The New Rules For Crisis Management

In executive development, it’s called “the newspaper test.” In a simulated interview or press conference, managers must respond to a crisis scenario; through this exercise, they learn to show compassion and keep their facts straight while maintaining their composure under pressure. That’s fine so far as it goes, but in today’s world, the traditional news media do not always control how crises unfold. Now, executives are facing stakeholder communities that control their own sources of information and their own media and have their own ideas about how companies should resolve crises. These stakeholder groups wield considerable power to influence other stakeholders, organizations, and the public, and executives who ignore them do so at their own peril. On more than one occasion in the past decade, entire divisions of multinational companies were sold off to competitors after stakeholders criticized those businesses through their proprietary media.1 Thus, companies need to know how stakeholders gained this power, how they use it, and what to do about them.

A Growing Trend

Christian conservatives in the United States were one of the first groups to fully grasp the power of controlling their own media. Back in the 1960s and 1970s, they used direct mail to fund their movement and promoted it with their own radio and TV stations.2 By the 1990s, activists as different as France’s extreme right National Front party3 and Greenpeace realized that if they could start their own print, video, online, and/or radio networks, it not only would help them to build a larger audience for their messages, it would also eventually force the traditional news media, businesses, and policymakers to take them more seriously. Their timing was good; stakeholder media were soon filling a hole where the traditional media used to be. In the United States and United Kingdom alone, about 30% of working journalists have been downsized since 2000, and the traditional media that have managed to survive are now providing less-credible information to a declining audience.4

At the same time, stakeholders have become increasingly active, and they are also more diverse. Their numbers now include social activists,5 expert financial analysts, and liability lawyers in addition to employees,6 customers,7 and business partners. And to spread their messages and encourage people to connect and interact with one another, stakeholders are now deploying a variety of channels, including websites, user forums, e-newsletters, and free video alongside social media platforms like Facebook. By following the connections among their various media, we have observed the ways these stakeholder groups find and influence one another, building their communities and aligning with others who share similar objectives. (See “About the Research.”) Individually, many of these stakeholders may be powerless, but together, they can have a huge impact in controlling how a crisis evolves. Moreover, by creating their own media, these stakeholders can bypass the “gatekeepers” of traditional media: the editors and journalists who in the past decided just what news was fit to publish.

To understand the role of stakeholder-controlled media in influencing how a corporate crisis unfolds, we investigated numerous events in which stakeholders seemed to dictate how the action played out. In those crises, we found that the stakeholders were able to deftly leverage three key assets: frontline information, their own news channels, and the ability to determine when and how a crisis ends. (See “How Stakeholder-Controlled Media Can Influence a Crisis.”) For their part, executives who weren’t in touch with what was happening lost the opportunity to shut down a crisis early, to contain its spread, or to end it on sustainable terms. Meanwhile, even stakeholders who might initially have been supportive of the company would progressively turn into critics and even adversaries after perceiving that management could not or would not defend their interests. In the following sections, we describe those three key assets in greater detail.

Controlling the Front Lines

Brand or product communities are a major growth area in stakeholder-controlled media. These are typically forums or websites for people who share an avid interest in, for example, cars, smartphones, electric guitars, or a specific brand or type of such products. Among other things, such media channels are an early-warning system, because when a product fails to live up to its promise, the customer is typically the first and most directly affected stakeholder. In the past, product issues would often be quietly resolved, or they might wind down noiselessly on their own.

Nowadays, stakeholder-controlled media enable customers and others around the world to inform one another directly of problems in real time. Consider what happened after DuPont’s Professional Products division launched a new herbicide, Imprelis, in 2011. For the division, Imprelis was thought to be a game changer — the first in a new class of “persistent” chemicals that promised more efficient and economical applications but was positioned as environmentally friendly. The product’s introduction was major news for the members of the LawnSite.com forum, where thousands of lawn-care operators share information and opinions about their profession. Those individuals were DuPont’s first target market, and their initial response was enthusiastic. “If it works as good as they claim, I can’t see not using it,” remarked one of the forum users to his peers.8 Early reviews were equally favorable, as the earliest adopters among the LawnSite.com members at first told the forum that Imprelis had indeed lived up to its hype.

Then, people on LawnSite.com began reporting “off-target” damage to trees. The forum quickly demonstrated a powerful effect of stakeholder communities: Customers can often gather new data — information that a company doesn’t yet have — about the actual usage of a product. Indeed, even though DuPont had commissioned 400 scientific studies on Imprelis in the eight years prior to launching it, customers had additional real-world experience with the product. Moreover, customers were freely sharing damage reports, photographs, accounts of their interactions with DuPont salespeople and distributors, and university studies — a stunning array of crowdsourced documentation.9 In our experience, no traditional news organization could (or would) have assembled a comparable knowledge base about such a specialized subject on such short notice.

In addition, the lawn-care operators were not only monitoring agricultural research centers in their regions but also sharing information with them. The researchers at those centers, in turn, were in contact with state regulators, who themselves were feeding updates to the U.S. Environmental Protection Agency (EPA).

The circle of stakeholders hostile to the company was growing quickly. Concerned homeowners were able to find the forum by Googling “Imprelis,” and the U.S. Composting Council, an industry group that for years had campaigned against persistent herbicides that contaminate compost, amplified the news through its own website. Finally, the news dam broke six weeks into the crisis, when The New York Times published a front-page story with the headline, “New Herbicide Suspected in Tree Deaths.”10 The next day, a class-action lawsuit was filed.11

DuPont subsequently offered to recall the product voluntarily, but the EPA instead ended up banning its sale. DuPont eventually paid out more than $1 billion in damages related to Imprelis and sold the division that made Imprelis for a relatively low $125 million to a competitor.12

How could DuPont’s managers have kept the stakeholders on the company’s side? Once the product’s problems became known, damage to the company was inevitable, but a number of best practices might have helped:

Trust the news from the front lines. In other words, assume that stakeholders know what they’re talking about, and act on that assumption. The cost may be high, but the cost of not acting will be higher. If customers are right about significant problems with a product, inaction will only allow a bad situation to get worse.

Monitor messages from your stakeholders’ media. This may sound obvious, but we have spoken with executives in major industries who did not know that there are user forums dedicated to their brands, where customers discuss everything they love and hate about those products. Such stakeholder content offers invaluable early warnings and real-time feedback. Off-the-shelf applications are available that can track conversations about a product in a broad range of online media.

Even better, join the websites and forums where customers interact. Of course, liability is a significant concern, but forums are often the chief vector of a crisis, and the best way to address its drivers. That said, companies should never try to anonymously infiltrate a stakeholder community. Even in noncrisis times, stakeholders regularly police their communities’ media for false flags. When company employees appear in any stakeholder-controlled media, they need to state who they are and who they’re representing — themselves or the company.

Controlling Targeted News Channels

Many managers like to complain about “the media,” but the truth is that most reporters and editors treat the executives of major corporations like royalty, compared with ordinary civilians or activists. Especially in a crisis, corporate leaders typically enjoy privileged access to reporters, because the news media compete for time with newsmakers.

With stakeholder-controlled media, the rules are different, and company executives have relatively little control. An important thing to remember is that stakeholders with their own media don’t necessarily need the traditional news media to gain support from important constituencies. Of course, without the help of the traditional news media, most stakeholder groups will never attract huge audiences. Often, though, they don’t need to: They need only to reach the people in certain communities. Thus, executives shouldn’t assume that just because certain individuals or stakeholder groups aren’t featured on CNN, they don’t count. On the contrary, if stakeholder media are reaching a company’s most influential stakeholders, then that company might look great on the evening news but still lose the support of people crucial to the business.

Danone SA, the French multinational foods company, learned that lesson the hard way some years ago. In 2001, news that Danone planned to close factories in France and other parts of Europe triggered a protest and labor turmoil in its home market of France. But company executives stuck to their plan, determined to reduce excess capacity in biscuit products, one of the company’s three business lines at the time.13

However, various Danone stakeholders began to unite in protest. Unions went on strike, disrupting shipments from Danone plants, and that resistance gained endorsements from left-wing politicians. A boycott erupted in France, and some mayors shut Danone products out of school lunchrooms. One article initially predicted that the boycott would fail because ordinary consumers didn’t know all of Danone’s brands. But trendy Parisian journalists then launched a graphically hip website that listed all those products. Danone sued to prevent the website from using its logo or name, prompting one group to repost the content on a different site. (Danone ultimately lost the case on appeal.)14

Even as the opposition from stakeholder groups grew, Franck Riboud, who at the time was Danone’s CEO and is now its chairman, made the following bold proclamation at a general shareholder meeting: “The storm is over!” According to him, group sales had met projections worldwide despite the protests. His phrase was repeated in mainstream media coverage, and investors were relieved. Over the following months, however, the company’s quarterly reports suggested that the storm was not over. Sales growth in France had fallen to less than 1% (from 6.3% the previous year), and Danone was losing market share for its biscuit products in France. Though the mainstream news media missed that story, another stakeholder group didn’t: financial analysts. As one analyst’s report put it in August 2001,“We do not believe that Danone has resolved its [operational difficulties] in French biscuits.” Between the end of the second quarter of 2001 through the first quarter of 2003, Danone’s stock lost about 29% of its value.15 The biscuit division was eventually sold to Kraft in 2007.

One of the important lessons from Danone’s experience is that companies need to change the way that they think about media influence. The following best practices are key:

Recognize that the potential success of a stakeholder media campaign will be proportionate not to the size of a particular activist group, but instead to the influence of that group on other communities. For example, animal-rights activists may be only a fraction of the population, but their boycotts can have measurable effects on the larger population. And it’s not simply a matter of whether two stakeholder groups like each other (they may not), but whether one group knows or does something that significantly concerns the other. So a company doesn’t just need to follow the stakeholder groups that are following its business; it also needs to map other stakeholder communities that are watching those primary stakeholder groups.

Remember that stakeholders who control media will not give up simply because a company or the mainstream media refuses to recognize their cause — and those stakeholders do not need the traditional media to hurt a business. The mainstream news media may not have looked past Danone’s sunny claims of victory over boycotters, but that did not make financial analysts any less convincing when they raised concerns.

Reject any lingering notion that online media are produced by and for the unintelligent. This tired argument was first — and most loudly — advanced by traditional media managers. Of course there are fools and liars on the Internet — as there are in the mainstream media, for that matter. But stakeholder media have often displayed far more expertise on an arcane subject such as automobile emissions or wildlife management, to give two examples, than any news reporter will ever be able to acquire for a particular story. And this is precisely why people often find stakeholder-controlled media highly credible.

Ensure that, when a solution is found, the stakeholders driving the issue use their media to announce it. Never mind if they take credit for the solution. What matters most is that people learn that there is a solution. Stakeholder-controlled media exist precisely to find solutions to their communities’ problems. Unlike news media, they don’t tell their public what matters; they tell their communities what to do when issues arise. If a company’s solution works for them, they will use it.

Stakeholder-controlled media will often turn back the clock, and if something has hurt a company’s reputation in the past, it may be brought up again.

Controlling the Clock

In any crisis, time matters in different ways at different moments. At the beginning of a crisis, time seems to keep running out as leaders scramble to contain the damage and minimize exposure. During this period, executives desperately need stakeholders to give them time to search for a solution. Later, time can become grindingly interminable, like trench warfare. And when companies fight their customers, the only possible outcome is management’s defeat. That is, a company cannot win a conflict over stakeholders whose loyalty is vital to that company’s survival. Until those stakeholders accept a solution and approve its implementation, the crisis will continue. Simply put, companies don’t control the clock; stakeholders do. And the longer a crisis drags on, the greater the costs.

During a prolonged crisis, damage to a company’s reputation will frequently take a double hit: Not only will current actions be relentlessly scrutinized and judged, but also a company’s recent history, as stakeholders search for patterns that support their claims.16 It’s important to note that a historical focus is typical of campaigns that involve stakeholder-controlled media, while it is atypical of traditional news media. For the mainstream media, the past is just old news, and the focus is on the present. But stakeholder-controlled media will often turn back the clock, and if something has hurt a company’s reputation in the past, it may be brought up again. For example, a LawnSite.com member drew a connection between Imprelis and Benlate, a DuPont fungicide that became the subject of hundreds of lawsuits before DuPont stopped selling it in 2001.17 As one lawn-care operator commented, “The Benlate issue knocked [DuPont] out of the [turf and ornamental lawn care] market for roughly 20 years. If they don’t handle this [new crisis] correctly, they might as well go back and hide under a rock for the next 20 years.”18

Expert stakeholders may also anticipate a company’s future moves and counter them. In the Imprelis case, a DuPont executive stated publicly that “there may have been errors” on the part of lawn-care operators, like mixing Imprelis with other products. But LawnSite.com members were ready, with one of them posting an excerpt from the Imprelis label that stated the product “can be tank mixed with other pesticides.”19

Last and most important, the most vital challenge in a crisis is not necessarily fixing the system or product that broke. Instead, the crucial task is to restore stakeholder relationships, as William A. Kahn, a professor of organizational behavior at Boston University, and his colleagues recently observed.20 During the Imprelis crisis, a LawnSite.com member complained that the company never answered his calls or emails, and he stated, “I personally have stopped using all DuPont products until they actually treat me like a customer instead of a fly on the wall.”21 In 2014, three years after the Imprelis crisis began and two years after DuPont had sold that business, people on LawnSite.com were still discussing it. In essence, stakeholders had decided when the crisis had begun, and when and how it would end.

Although the clock is basically controlled by stakeholder media, companies can still influence how that time will play out. The following best practices can help:

Never lose focus on the long term. The reflex is to concentrate on the most urgent problems, but crises typically have long, deep roots. Management may not consider those roots relevant, but stakeholders will. In a crisis, they will bring the past into the present to decide whether a company is worth dealing with in the future. So when executives consider any solutions, they need to ask how those actions will affect stakeholders over the long term.

Assume transparency. In an age of stakeholder-controlled media, companies have few secrets. Instead, they have issues that have yet to be exposed. When a crisis hits, transparency may no longer be a matter of choice. Either a company will practice it, or it will be imposed. Stakeholders will dig for information, sometimes revealing information that the company might prefer to keep confidential. (Stakeholders may share crisis-related information publicly. For example, during the Imprelis crisis, the EPA posted letters online that it had sent to DuPont management.22) Thus when a crisis hits, it is safest to assume that what can be known about a company will be known.

Communicate, but find something of substance to say. The classic and wise counsel in a crisis is to communicate early and often, but if those communications lack substance, they could easily backfire by eroding trust. Here, compassion is not enough. Stakeholders need to see clearly that a company is trying to help them, and not just itself, out of the crisis.

The bottom line is this: You are just one member, albeit an important one, of your stakeholder community. Other stakeholders will survive if you are excluded.

Working With Stakeholders

Although stakeholder-controlled media can play a major role in prolonging (and potentially exacerbating) any company crisis, such media also have tremendous power to help businesses. Consider the Lego Group, the Danish toy company.23 When customers began to create software for modifying Lego products, the company initially considered suing these “modders.” Instead, though, it wisely decided to embrace the user groups, forums, and conventions where hackers and modders were conducting their own development projects. As those relationships grew, Lego created a corps of user “ambassadors” as testers and de facto design consultants, and the resulting products helped create new adolescent and adult markets for Lego. In another example, user forums saved Reverend Musical Instruments, a guitar manufacturer, in 2006, when the young company had lost control over its pricing and had to shut down its distribution network. But thanks to existing customers on the company’s own forum who enthusiastically promoted the brand to new buyers, Reverend was able to revamp its products and start selling them directly online. The company grew quickly and was able to rebuild its distribution channel, while its online user base has remained a key asset.

The key lesson here is that stakeholders who support a company do so because they expect that company to solve a particular problem for them, and the most active and engaged among those stakeholders will use their media to help that business improve.24 If, however, those individuals begin to think that a company’s plans may hurt them or a cause they care about, they will look for ways to stop that company. In either case, they will tell others what they believe is going on. Remember that the lawn-care operators on LawnSite.com initially cheered when Imprelis was introduced. A company might be elated when such expert stakeholders are on its side, but it must also continue to pay attention to those individuals when they turn hostile.

The bottom line is this: You are just one member, albeit an important one, of your stakeholder community. Other stakeholders will survive if you are excluded. They will find other companies to do business with, and they will help those companies to thrive as they once helped you. And they will do that the same way they both helped and hurt you in the past — by deploying the stakeholder-controlled media that built and consolidated their power.