World
Trade magazine, november 1999
Avoiding
Overseas Crises
By Mel
Mandell
Nothing
beats being prepared
Many overseas crises are avoidable. Others
need to be contained. Coca Cola’s recent series of troubles in Europe, its most
profitable market, demonstrate the importance of being prepared if a crisis
arises. After the initial very limited report of product contamination was
dismissed as an anomaly, you know what hit the fan. At that point, Coke ramped
up its response, to the extent of the CEO himself flying off to Europe for
public mea culpas.
Although most of the recent corporate crises
involve food, such as the UK’s mad cow debacle and the contamination of Belgian
poultry, a corporate crisis can be triggered by a variety of events. For
instance: Reebok accused of contracting manufacture of its sneakers to
sweatshop operators; the revelation that during World War II the head of the
Wildenstein gallery in Paris had dealings with the Nazis and GMC’s Opel
division accused of exploiting slave labor; Hughes Aircraft and Loral
Electronics accused of providing vital missile technology to the Chinese;
widespread, long-term sexual harassment; toxic chemical spills (Bhopal);
natural disasters; and the kidnapping for huge ransoms of top executives.
(Kidnapping of employees will be covered in detail in an article to appear in
the December World Trade).
Crises, domestic as well as overseas, mostly
fall into two major categories: the essentially unavoidable and the potentially
avoidable. For both categories, once a crisis develops, how well the situation
is handled depends on prior preparation and fast, appropriate action.
With regard
to the second category, executives of three global security organizations that
advise hundreds of large corporations insist that many overseas crises can be
avoided or at least substantially ameliorated or contained. That’s the position
of David Fields, now vice president, Pinkerton Business Risks International,
who handled overseas security for the US State Department for 30 years. He
recommends two key steps: First, setting up and training a crisis-management
team and then gathering intelligence on possible crises, such as the national
unrest that swept Indonesia (which forced the hurried evacuation of hundreds of
resident foreign nationals and their families).
“A public
relations expert to deal with the media, “ says Brett Laquercia of Kroll
Associates. Brig. Gen. Robert Hoffman, USAF, Ret., now operations director,
Control Risks, North America, lists three desirable characteristics for this
team member: common sense; past experience in dealing with tough situations;
and strong rapport with the CEO. To the experts on the team, Hoffmann, who
headed the USAF’s criminal investigation effort, adds a lawyer, a financial
person (in case substantial resources must be marshaled), a security expert,
and a human-relations executive.
Because of
one type of crisis—the questionable detention of the executive in charge of an
overseas operation who somehow offended a business tycoon or government
official with strong connections to the ruling junta. “Counsel should maintain
a Rolodex with the names of to-be-trusted lawyers in each nation in which the
corporation does business in case of a questionable detention or an arrest
because of a traffic accident, bribery charge, or product contamination,”
advises Hoffmann. If your in-house counsel does not maintain such contacts,
hopefully a hired international law firm does. It’s not enough to assemble such
a team; it must be trained and tested as well. Not too surprisingly, the three
firms cited will all help clients engage in hours-long crises scenarios.
Should the CEO Take Charge?
Who should
take charge when a crisis arises? According to Fields, a truly monumental
crisis could require the CEO himself to take charge. Fields cites the
to-be-emulated example of CEO James E. Burke of Johnson & Johnson stepping
up to the plate successfully after the Tylenol poisonings in 1986. The problem
with intense CEO involvement, adds Hoffmann, is that a prolonged crisis could
distract him from running the business, to its detriment. As an example, he
cites the paralysis of the Carter Administration because of the President’s
intense involvement in the 15-month-long Iranian hostage crisis.
The three
global security services all claim to gather up-to-date intelligence on
conditions in many overseas nations. It was such advance information that
enabled the services’ clients in Indonesia to arrange for an orderly evacuation
of employees and their families before the massive social unrest of 1998. In
contrast, other companies without such advance warning had to scramble to get
their employees out. By gathering such information on potential for crises,
Control Risks was able to provide enough information to one big US corporation
to prevent its taking on unreasonable risks by setting up an operation in
Russia.
What help
can government provide to avoid crises and then aid in the event of an overseas
crisis? American embassies all gather information for the State Department on
local conditions overseas. Hoffmann urges clients to push their overseas
executives to open dialogs with local State Department security officers who
could warn them, for example, of potentially dangerous unrest or the likelihood
of a prolonged general strike. Field also urges US corporations to join the
State Department’s Overseas Security Advisory Council. What about overseas governments?
Hoffmann says it makes sense to cultivate contacts in overseas governments, as
long as they are stable and not likely to be overthrown. US companies that have
invested heavily overseas and provided many jobs should be entitled to support
from local governments.
Companies with many operations overseas are
urged to maintain a round-the-clock contact point at headquarters to which
distant employees can report crises or incipient crises. For instance, the
on-duty security people at headquarters should be provided with an
easy-to-follow manual on steps to be taken. Obviously, the manual should list
the home, cellular, and paging numbers and e-mail addresses of all members of
the crisis-management team and their deputies.
If a company doesn’t have security employees who can be contacted at any
hour, the three security services can do this for clients. For instance, Kroll
will support a dedicated global hotline from its crisis management center in
Vienna, Virginia, where personnel on duty will answer in English in the
client’s name either round-the-clock or after business hours. The 24-hour cost
for a company with about 10,000 employees is about $1,000/month. What if the
caller doesn’t speak English? The caller will then be connected to an AT&T
interpreter in one of 140 languages who will translate.
Once a crisis develops, the crisis-management
team has to be mobilized. Unfortunately, says Hoffmann, only a minority of
global operations have such well-trained teams. For others, some overly
confident top executive is usually appointed to take counter-measures. Lacking
experience in dealing with crises and bereft of overseas intelligence sources,
the appointee is likely to botch the effort or at the least react too slowly.
To help out, the executive should enlist the services of one of the global
public-relations organizations experienced in dealing with the media once a
crisis becomes public. Dealing effectively with the media, overseas as well, is
especially important for public companies. By now it’s obvious that
preparations to avoid and then deal with overseas crises can cost. However, not
being prepared can cost many times more, especially for companies, like Coke,
that have invested many millions if not billions in building an international
brand image. Being prepared does not eliminate overseas crises, but can surely
help avoid many of them.
The deaths due to escaping toxic fumes of
over 2,000 Indians living near Union Carbide’s plant in Bhopal was the greatest
single overseas disaster to strike any American corporation. The $480-million
settlement in 1989 was just the cap on a series of blows that shrunk UCC by
many billions in assets.
A flock of vultures began circling after the
1984 crisis. The vultures included one government agency, the Occupational
Safety and Health Administration (OSHA), Wall-Street analysts, and GAF
Corporation. Although much smaller than UCC, GAF made a hostile bid to acquire
UCC. To fend off this bid, which management termed “grossly inadequate,” UCC’s
management made a series of moves, including an offer to buy back millions of
shares. To pay for those shares, UCC sold off its most-profitable divisions,
those that made and marketed such solid brand-name products as Eveready and
Energizer batteries, Prestone antifreeze, Glad trash bags, and STP oil
treatment.
UCC also downsized facilities and staff at a
cost of over $1 billion. Not too surprisingly, profits from continuing
operations disappeared. This caused now-hostile analysts to claim management
was so busy coping with disasters (there was also a gas leak at a UCC plant in
the US) that it couldn’t manage the sagging business. And OSHA accused
management of “willfully permitting widespread violations of worker health and
safety regulations.” (To avoid what it claimed would have been much-higher
legal costs, UCC settled OSHA’s claim for $408,000, a pittance compared to its
other costs.)
Eventually,
after many top-level executives were retired or canned, UCC, with new
management, emerged as a much-smaller operation that took years to return to
profitability.
What are the lessons to be learned from
Bhopal?. First, never, never assume that the initial crisis is the only crisis.
When the vultures sense a corporation is wounded, they attack, often by
amplifying latent or minor disasters or conjuring up new ones. If the
corporation is public, it must have or engage an executive highly experienced
in dealing with analysts, who enjoy the smell of blood, and with fund managers.
Management must move as quickly as possible to resolve the initial crisis so
that it can’t be accused of paralysis when confronted with a crisis. If a
hostile acquirer arises, management must act quickly to either find a
more-hospitable “white knight” or attack the potential acquirer as inappropriate.
Mandell, based in New York City, is a
regular contributor to World Trade
magazine.