, independent investigators, as well as insiders, are needed to assist in understanding the situation. Asking the people who were responsible for preventing a problem whether or not there is a problem is like delivering lettuce by rabbit. There are, of course, costs associated with using independent experts, but, as the old adage goes, if you think an expert is expensive, try hiring an amateur.
Stage 4: Containing the Crisis

When you come to a fork in the road, take it. —Yogi Berra
This stage of crisis management requires triage: stopping the hemorrhaging. This is the phase in which the tough decisions have to be made and made fast. For example, should the area surrounding the Three Mile Island nuclear reactor be evacuated, with the almost certain chaos that such an action would entail, or should people be told to remain where they are and be put at risk? When deaths occurred in Chicago, should Johnson & Johnson promptly recall all Tylenol capsules, at great cost, or wait for more conclusive evidence of a nationwide threat? In this phase, decisiveness is critical—and the timeless advice of Yogi
Berra is sound: Some reasonable, decisive action is almost always better than no action at all.
The problem in this stage is that usually you don't know what you don't know.
There may be too little information or there may be far too much, with no way to sift out what is important. The report of the Kemeny Commission, which investigated the Three Mile Island "incident," included the following statement:
"During the first few minutes of the accident, more than 100 alarms went off, and there was no system for suppressing the unimportant signals so that operators could concentrate on the significant alarms. Information was not presented in a clear and sufficiently understandable form."
Unfortunately, the demand for the CEO to clarify a murky situation might well describe the early phase of most crises. Crisis situations tend to be accompanied by conflicting advice—with the legal department warning, "Tell 'em nothin’ and tell
’em slow," the public relations department appealing for an immediate press conference, the shareholder relations department terrified of doing anything, and the engineers all wanting to disappear into their labs for a few years to conduct confirmatory experiments. My experience has been that it is preferable to err on

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the side of over-disclosure, even at the risk of harming one’s legal position.
Credibility is far more important than legal positioning.
In the Exxon Valdez incident, the lawyers advised against admitting any guilt in order to be better able to defend the company’s position. In the end, the company suffered a multibillion-dollar jury verdict and a tarnished reputation.
Sometimes a CEO must override the lawyers. And the truth is that even in the face of contradictory evidence and confusing advice, one cannot simply remain silent. James Lukaszewski, a specialist in communications, counsels, "Say something. If you aren’t prepared to talk. . . reporters will find someone who is."
"No comment" is an unacceptable response in today’s fast-forward world of telecommunications. So, too, is "We haven’t read the complaint" or "A mistake was made." My son tumbled to the concept of detached responsibility at the age of four when he dismissed the question of how shoe polish had gotten all over the living-room wall with a polite "Sometimes that happens."
Perplexed over the issue of how much to say and when, I sought the advice of one of America’s greatest businesspeople: Warren Buffett. His advice, as you might expect, was both pragmatic and brilliant. “First,” he said, “state clearly that you do not know all the facts. Then promptly state the facts that you do know.

Companies that have decided what they stand for in advance of a crisis manage the crises best.
One's objective should be to get it right, get it quick, get it out, and get it over.
You see, your problem won't improve with age." This, needless to say, is exactly how he dealt with the crisis at Salomon Brothers a few years ago.
And what is the principal message you wish to convey? It has been wisely said that the world is not interested in the storms you encountered but in whether you brought the ship in safely. As a senior executive, you must call on your own conscience. You must set aside for a few minutes the voices of trusted advisers and, in as calm and dispassionate a manner as possible, evaluate in human terms the real issues and the real messages. By so doing, you at least have the comfort of defending a position that you believe to be correct. As far as I know,
Charles Barkley of the Phoenix Suns is the only person who ever got away with claiming that he had been misquoted in his autobiography.
Organizations that have thought through what they stand for well in advance of a crisis are those that manage crises best. When all seems to be crashing down

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around them, they have principles to fall back on. John-son & Johnson has said of its highly regarded response to the Tylenol deaths that its actions had been preordained by its widely heralded corporate credo; that is, no other response could even have been contemplated.
Another conclusion from the crises I have studied is the value of immediately dispatching the senior responsible individual to the scene of the problem— usually the CEO. The CEO may know less about the details of the situation than the local management, but his or her physical presence sends two important messages: I care, and I am accountable. The CEO of Union Carbide took this approach during the Bhopal tragedy, when some 2,000 people died as a result of a chemical leak at the company's Indian subsidiary. Although the immediate result was that the CEO found himself in jail, traveling to India had been the proper course. In business, "good" decisions do not necessarily guarantee good outcomes. One bit of caution about the dispatch-the-CEO theory comes from former secretary of state Lawrence Eagleburger. "Don't call on the court of last resort until you are at your last resort," he counseled me. For example, if the CEO enters into a union negotiation with the head of the local, the CEO is not likely to be effective with the head of the national union if an impasse arises later. But in situations that truly threaten one's reputation or existence, the CEO belongs in the front lines.
My experiences in the triage stage have taught me four other lessons. First, it is wise to have a dedicated group of individuals working full-time to contain the crisis; others still have a business to operate. That is, a "fire wall" should be built between the crisis management team, led by the CEO, and the business management team, led by an appropriate senior operating person. Too many executives seem to have forgotten the words spoken so generously by Casey
Stengel when his New York Yankees won the 1958 World Series: "I couldn't done it without my players."
Second, a single individual should be identified as the company spokesperson, the one who makes all public comments. This lesson stems from another of my laws: If enough layers of management are superimposed on top of one another, it can be assured that disaster is not left to chance.

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Third, a company’s own constituencies—its customers, owners, employees, suppliers, and communities—should not be left to ferret out information from the public media. With all the pressures on management to respond to news reporters, one must not neglect those who have a special need for information.
And fourth, a devil's advocate should be part of the crisis management team— someone who can tell the emperor in no uncertain terms when he is wearing no clothes. Stage 5: Resolving the Crisis

Even if you were on the right track, you II get run over if you just sit there. —Will Rogers
In this stage, speed is of the essence. A crisis simply will not wait. It’s like wrestling a gorilla: You rest when the gorilla wants to rest. John Lowenstein of the Baltimore Orioles once was asked what could be changed to improve the game of baseball. He answered, "They should move first base back a step to eliminate all the close plays." Unfortunately, it doesn’t work that way in baseball or in crises.
Three years ago, the supermarket chain Food Lion suddenly found itself thrust into the public spotlight when it was accused by ABC-TV’s Prime Time Live of selling spoiled meat. The company’s stock plummeted, bottoming out at slightly greater than half its precrisis value. But Food Lion acted quickly, offering public tours of stores, putting large windows in meat-preparation areas, improving lighting, putting workers in new uniforms, expanding employee training, and offering large discounts to draw customers back into stores. The company eventually earned an "excellent" rating from the Food and Drug Administration, and in locations where it had previously been well established, sales soon returned to normal.
Similarly, when accusations were made that the electromagnetic fields generated by cellular telephones caused brain tumors, the manufacturers quickly sought out independent experts who took the facts directly to the public, and the concerns promptly subsided. Pepsi-Cola used a similar approach when syringes were found in cans of its soft drinks. The company promptly and publicly demonstrated that the foreign objects must have been planted by the purchaser. Once again, the furor quickly passed.

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Perhaps the most challenging crisis in the history of Martin Marietta occurred in the summer of 1982, when the company suddenly became the target of a hostile takeover attempt by the Bendix Corporation. The laws governing a company’s actions in a takeover attempt are complex and impose specific time limits. By striking first and without warning, Bendix achieved an early tactical advantage
However, Martin Marietta, under CEO Tom Pownall’s leadership, fought back by issuing a counter-tender offer for the shares of Bendix-a tactic that has become known as the Pac Man defense and that was intended to result in Martin
Marietta’s gaining effective control of a majority of Bendix’s shares, including a large block administered by Bendix’s own employee stock-ownership plan. The result was that each company acquired a majority of the others shares. In the short space of a month, Martin Marietta alone hired 14 law firms and was litigating in 11 federal district courts, three federal courts of appeals, and three state courts, including the Supreme Court of Delaware. One judge, perplexed by the legal issues involved, invoked the words of Shakespeare, saying to the lawyers of the two parties, " A pox on both your houses!"
The impasse was resolved by intensive negotiation. Allied Corporation, following discussions with Martin Marietta, agreed to step in and merge with Bendix and then swap some of the Martin Marietta stock that Bendix held for the Bendix stock that Martin Marietta held. In the end, Martin Marietta retained its independence. Stage 6: Profiting from the Crisis

Experience is the name everyone gives to their mistakes. —Oscar Wilde
The final stage in crisis management is making lemonade from the abundance of available lemons. If a company has handled the previous steps flawlessly (that is, has not somehow managed to make the crisis even worse), the sixth stage offers an opportunity to recoup some losses at least partially and begin to repair the dislocations. One example is the U.S. Army’s adroit handling of a highly volatile situation that arose in 1993. Munitions left from the World War I era were found buried in what is now the residential community of Spring Valley in the District of
Columbia. A number of homes had to be evacuated, and, understandably, emotions in the community ran high. The army general having overall responsibility in the area personally took charge of the situation, meeting with local citizens in a community forum each evening throughout the crisis. The media always were invited, and questions were answered willingly and candidly.

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When the crisis had subsided, the local citizenry named a street in their community in the general’s honor.
But the canonical example of turning around an emotionally charged crisis is
Johnson & Johnson’s handling of the Tylenol case. Responding to the series of deaths that resulted from cyanide adulteration of Tylenol capsules, then CEO Jim
Burke reasoned that forceful measures were needed to ensure public safety and restore trust in the company’s top-selling product. With full-page ads and television spots announcing its intentions, the company pulled 31 million capsules from store shelves and home medicine cabinets around the nation, redesigned the packaging, and within three months regained 95% of its precrisis market share. This feat was not accomplished without cost, but the cost of repurchasing a reputation that otherwise would have been severely tarnished would have been infinitely greater.
From a business perspective, the result of the Tylenol crisis was that
Johnson&Johnson demonstrated both its concern for its customers and its commitment to the corporation’s ethical standards. Although this was a tragic episode, the company clearly was regarded even more highly after the episode than before.
I asked Burke what he would add to this account, and he said he would emphasize two points. First, he cited the axiom that many senior executives seem to overlook: "If you run a public company, you cannot ignore the public."
Second, "Institutional trust is a lot more important than most people realize. The operative word is trust. . . and whether people will take one’s word when one badly needs them to do so will depend on how much confidence has been built in the organization over the years before the crisis occurs."
This is, of course, not particularly good news for U.S. business as a whole. A recent Galiup Poll ranked the American public’s confidence in big business at
26%, placing it only slightly ahead of Congress and about equal with newspapers. But, as is often the case, there is a silver lining to be found even in this cloud. When, for example, two spacecraft that had been built by another company failed just after Martin Marietta’s purchase of that business, Martin
Marietta publicly took full responsibility and voluntarily returned $22 million of profit to the customer. To Martin Marietta’s utter surprise, it was given great accolades by the public and the media. Apparently, expectations for business are so low that a company is given effusive credit simply for doing what is right.

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Doing what is right and following the recommendations for each of the six stages, however, do not guarantee the desired outcome. There is one other important ingredient that affects all crisis managers from time to time: luck.
Borrowing once again from Martin Marietta’s experiences, bad luck was working for years to develop a new dye for blue jeans that absolutely would not fade. The successful result of this technological tour de force, known as Martin Blue, arrived on the market at precisely the moment when a sudden shift in consumer demand occurred—to prefaded jeans! As John Chalsty, who runs Donaldson,
Lufkin & Jenrette, once said of an experience at his own company, presumably with appropriate apologies to Ralph Waldo Emerson, "We had built the perfect mousetrap. Trouble was, that mouse was already dead."
My favorite example of simple, dumb good luck relates to the activities of
Christopher Boyce, the Russian spy of Cold War infamy and, sadly, the son of a business associate of mine. The young Boyce was then working for TRW in Los
Angeles. Or, more accurately, he was working for TRW in somewhat the same way that Premier Nikita Khrushchev must have had in mind when, at the height of the Cold War, he greeted then CIA director Alien Dulles with the remark "You know, you and I have some of the same people working for each other."
Boyce eventually was sentenced to more than 60 years in prison for his actions on behalf of the Soviet Union. While reading The Falcon and the Snowman,
Robert Lindsey's book chronicling Boyce's escapades, I was stunned to discover that Boyce had solicited a position at Martin Marietta's plant in Denver. At that very moment, I was the general manager in charge of Martin Marietta’s plant in
Denver! Racing ahead in the text, I learned how executive brilliance had enabled the company to escape this momentous crisis. Boyce, quoted in the book, expressed great chagrin over the fact that he had applied not once but twice for a position at the Denver plant and on both occasions the ever vigilant personnel department had lost his application.
Of course, business executives cannot rely on luck to see them through the crises that inevitably strike at the most inconvenient moments. I know of no board of directors that will contentedly accept as the explanation for major corporate difficulties, "Oh, it was just bad luck." In such instances, I have found, they are

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likely to agree with legendary baseball manager Branch Rickey that "luck is the residue of design."
In this regard, I have always found compelling the argument of business writer
Robert Heller, who said, "The first myth of management is that it exists. The second myth of management is that success equals skill." I came to a similar conclusion in my own book Augustine’s Laws—a conclusion captured by Law
Number 29, which states, "Executives who do not produce successful results hold on to their jobs only about five years. Those who produce effective results hang on about half a decade."
The notion that one person, sitting atop a corporate hierarchy, can regularly and successfully guide the daily actions of tens of thousands of individual employees is a pleasant confection created, some would suggest, by academics and certain business leaders. Only the truly brave or the truly foolish would make this claim.
However, the one aspect of business in which a chief executive’s influence is measurable is crisis management. Indeed, the very future of an enterprise often depends on how expertly he or she handles the challenge. Crises tend to be highly formative experiences—watershed experiences, sometimes even lifethreatening experiences—for a business. Nowhere else is the leadership of a chief executive more apparent or more critical to the long-term prospects of an enterprise. So by all means avoid involving your business in a crisis. But once you're in one, accept it, manage it, and try to keep your vision focused on the long term. The bottom line of my own experience with crises can be summarized in just seven words: Tell the truth and tell it fast.

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