Lessons Learned from Actual Crises

 

 

 

Tylenol (Johnson & Johnson, 1982)

 

Cause: 7 Chicago residents died & 250 got sick after ingesting cyanide-laced Tylenol capsules, which has been tampered with on the store shelves

 

Immediate Response: J&J warned consumers not to use product; recalled 31 million bottles (value $100 million); worked closely with FDA & FBI; immediate stock loss of $1 billion

 

Follow-up: J&J offered consumer incentives such as free replacements & coupons; toll-free info hotline, full-page newspaper ads, many media interviews; communicated with physicians/employees/consumer groups/government; repackaged & reintroduced product.

 

Outcome: Within a few months regained market share of 35%, surpassed own sales forecasts by 50%; earned public sympathy, set new industry standards for consumer safety; value of good reputation

 

Public Relations Lessons: Quick action; proactive & transparent communication; action rather than excuses; priority of consumer over profits

 

 

 

Exxon Valdez (Exxon Oil Company, 1989)

 

Cause: 11 million gallons of oil spilled into Prince William Sound, Alaska; calm seas; captain drunk/resting; uncertified 3rd mate at helm; dead animals included 500,000 birds (150 bald eagles), 4,500 sea otters, 14 killer whales; toll on fishing & tourism

 

Background: Exxon had removed clean-up equipment from area prior to accident as part of a strategy to de-emphasize the risk of such a spill

 

Immediate Response: Low-profile company suspicious of media; lower-ranking executives sent to Alaska

· CEO uncomfortable with public role, first public comment after 6 days, not on site for 3 weeks; no designated spokesperson; blamed media for making big deal; CEO suggest that anyone who drives a car was responsibility for the spill

· Stock dropped $3 billion

· Newspaper apology ads 10 days later; no outside PR counsel; ignored public criticism; dismissed environmental interests; on legal advice, refused to acknowledge extent of problem

· Two-week delay before cleanup; refused cleanup assistance of local residents; fear appeal (predict increase in gas prices because of cleanup); shifted blame (accused Coast Guard & Alaskan officials of delaying cleanup)

 

Costs to Exxon:

· Stock drop $3 billion

·  Criminal Restitution (clean-up): $100 million

· Criminal Plea Agreement: $150 million fine (largest ever for environmental crime) (later reduced to $25 million w/ half for North Am Wetlands Conservation Fund & half to Victims of Crime Fund

· Civil Settlement: $900 million over 10 years to restore environmental resources

· Punitive Damages: $5 billion (largest punitive fines ever for corporate irresponsibility); Exxon still appealing

· Reputational Outcome: Exxon lost market share, slipped from largest to third-largest oil company; target of consumer boycott; eventually recovered financially

· Lingering Legal Cost: In 2000, Alabama jury assessed Exxon $3.5 billion for defrauding state on gas royalties; jury said Exxon synonymous w/ corporate arrogance & shirking responsibility; verdict set aside; on re-trial, jury awarded $11.9 billion; on appeal reduced back to $3.5 billion; in 2007 further reduced to $52 million (defraud amount without penalties); in 2008 state filed another lawsuit for $143 million in interest; ethics charged filed against eight Republican justices who had accepted $5.5 million in political contributions from Exxon

· Other legal problems: Maryland 2011, ExxonMobil ordered to pay $1.5 billion plus previous $150 million for gasoline leak; other lawsuits pending: pipeline spills in Arkansas, Montana, Wyoming; pollution in Texas; gay discrimination in Illinois and texas; juman rights case in Indonesia

· Corporate Outcome: Merger w/ Mobil Oil

· Hazelwood immediately fired; tried & convicted of misdemeanor for negligent discharge of oil; worked as SUNY Maritime instructor, lobster fisherman, boat transporter, claims adjustor for his lawyer, 1,000 hours of community service in Alaska

· CEO Rawl resigned in 1993, still earning $1.3 million salary (plus benefits)

· Exxon Shipping Exec Iarossi quit a year later to become president of American Bureau of Shipping

· Exxon Valdez repaired for 11 months, $30 million; renamed SeaRiver Mediterranean; legally banned from Alaskan waters

· Regulatory Outcome: 1990 Oil Pollution Act requires double-hull tankers, escort tugs, other safety measures; includes financial/civil/criminal provisions, including fines and prison terms; created national Oil Spill Liability Trust Fund

· Environmental Outcome: continuing environmental monitoring; only 2 of 28 species affected "fully recovered" (bald eagle & river otter)

 

Lessons: Slow action; silence; priority of profits over consumer; arrogance; blaming others; lingering legal cost

 

 

 

 

 

Deepwater Horizon (BP 2010)

 

Cause: Oil rig in Gulf of Mexico casued "worst environmental disaster in US history"; 11 killed; 4.9 million barrels of oil polluted 3,900 square miles; rig owned & operated by another company

 

Background:

·  BP considered one of greenest energy companies in America

 

Immediate response:

· CEO Tony Hayward face of BP until he was photographed yachting and complaining about "wanting his loife back."

· PR response first to blame hired drillers, owners of rig, government regulators. Later stopped blaming and turned toward future, how to contain the spill and compensate victims

· Set up $20 billion fund to reimburse victims

· Lost public confidence by allowing media to educate about deep-water drilling (let others tell its story)

 

Cost to BP: 

· $43 billion total (estimate $26 billion in legal and court fees, $13 million to settle 300,000 lawsuits, $20 billion trust fund, $3.5 billion penalties, $14 million actual clean-up costs). In 2014, court found BP guilty of "gross negligence" and increased penaltys by $13 billion

· $40 million TV ads to repair image

 

Ethical issues:

· BP paid Google estimated $1 million a month to place sponsored links above relevant news stories in search terms for "oil spill" and "leak"

·  Donated $5 million to Dolphin Island Sea Lab shortly before that organizationa announced that dolphin deaths in gulf had been caused by cold water, not oil

 

Lessons learned, BP v/v Exxon:

· BP quicker to pay compensation than Exxon

· BP not at fault; Exxon was at fault

· Both companies minimized extent of damage

· Neither company seemed to ha e crisis communications plan

·  BP handled situation better; corporagte leaders were part of solution rather than ducking and hiring; fewer contradictory statements

 

 

American Trader (British Petroleum, 1990)

 

Cause: 400,000 gallons of oil spilled off Long Beach CA

 

Immediate response: Within hours, BP implemented crisis plan; company officials w/ cell phones went to oil-soaked beach where media gathered, gave interviews; BP provided TV footage of underwater ruptured hull of tanker; dead animals included 2 seals, 2 sea lions, 48 birds (BP said only 43, plus caring for another 126); BP sent 415 cleanup workers

 

Follow-up: Received media praise for good PR; praised also for helping local economy by buying from local oil-cleanup suppliers; participated in $35 million cleanup; paid $2.9 million for wildlife restoration & cleanup claims settlements; earned $1.1 billion profits in first 6 months after oil spill

 

Lessons: Quick response; media as ally; accept responsibility; avoid blame

 

 

 

Benzene (Perrier, 1990)

 

Cause: Trace amounts of cancer-cauzing benzene found in bottled water, first in North Carolina, later in Europe.

Immediate response: Perrier acknowledged problem through spokerson, but CEO refused to hold news conference or give interviews; meanwhile, company announced world-wide recall; explained that benzene is naturally present in carbon diozide used to make the drink bubbly and was not properly filtered out.

 

Follow-up: FDA forced Perrier to drop "Naturally Sparkling" from label because it used articifial bubbles; within 5 years sales dropped to half; company divested & today owns 7 of top 10 US brands of bottled water, but Perrier brand not among the best-selling products

 

 

 

Syringe Hoax (Pepsi, 1993)

 

Cause: Seattle TV report about syringe in can of Diet Pepsi; FDA issues regional advisory; within 24 hour, similar reports around the country

 

Immediate response: With no reasonable production explanation possible, Pepsi concluded that it was a hoax; engaged its crisis planning team (which had benchmarked other companies' crisis response, including Johnson & Johnson); used open/transparent communication; granted on-site interviews at Seattle plant; videotaped high-speed canning process; communicated with employees/media/government/bottling subsidiaries; distributed 4 VNRs of canning process (seen by 500 million viewers)

 

Follow-up: Declared 'hoax' by FDA; survey showed that 94% believed Pepsi acted responsibly, 75% said they felt better about Pepsi products because of PR response; lauded in US House of Representatives for quick & decisive action to end national scare

 

Lessons: Media as ally; quick response

 

Cost to Pepsi: $500,000; quarter sales highest ever

 

 

 

Basketball Team Crash (King Air, 2001)

 

Cause: Plane carrying 10 members of Oklahoma State Univ basketball team/staff crashed, killing all; crash 500 miles from campus on weekend night; university crisis plan not developed for long-range tragedy

 

Immediate response: OSU news bureau one of first notified; crisis plan guided by principle 'do what is right'; news bureau had difficulty getting info because of distance & time; airport news conference by OSU president; frequent followup briefings; put privacy needs of family first, while responding to media; set up website; created task force to investigate travel policy

 

Follow-up: Held memorial service on Day 3; memorial scholarship fund in name of victims; built memorial to victims at crash site

 

Lessons: Built on existing relationships with police/media; single spokesperson & project manager; drill for emergency scenarios & practice plan; focus on priorities

 

 

 

Silicone Breast Implants (Dow Corning, late 1980s)

 

Cause: Company became aware of medical problems with silicone breast implants; accused of knowingly manufacturing & marketing products; thousands of lawsuits

 

Immediate response: DC made rational decision to rely on scientific evidence of no link between implants & illness; public response not rational & disbelieved scientific evidence; company crisis plan to be open & honest 'overwhelmed' by public disbelief; company statements made by various officials (no single designated as spokesperson); apparent lack of sympathy for victims; failed to cooperate with FDA, instead attacked FDA publicly; refused to provide media with info or interviews

 

Follow-up: Several years after initial problems, DC brought in independent investigator & set up consumer hotline, but this backfired when FDA shut it down for giving misleading info; DC reacted with more denial & attacks against FDA. Over time, DC accepted some responsibility for problems with silicone implants & took correction action, but did not admit what implants were unsafe. DC eventually quit the breast-implant business

 

Lessons: Liability of existing poor reputation (Agent Orange); misreading publics; relying on reason without understanding emotion (with 'junk science' winning); too little, too late

 

Cost to Dow Corning: DC quit breast-implant business; in 1999, DC declared bankruptcy