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Crisis Response Journal Crisis Response Journal

It's time for CEOs to think more about crisis

Posted on 6th September 2018 at 13:40pm

A new study at Harvard has revealed a shocking statistic: CEOs spent just one per cent of their time working on crisis management. That’s pretty disturbing, considering nothing destroys reputation or market value faster than a crisis, writes Dr Tony Jaques

Up to half a company's reputation - and a similar share of its market value - can be attributed directly to the CEO. This is a double-edged sword in the world of crisis management: What happens when things go wrong? (Maxicam/123rf)

Moreover, the Institute for Crisis Management records that more than half of all business crises are triggered not by workers or other causes, but by management.

So there is no doubt that the CEO and top executives have a critical role in crisis management. Yet the evidence is clear that companies have a long way to go to get this right.

While the newly-published Harvard study identified that the subject CEOs – monitored over a three month period – spent just one per cent of their time working on crisis management, the reality is that this worrying number should not come as a surprise.
For example, a 2016 Deloitte survey of Board members around the globe found fewer than half said they had engaged with management to understand what had been done to support crisis preparedness or to discuss crisis prevention. And the same survey showed 73 per cent of the non-executive directors named reputation as a crisis vulnerability, but only 39 per cent said they had a plan to address it.

Reputation has been called a company’s greatest uninsured asset, and we know from research that up to half of a company’s reputation, and a similar share of its market value, can be attributed directly to the CEO. That may seem encouraging and an endorsement of strong leadership, which is great when the CEO and the company are performing well. But it also highlights just how potentially vulnerable organisations are when things go wrong. In the world of crisis management this is very much a double-edged sword.

Think no further than Tesla boss Elon Musk, once the darling of Wall Street. When he used Twitter in July to suggest one of the Thailand Cave rescuers was a paedophile, his company’s shares fell by $US2 billion. Then just weeks later he told the New York Times the stress of the job was getting to him, and Tesla lost over $US5 billion in market value.

Or consider Facebook, where cumulative reputation and performance issues recently led to a market loss of almost $US120 billion in a single day, the biggest ever one-day drop in a company’s value.

In their memorably titled book We're so big and powerful nothing bad can happen to us, Ian Mitroff and Thierry Pauchant published a worrying catalogue of ‘reasons’ top executives gave for NOT being properly crisis prepared. These included: 

  • Excellent, well managed companies don’t have crises
  • It is enough to react to a crisis once it has happened
  • Certain crises only happen to others
  • Crisis management is someone else’s responsibility
  • Each crisis is unique, so it is not possible to prepare for them
  • Most crises turn out to be not very important
  • It’s blindingly obvious that such statements are simply excuses for inaction. Responsibility for crisis management absolutely belongs in the executive suite and any CEO who thinks crisis warrants only one per cent of their time is seriously endangering the organisation.

Effective crisis prevention and crisis preparedness demands visible management commitment and leadership from the top. If the CEO doesn’t think it’s important, then why would anyone else?

This series of blogs is written by CRJ Australian-based crisis expert, Dr Tony Jaques, Managing Director of Issue Outcomes Pty Ltd and a Member of CRJ’s regular international blogging team  

 

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