ICM-Essence of Crisis Management-Crisis Definitions

Crisis Definitions

ICM defines a crisis as:

"A significant business disruption that stimulates extensive news media coverage. The resulting public scrutiny will affect the organization’s normal operations and also could have a political, legal, financial and governmental impact on its business."

The basic causes of a business crisis are four in number:

Acts of God (storms, earthquakes, volcanic action, etc)
Mechanical problems (ruptured pipes, metal fatigue, etc.)
Human errors (the wrong valve was opened, miscommunication about what to do, etc.)
Management decisions/indecision (the problem is not serious, nobody will find out)

Most of the crises ICM has studied fall in the last category and are the result of management not taking action when they were informed about a problem that eventually would grow into a crisis. Crisis events generally fall into two basic types based on the amount of warning time.

Sudden Crisis

A sudden crisis is defined as:
A disruption in the company's business which occurs without warning and is likely to generate news coverage and may adversely impact:

Our employees, investors, customers, suppliers or other publics
Our offices, franchises or other business assets
Our revenues, net income, stock price, etc.
Our reputation--and ultimately the good will listed as an asset on our balance sheet

A sudden crisis may be:

a. A business-related accident resulting in significant property damage that will disrupt normal business operations

b. The death or serious illness or injury of management, employees, contractors,customers, visitors, etc. as the result of a business-related accident

c. The sudden death or incapacitation of a key executive

d. Discharge of hazardous chemicals or other materials into the environment

e. Accidents that cause the disruption of telephone or utility service

f. Significant reduction in utilities or vital services needed to conduct business

g. Any natural disaster that disrupts operations, endangers employees

h. Unexpected job action or labor disruption

i.. Workplace violence involving employees/family members or customers

Assessing the Severity of a Sudden Crisis

The following crisis classifications have been established to ensure consistency in assessment of any sudden crisis situation so that the proper level of communications response can be provided.

Sudden Level 1

Can be handled by on-duty personnel responsible for responding to and managing this kind of situation.

Example:

A careless employee leaves oily rags in the storeroom of an office building. Spontaneous combustion occurs. Luckily the fire is discovered and extinguished quickly by one of the building maintenance men.

Sudden Level 2

Can be handled by the personnel who respond, with support from other employees on duty or who may have to be called in from their homes.

The fire is out but heat and smoke damaged office furniture in the storeroom. The owners are irate and threaten to sue.

Sudden Level 3

Requires additional resources and people beyond the regular personnel. These managers and employees may be from other facilities or the corporate office, and may be supplemented by outside vendors or consultants

The fire was not discovered in time and spreads outside the storeroom The fire department is called and puts out the blaze but it has severely damaged three offices. Two TV news stations cover the story and report that the fire was thought to have been caused by a careless employee.

Sudden Level 4

The situation is out of control and will impact an extended area and numerous people indefinitely. Business will have to be curtailed or discontinued and employees diverted from their normal duties until it is resolved. Other employees may have to be furloughed, vendors ordered not to make deliveries, etc.

Note:
Local emergency response agencies will be actively involved. State and federal agencies also may be called in.

The fire spreads throughout the office building. High winds send cinders into nearby neighborhoods causing additional fires and forcing the evacuation of residents in the area. The fire department calls in all available equipment from the city and surrounding areas to control the numerous fires.

Local TV stations feed the story to their networks and it is carried on the evening news programs, with the suspected cause of the fire mentioned in the reports.

Note:

The criteria for these categories are broad because what may seem to be a Level 1 or Level 2 crisis when it first occurs may quickly escalate to a higher level. The Crisis Response Team should be alerted to any sudden crisis that is Level 3 or 4--or that has the potential to reach that level.

Smoldering Crisis A smoldering crisis is defined as: Any serious business problem that is not generally known within or without the company, which may generate negative news coverage if or when it goes "public" and could result in more than a predetermined amount in fines, penalties, legal damage awards, unbudgeted expenses and other costs. Examples of the types of smoldering business crises that would prompt a call to the Crisis Management Team would include:

a. Sting operation by a news organization or government agency

b. OSHA or EPA violations which could result in fines or legal action

c. Customer allegations of overcharging or other improper conduct

d. Investigation by a federal, state or local government agency

e. Action by a disgruntled employee such as serious threats or whistleblowing

f. Indications of significant legal/judicial/regulatory action against the business

g. Discovery of serious internal problems that will have to be disclosed to employees, investors, customers, vendors and/or government officials.

Assessing the Severity of a Smoldering Crisis

The following crisis classifications have been established to ensure consistency in assessment of any smoldering crisis situation so that the proper response can be developed to minimize the potential of the crisis going "public" or to reduce the damage to our business if public disclosure cannot be avoided.

Smoldering Level 1

An internal business problem or disruption that can be dealt with and resolved by management responsible for responding to this kind of situation.

Example:

A disgruntled employee who has not been given a raise threatens to disclose internal policies that he feels are illegal or unethical to “the proper authorities” unless his grievances are resolved and he receives a pay increase.

Smoldering Level 2

An internal problem that can be managed by those who are responsible for this area of business, with support from other management or employees who may have to be brought in to assess the situation and help resolve it.

The disgruntled employee files a complaint with the local government employment agency, which contacts the company for a response to the allegations. He calls his manager to say that he has documents the company certainly would not want other government agencies or the news media to see.

Smoldering Level 3

An internal problem that has the potential of going “public” via the news media and generating negative reactions from government officials, plaintiff’s attorneys, competitors, investors consumer activists, labor unions, etc.

The crisis can still be contained but will require specialized assistance beyond the management capabilities in place to deal with normal business problems. This assistance may be from corporate headquarters, outside legal counsel, and/or consultants who specialize in resolving this kind of problem.

An attorney for the disgruntled employee indicates his client has documents that are highly damaging to the business since they represent illegal or unethical actions. He is willing to settle the dispute for a specified, highly exorbitant, fee. If they are forced to file suit, the documents will be disclosed to the news media.

Attorneys for the employees provide a copy of one of the documents. Company attorneys conclude they were illegally copied by the employee and therefore represent stolen information.

Smoldering Level 4

The situation is very serious and is likely to be disclosed publicly in the very near future. The public reaction will have a significant adverse impact on the business for a period of weeks or months and top management along with numerous employees and outside consultants will have be diverted from their normal activities to resolve this situation. The financial impact will be substantial and will have a direct and indirect effect on operating results.

The dispute and financial settlement cannot be resolved and the employee’s attorneys are preparing to file suit, which will be at any time.

A producer for a network television news magazine contacts the company seeking general background information on its business and employment policies for a story they are developing. No mention is made of the disgruntled employee.

Note:

The criteria for these categories are broad because what may seem to be a Level 1 or Level 2 crisis when it first occurs may quickly escalate to a higher level. The Crisis Response Team should be mobilized for any smoldering crisis that is Level 3 or 4--or that has the potential to reach that level.

In some instances crisis situations may be either sudden or smoldering, depending on the amount of advance notice and the chain of events in the crisis. Examples would include:

Adverse government actions	Computer tampering
Anonymous accusations	Damaging rumors
Competitive misinformation	Discrimination accusations
Confidential information disclosed	Equipment, product or service sabotage
Misuse of chemical products	Industrial espionage
Disgruntled employee threats	Investigative reporter contact
Employee death or serious injury	Judicial action
Employee involved in a scandal	Labor problems
Licensing disputes with local officials	Lawsuit likely to be publicized
Extortion threat	Security leak or problem
False accusations	Severe weather impact on business
Incorrect installation of equipment	Sexual harassment allegation
Grand jury indictment	Special interest group attack
Grass roots demonstrations	Strike, job action or work stoppage
Illegal actions by an employee	Terrorism threat or action
Indictment of an employee	Illegal or unethical behavior of an employee
Major equipment malfunction	Union organizing actions
Nearby neighbor, business protest	Whistleblower threat or actions

ICM's empirical research into business crisis events and the crisis consulting experience of the ICM staff indicate that most sudden crises also generate “aftershocks” in the form of smoldering crises which occur as the government, media and internal investigations into the cause of the crisis uncover specific problems that were not know previously. Many of those aftershocks are included in the list directly above.

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