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BUSINESS CRISIS MANAGEMENT

HO CHI MINH CITY UNIVERSITY OF EDUCATION ENGLISH DEPARTMENT

MANAGEMENT THESIS

Business Crisis Management

SUBMITTED BY: HOANG TRAN QUYNH NHU SUPERVISOR: MRS. NGUYEN THI NGAN HA, MBA

PLAGIARISM STATEMENT I certify that this assignment/report is my own work, based on my personal study and/or research and that I have acknowledged all materials and sources used in its preparation.

Signature _______________________________________________________________

HO CHI MINH CITY, JANUARY 2013

ii BUSINESS CRISIS MANAGEMENT

Table of Contents Table of Contents ....................................................................................................... ii List of figures ............................................................................................................. iv A. Introduction ........................................................................................................... 1 I. Select a Learning Goal .............................................................................................. 1 II. Why has this Learning Goal..................................................................................... 1 III. Identify Strategies used to review the Literature ..................................................... 1 B. Literature Review .................................................................................................. 1 I. Business Crisis .......................................................................................................... 1 1. Definition ..................................................................................................... 1 2. Types ............................................................................................................ 2 3. Crisis lifecycle .............................................................................................. 3 II. Business Crisis Management ................................................................................... 3 1. Definition ..................................................................................................... 3 2. Stages ........................................................................................................... 3 2.1. Mitroff’s model................................................................................. 3 2.2. Coombs’ model................................................................................. 4 3. Common mistakes in crisis management ....................................................... 5 III. Planning in Crisis Management .............................................................................. 6 1. Steps to make plan ........................................................................................ 6 2. SMART plan ................................................................................................ 6 3. The importance of written plan ..................................................................... 7 IV. Human Resources in Crisis Management ............................................................... 8

iii BUSINESS CRISIS MANAGEMENT 1. HR role in crisis management ....................................................................... 8 2. HRM prioritization ....................................................................................... 9 3. Effect of crisis on HR processes .................................................................... 9 4. Crisis management team ............................................................................. 10 5. Crisis and employees .................................................................................. 11 V. Leadership in Crisis Management .......................................................................... 11 1. Leadership role in crisis management ......................................................... 12 2. Tactical crisis management versus Strategic crisis leadership ...................... 12 3. Principles of leadership in crisis management ............................................. 12 VI. Communication in Crisis Management ................................................................. 13 1. Some first steps........................................................................................... 13 2. Setting up a press center ............................................................................. 14 3. Managing a press conference ...................................................................... 14 4. Dealing with the TV interview .................................................................... 15 5. Coping with telephone call.......................................................................... 15 6. The news release ......................................................................................... 16 7. Keeping employees informed ...................................................................... 16 8. Using website ............................................................................................. 16 C. Reflect on What You have Read ......................................................................... 17 I. The case of Tylenol................................................................................................. 17 1. Company background ................................................................................. 17 2. Tylenol products ......................................................................................... 17 3. Johnson & Johnson credo ........................................................................... 17

iv BUSINESS CRISIS MANAGEMENT 4. The crisis: The Tylenol poisonings ............................................................. 17 5. Reaction of Johnson & Johnson .................................................................. 18 6. Remark ....................................................................................................... 19 II. The case of Mattel ................................................................................................. 19 1. Company background ................................................................................. 19 2. The crisis: The recalls of products ............................................................... 17 3. Reaction of Mattel ...................................................................................... 21 4. Remark ....................................................................................................... 22 D. Identify action You Plan ..................................................................................... 23 E. References ............................................................................................................ 23

List of figures Figure 1 – Crisis types ................................................................................................ 2 Figure 2 – Crisis lifecycle ........................................................................................... 3 Figure 3 – HRM prioritization .................................................................................. 9 Figure 4 – Talent management strategy .................................................................. 11

1 BUSINESS CRISIS MANAGEMENT A. Introduction I. Select a Learning Goal Virtually nothing can damage organizational reputation and financial performance more rapidly than the impact of a crisis. Crises could all make it difficult or even impossible to carry out the normal day-to-day activities in enterprises. At worst, this could make you lose important customers and even go out of business altogether. Good crisis management strategies are indispensable for the development of any business. Therefore, my learning goal is to investigate organizational crisis and the way to deal with it. II. Why has this Learning Goal been selected? I choose this concept for my research because good knowledge of crisis management help organizations better prepare for unforeseen events that may cause serious damage. Organizations can minimize the potential impact of a disaster by preventing its happening the first place. III. Identify Strategies used to review the Literature The strategies that I use for my research are the internet, textbooks, and journal articles.

B. Literature Review I. Business Crisis 1. Definition A business crisis is a sudden problem in business that breaks out of control and comes in a great magnitude beyond the normal anticipation. The happenings that can be classified as crisis include natural disasters, industrial accidents, product failures, financial problems… In short, a business crisis can negatively affect a company’s reputation or bottom line.

2 BUSINESS CRISIS MANAGEMENT 2. Types Nadler (2004) groups crises into one of four types (See Figure 1):  Gradual emergence, external origin: These might involve economic downturns or the emergence of competitive threats, such as breakthrough technologies, new go-to-market strategies, alliances of major competitors, or regulatory changes that limit business practices or expand competition.  Gradual emergence, internal origin: Examples range from strategic mistakes (such as a poorly conceived merger) to failed product launches, the loss of key talent to competitors, and employee discrimination suits.  Abrupt emergence, external origin: Some of the most obvious examples are natural disasters, terrorist attacks, and product tampering.  Abrupt emergence, internal origin: This can include the sudden death or resignation of one or more key executives, failure of critical technology, production, or delivery systems, or the discovery of fraud. Figure 1. Crisis Types GRADUAL EXTERNAL  Economic downturn  Competitor product assault ABRUPT  Natural disaster
 Terrorist attack

INTERNAL

 Strategic misstep
 Product launch failure

 Key executive departure  Critical system failure

3 BUSINESS CRISIS MANAGEMENT 3. Crisis lifecycle Fink (1986) is one of the first to consider a crisis as an extended event. His model is the earliest which include four stages: (1) Prodromal, (2) Crisis breakout, (3) Chronic and (4) Resolution (See Figure 2) Figure 2. Crisis Lifecycle Prodromal: Risk cues that potential crisis can emerge Crisis breakout: Triggering events  with resulting damage  Chronic: Lingering effects of crisis  Resolution: Crisis no longer a concern to stakeholders

II. Business Crisis Management 1. Definition Because a crisis normally strikes when least expected, the need for planned efforts to mitigate crisis events has become a serious concern for organizations. Business crisis management is understood as a series of procedures used to sustain or resume normal business operations, minimize stakeholder loss, and use learning to improve crisis management processes (Pearson & Clair, 1998). . If an organization prepares for the worst-case scenario, it can handle other situations as well. 2. Stages 2.1. Mitroff’s model. The model from Mitroff (1994) identifies five stages in crisis management: (1) Signal detection, (2) Risk factors’ searching and reducing, (3) Crisis damage’s

4 BUSINESS CRISIS MANAGEMENT prevention, (4) Recovery phase and (5) Crisis management’s reviewing and critiquing to learn from it. The essential difference between the Fink’s model and Mitroff’s model is that Fink concentrates on the progress of crises while Mitroff is concerned about the progress of crisis management efforts. 2.2. Coombs’ model. Coombs (2007) labeled the three stages in crisis management as Pre-crisis, Crisis event and Post-crisis: 1) Pre-crisis: Management activities are oriented to actions that must be taken to reduce known risks which could lead to a crisis. They involve signal detection, crisis prevention and crisis preparation:  Signal detection: Emergency managers should detect warning signs, collect and analyze this information.  Crisis prevention: Emergency managers should avoid detected signals to turn into a crisis or, at least to lessen the risk level of the crisis.  Crisis preparation: Emergency managers must be prepared when a crisis occurs. This involves developing and updating the crisis management plan, selecting and training the crisis management team, identifying vulnerabilities, structuring communications. 2) Crisis event: When a crisis is going on managers must respond quickly, accurately and consistently. This phase concerns the acknowledgement of the crisis and the crisis response:  Crisis acknowledgment: Emergency managers must identify the crisis and how events are evolved in order to do the best at each moment.

5 BUSINESS CRISIS MANAGEMENT  Crisis response: According to the crisis’ type, the managers must follow procedures or management plans so as to lessen the immediate consequences and side effects of the crisis. 3) Post-crisis: Management has to put in place actions to recover from the crisis, which means the recovery process, evaluation of crisis management and next crisis management preparation:  Recovery: This phase consists of corrective actions to solve the problems. This phase takes longer than the crisis event because consequences from a crisis are extensive and hard to solve.  Evaluation of crisis management: Once the crisis is over, it is important to investigate it so as to understand why it happened and how to avoid or mitigate from happening again.  Next crisis’ management preparation: Managers must start preparing for the next crisis to improve its management. 3. Common mistakes in crisis management Some common mistakes in crisis management are presented as follows:  Failure to plan: During a crisis a leader must align three critical strategic elements: the Goals, the People, and the Resources. The Goals define the objectives of the crisis intervention. The People define who is suitable to be in the right positions or the right teams. The Resources define how leaders will use tangible and intangible resources available. Without good planning, there may come serious damages.  Failure to communicate: The majority of communication failures during a crisis are electronic equipment failures. However, human communication failures are also frequent.

6 BUSINESS CRISIS MANAGEMENT Unclear goals, misunderstood instructions, poor delegation, incomplete feedback system… can make the situation go from bad to worse.  Failure to lead: A crisis demand real leadership. There are too many variables to deal with. Therefore, only through real leadership (making tough choices, facing opposition, under extreme pressure) does a company survive.

III. Planning in Crisis Management The principles applying to crisis management planning are broadly the same for virtually all types of corporate crises. Methods for implementing the plan will not vary greatly for different types of crisis. 1. Steps to make a plan It is usually impossible to anticipate every bad thing but there are steps every company can take to be well-prepared: (1) Cataloguing potential crisis situations; (2) Devising policies for their prevention; (3) Formulating strategies and tactics for dealing with each potential crisis; (4) Identifying who will be affected by them; (5) Devising effective communications channels to those affected so as to minimize damage to the organization’s reputation and (6) Testing everything. 2. SMART plan  Be Specific: Avoid bland meaningless statements when you are creating your crisis plan. It is easy to be busy but not achieve very much so make your plan specific to give focus to what you do.

7 BUSINESS CRISIS MANAGEMENT  Be Measurable: Every elements in your crisis management plan should be measurable. For example, if you cannot measure results, you will not know how you have achieved what is supposed to do.  Be Achievable: Set yourself achievable goals. They should not be so high that will demotivate you. However, don 't make it too easy though, or there will not be any achievement.  Be Realistic: Ask yourself questions such as: Do you have the right resources? Do you have the skills required? Or do you need to get more staff or additional finance?  Be Time-bound: Give yourself a time deadline and set appropriate milestones along the way. Time limit will help you keep you on track. It will stop you focusing on the day-to- day issues of running your business at the expense of achieving more important results. 3. The importance of written plan The importance of putting the plan in writing cannot be underestimated. Absence of a written plan will cause hours of additional work for an already fraught management. Checklists of things to do and people to contact are invaluable in enabling the organization to deal with crisis when it occurs. Valuable time will be lost and tempers grow if names and telephone numbers are not available when needed. In a chaotic situation it’s a huge relief to be able to hand to subordinates lists of things to do, giving assurance that all the essential steps will be taken. The plan must not be too long or rigid. It must provide the flexibility and framework which acknowledges the unpredictable aspects of any crisis situation, and give management the freedom to use common sense. It needs a structure, but a loose one.

8 BUSINESS CRISIS MANAGEMENT In conclusion, enterprises should put the plan in writing and ensure it is kept up to date with changes to the business and movement of personnel.

IV. Human Resources in Crisis Management Human resources have two roles in crisis management. First, people are a source of risk, for example, shortage of employees, employees refusing to take on additional responsibilities, or key employees leaving the company after training programs. Second, people are important in handling crisis, for example, people using their ingenuity to solve unexpected problems, key employees redesigning their own jobs to avoid work delays... 1. HR’s role in crisis management HR leaders have a strategic role and responsibility to ensure their organizations are aware of internal vulnerabilities on the human side to different types of crises and to ensure their crisis management plan covers all potential risks and concerns. HR has the opportunity to ascertain that the human capital is taken care of in all crisis management. HR could offer real value protection or enhancement through deliverables such as crisis communication plans, crisis resource planning, safety and security training, talent management and succession planning. In partnership with other organizational leaders, HR can motivate the company 's human capital to support what need to be done. The support and commitment from employees during and after a crisis can only be facilitated by HR professionals who understand the business and employees’ concerns. Hence, HR professionals can influence the organizational culture and capabilities to provide effective leadership before, during and after a crisis.

9 BUSINESS CRISIS MANAGEMENT 2. HRM prioritization The right prioritization is the best strategy during crisis. The policy has to be based on Cost and Impact Analysis. It has to find out the functions which are to be cancelled, considered or to continue on the basis of checking the cost and impact (See Figure 3). If cost is high and impact is low then the project or policy has to be cancelled and vice versa. Figure 3. HRM Prioritization (3C Strategy) The Strategy Cost & Impact

Cancel

Consideration

Continue

Some examples of HRM are presented below:  Trim down the number of employees  Increased productivity and efficiency  Minimizing the daily recurring expenses  Redesign of the compensation scheme & cancellation of benefit schemes  Training and Development Programs cutting  Optimization of resources 3. Effects of crisis on HR processes The major HR Processes affected by the crisis together with solutions are as follows:

10 BUSINESS CRISIS MANAGEMENT  Recruitment: The job vacancies are cancelled and the HRM Function should come with a new recruitment strategy. Instead of hiring people it can go for outsourcing and offshoring.  Training: The training programmes are to be cancelled as it is a quick cost cut. The training programmes will only focus on more specialized training session and in-house training courses can be introduced to be conducted by internal experts.  Compensation and Benefits: The department can be asked to bring a new compensation scheme, which will save the costs and motivate employees to be more proactive. 4. Crisis management team The Crisis Management Team should include:  Team Leader: a senior executive who can make decisions on behalf of the organization.  Security Director: responsible for facilitating plan development, training employees, establishing a crisis center; serves as the primary information officer.  Finance Director: assesses the financial implications of each type of disaster covered by the plan, arranges for required funds to be available in an emergency, oversees disbursement of funds and maintains records of cost of crisis for the company.  Legal Counsel: advises the team on possible legal implications of recommended actions.  Media Spokesperson: conveys important details without disclosing proprietary information, compromising employee privacy or confounding investigative efforts.  HR Director: has access to personnel records, helps the information officers reach affected individuals and their families and works to resolve the human issues created by the crisis.  Security Specialist: an expert on various contingency planning issues, usually from outside of the organization, who helps educate the team about options for handling various types of crises, advises the team during the crisis event and helps conduct the debriefing afterward.

11 BUSINESS CRISIS MANAGEMENT 5. Crisis and employees The employees are the most important assets of the organization. During the time of crisis, the employees should feel secured and so that they can work with whole heartedness. The crisis brings rumors about the retrenchments, layoffs, cancellation of benefits etc. which grasp the organization quickly. So HR function has to understand and monitor the employees and their reactions. Once employees start taking about the crisis, it may so happen that the key and talent employees may leave the organization. Research suggests that a company’s ‘stars’ are the first to be poached by competitors. Thus, an organization has to employ the strategy of acquiring talent, deploying the talent at the right place, developing and retaining them. (See Figure 4) Figure 4: Talent Management Strategy

Acquire

Deploy

Develop

Retain

In short, when the employees feel the danger from the crisis, the top management has to inform all the employees honestly about the outlook for the organization and it has to provide them with the vision to follow.

V. Leadership in Crisis Management To be effective in crisis situation, a leader must be able to first assume completely the requirements of his function under normal circumstances. It is a question of knowing how to

12 BUSINESS CRISIS MANAGEMENT achieve a balance between the handling of technical matters as well as adaption of behavior to every situation. 1. Leadership’s role in crisis management Crisis leadership research concludes that leadership action in crisis reflects the competency of an organization. There are five things a leader should do in order to facilitate organizational restructuring during and after a crisis.  Building an environment of trust  Reforming the organization’s mindset  Identifying obvious and obscure vulnerabilities of the organization  Making wise and rapid decisions as well as taking courageous action  Learning from crisis to effect change.

2. Tactical crisis management versus strategic crisis leadership  Strategic Crisis Leadership involves high-leverage skills that are vital to corporate recovery in the midst of a disaster.  Crisis leadership skills define the crisis beyond the obvious, forecast the intended and unintended consequences of decisions, anticipate the effects of the crisis, and follow the values and guiding principles of the organization.

3. Principles of leadership in crisis management Crisis management leadership contains many of the same skills as found in any leadership role. The main differences between typical management and a crisis decision making is the speed and the gravity of impacts of the decision.

13 BUSINESS CRISIS MANAGEMENT When considering crisis leadership the following principles should be considered:  Knowledge.: Crisis leadership requires swift, balanced, and decisive action. Responses should not be impaired by a lack of understanding or the inability to formulate solutions based on a solid foundation of knowledge.  Information.: Decision making should be shaped by accurate and timely information. Decisions based on assumptions or speculation could exacerbate the problem.  Confidence.: Crisis managers should have the confidence to take decisive action. Confidence also involves understanding your organization’s limitations and knowing when to seek support.  Practice.: Where possible crisis leaders should practice how to respond to different forms of crisis events. Practice will identify gaps and shortfalls prior to an emergency occurring. Practice also develops knowledge and creates confidence.  Structure.: Crisis leaders should develop a structured approach to their response to crisis. Structure brings focus to what is often a confusing leadership requirement. Structure also reduces confusion and duplication of effort, identifies shortfalls and gaps in responses.  Pace.: The pace of decision making should be measured and balanced. Some crisis events will allow for a sedate pace of response, others will require immediate action. Crisis leaders need to understand the tempo of response requirements and align their leadership style accordingly.

VI. Communication in Crisis Management 1. Some first steps

14 BUSINESS CRISIS MANAGEMENT The first 24 hours are critical. It is advisable to offer the media background information on the company or installation which has been affected. This produces two results: First, there will be time to gather and check information about the incident before its release to the media. Second, it demonstrates to the media that the organization is willingly to cooperate and communicate the crisis. Offering background information to reporters enables them to begin framing the issues they will later write or broadcast. So it is essential to keep updated background information about the operation considered potentially at risk. 2. Setting up a press center It may not be possible to hold press conferences on company premises. You can make arrangements, perhaps with a local hotel, town or village hall, which could be quickly established as a centre for the media during the emergency. The media should be informed of the times of press conferences. As a result, the company will have the opportunity to tell its own story and to correct misinformation picked up by journalists. 3. Managing the press conference Hundreds of potentially hostile journalists can put you into difficult situation. Training and preparation are the keys. Useful tips to assist with the successful management of press conferences include:  Restrict the numbers of the management team to only those with specific knowledge of the incident. Ensure it is chaired by a senior company executive and he or she is a good communicator.  Place a time parameter on the conference and end the conference at the specified time.

15 BUSINESS CRISIS MANAGEMENT  Try to issue a new press release at the conclusion of the conference. Have copies placed at the exit door for the media so they are encouraged to use it, allowing the management to exit via their own door. Press conferences rarely work well on television. It is best to arrange one-to-one television interviews after the conference. If someone has made a mess of answering questions during the press conference, the television interview provides an opportunity to rectify the error. Moreover, the company may be full of requests for such interviews and may not be able to cope with. It is advisable that the company is prepared to give one interview which the broadcast media can share. 4. Dealing with the television interview Training of television spokespeople is absolutely vital against crisis scenarios. Here are some basic tips to remember:  Prepare three main points which refer to people first, damage to the environment or property second and financial consequences third.  If possible, rehearse the interview beforehand and anticipate the worst possible questions  Never point the finger of blame at the company, employees or third parties.  Eyeball the interviewer; never talk to the camera unless it is a down-the-line interview. 5. Coping with telephone calls Incoming telephone calls from the media will far outweigh the numbers of reporters in the site. So the telephone becomes an incredibly important channel of communication. The company is supposed to designate a media telephone response room equipped with sufficient

16 BUSINESS CRISIS MANAGEMENT equipment which can be quickly used in case of an emergency. This prevents the main switchboard from becoming jammed up and allows the normal business to continue. 6. The news release The news release is a key communications tool in a crisis situation. It provides the company’s official explanation of what is happening. It can be sent out to many parties to attain a consistency of message. A good idea is to number, time and date each release so journalists can follow the chronology of events more easily. 7. Keeping employees informed Following a serious incident, it is vital to keep employees informed of the situation. They should not learn new information via the media, as so often happens. Besides the management board, employees are also in a position to explain to customers, family and friends what is happening. 8. Using website The internet has been used as a highly effective global mechanism for doing business. Company websites can provide a fast and effective means of communicating directly to stakeholders. Moreover, the website can also be used by the media and other visitors to download announcements from company spokespeople about the situation. They are particularly useful for radio news broadcasts. Remember that once information is on the website, it will be available globally. If you are dealing with a situation locally, it may be wiser not to publicize it to the rest of the world.

17 BUSINESS CRISIS MANAGEMENT C. Reflect on What You Have Read I. The Case of Tylenol 1. Company background In order to discuss the story of Tylenol, two companies must first be examined: McNeil Consumer Healthcare, the producer of Tylenol, and Johnson &Johnson itself. McNeil Laboratories was founded by Robert McNeil in 1879; Johnson & Johnson was founded seven years later in 1886 by Robert Wood Johnson. In 1959, McNeil Laboratories was purchased by Johnson & Johnson. Under Johnson & Johnson’s leadership, McNeil Laboratories sold the first non-prescription bottle of Tylenol in 1960.With the help of Tylenol, along with several other popular brands, Johnson & Johnson has become the world’s largest maker of healthcare products. 2. Tylenol products Tylenol sells a variety of self-healthcare products to tackle some of the most common issues of a cold or flu, including relieving pain, reducing fevers… The Tylenol product line consists of hundreds of products that fit into categories such as Head & Body, Cold and Flu; Pain and Sleeplessness… 3. Johnson & Johnson credo While many organizations have developed ethics initiatives only recently, J&J was a pioneer in developing a sound code of ethics. The J&J Credo emphasizes putting the consumer firs — a concept that would make all the difference during the mass Tylenol recalls in the ‘80s. 4. The crisis: The Tylenol poisonings The crisis started on September, 1982 when seven of these deaths occurred because of Tylenol consumption. The news of the incident spread quickly, causing a nationwide panic.

18 BUSINESS CRISIS MANAGEMENT Investigations revealed that the sudden deaths were a result of cyanide poison discovered in the Tylenol capsules. The capsules had been opened and filled with 65 mg of cyanide—up to 10,000 times that which was needed to kill a person. Since the tampered bottles came from different factories and the seven deaths had all occurred in the Chicago area, the possibility of sabotage during production was eliminated. Instead, the culprit was believed to have entered various supermarkets and drug stores over a period of weeks, pilfered packages of Tylenol from the shelves, poisoned their contents with cyanide at another location, and then replaced the bottles. In addition to the five bottles which led to the victims ' deaths, three other tampered bottles were discovered. These poisoned bottles were discovered at different stores in the Chicago area. 5. Reaction of Johnson & Johnson This is one of the most often used examples of effective crisis management. J&J took its consumer responsibility outlined in its Credo seriously. It immediately recalled 31 million bottles of Extra-Strength Tylenol worth over $100 million from all retail stores across the United States. In addition, the company offered to exchange all Tylenol capsules already purchased by the public with solid tablets. Johnson & Johnson also distributed warnings to hospitals and distributors that Tylenol production and advertising would be halted until further notice. According to an analyst, Johnson & Johnson suffered a loss of $1.24 billion due to the depreciation of the company 's brand value. Immediately after the crisis, Tylenol 's share fell from 37% of the U.S. over-the-counter pain reliever market to just 7% by late 1982. Yet rather than drop the brand as a lost cause, J&J President James Burke poured millions into reviving the struggling brand. Within six months, its share was back up to 30 percent. Tylenol managed the crisis in two steps: public relations (reacting to the crisis) and its comeback stage.

19 BUSINESS CRISIS MANAGEMENT + Public relations: Even though the deaths were not a fault of the company, it took responsibility and put consumer safety over profit. In addition, J&J partnered with the FBI, the Chicago Police, and the FDA to track down the culprit, even offering a $100,000 reward for anyone who could volunteer information about the killer. Perhaps most importantly, J&J did not deny the link between the deaths and its products, a mistake that many companies make immediately following a product crisis. + Comeback stage: Johnson & Johnson needed to find a way to restore consumers’ trust in the brand. The company took several actions to demonstrate Tylenol’s safety. Tylenol products were introduced with new triple-seal tamper resistant packaging. It also offered a $2.50 off coupon on the purchase of its Tylenol products, which could be found in newspapers. A new pricing program was introduced that provided discounts of up to 25 percent. Additionally, more than 2,250 salespeople made presentations to members of the medical community. Johnson & Johnson’s actions effectively restored customer goodwill toward the company. In fact, in a survey taken shortly after the crisis, 90 percent of respondents stated that J&J was not to blame for the situation. 6. Remark Using the Credo as a guide, J&J strive to maintain and further develop key stakeholder relationships. After its successful handling of the 1982 Chicago Tylenol crises, J & J was largely acknowledged as an industry leader in business and ethics.

II. The Case of Mattel 1. Company background

20 BUSINESS CRISIS MANAGEMENT Mattel, Inc. is the world 's largest toy company based on revenue. Its products include Fisher Price, Barbie dolls, Monster High dolls... The company was found in 1945 and has been famous for the Barbie product line. After the release of the Barbie doll, Mattel revolutionized the toy industry with its talking dolls and toys. Major successes with the talking Chatty Cathy doll in 1960 and See 'N Say toys in 1965 moved Mattel to its position as the number one toymaker in America. Mattel closed its last factory in the United States of America in 2002, outsourcing production to China, the beginning of a chain of events that led to a scandal involving lead contamination. 2. The crisis: The recalls of products There are two separate reasons why Mattel recalled 19 million toys in 2007. The fact that both recalls occurred at the same time makes this the biggest recall in the company’s history. + Faulty magnets: The design of these toys included parts with high-energy magnets – (magnets normally used for industrial purposes) that can easily come loose. These magnets pose a threat to young children and infants who could easily ingest the parts and have them bond together along their digestive tract. If several magnets were swallowed they would pull together in the stomach and rip through stomach tissue. The strength of the magnets combined with Mattel’s poor design of the toys made these products a serious hazard for young children. On their website, Mattel listed 71 models and makes of toys that are recalled because of faulty magnets. + High levels of lead-based paint toys: China has had numerous problems with the quality and standards of the products manufactured within the country. Mattel has been criticized for placing too much confidence in their relationship with China and slacking on quality checks at the manufacturing sites. Mattel had previously given manufacturers in China a list of eight

21 BUSINESS CRISIS MANAGEMENT paint suppliers that they could use, but in order to cut costs, subcontractors used unapproved suppliers. In some cases the lead content was over 180 times the legal limit. Lead-based paint is dangerous for children because elevated levels have been shown to create learning and behavioral problems, slow muscle and bone growth, hearing loss… and in extreme cases, death. There are 91 models and makes of toys that Mattel placed on recall because of harmful levels of paint. Upon notification, Mattel began an investigation and halted operations at the factory that produced the toys. During this investigation it was discovered that there were millions of products that didn’t conform to safety standards, many that had been available since 2003. The products containing lead paint were mostly from this division of Mattel and were all manufactured in China. Despite the fact that a larger number of toys were recalled because of faulty magnets rather than lead-based paint, recall blame was heavily placed on China by global media. During this time, Chinese media claimed that Mattel should be accountable for the mistakes they made rather than use China as a scapegoat. 3. Reaction of Mattel Here are some objectives which Mattel followed: (1) Get all information about the recall to the public accurately, quickly, and efficiently; (2) Reassure consumers, especially parents, that Mattel is committed to making safe toys, fixing the problem, and being open and honest. Finally, (3) Take responsibility for the recall. Solve the problem while maintaining a stable relationship with China. When federal officials announced the first Mattel recall, 16 public relations personnel immediately called reporters at the top 40 media outlets. They sent out e-mails with a recall press

22 BUSINESS CRISIS MANAGEMENT release, told reporters about a teleconference with executives, and allowed the media to schedule TV appearances or phone conversations with top personnel at Mattel. The day of the recall, Robert Eckert, the CEO of Mattel did 14 interviews on television and took 20 calls from reporters. Mattel answered over 300 media requests in the United States by the end of the week. The company took out full-page ads in the New York Times and the Wall Street Journal as well. Mattel also launched a massive online crusade to inform people about the recall. A link to a crisis response website was set up on their webpage right away and updates have been posted regularly. Webcasts and search engine marketing, also known as pay per click marketing, were used as well. Eventually, Mattel issued a prepared apology to China about the recall, taking full blame for the incident. They took ownership of the magnetic design flaw, claiming that it was a Mattel design flaw and not a Chinese manufacturing flaw. Nothing was said about the paint. 4. Remark Mattel was doing their job correctly because they told people about the problem. They confessed and comprehended that they made a mistake and offered a solution. Mattel’s apology to China is, for the most part, is looked at favorably as well. By accepting all blame, Mattel was able to continue forward and focus on setting things right, not on whose fault it is. This also allowed consumers to see that Mattel is dependable and the one who is responsible for fixing the problem.

23 BUSINESS CRISIS MANAGEMENT D. Identify Action You Plan This paper has evaluated the use of crisis management in business, with focus on the application to deal with three crisis stages (pre-crisis, crisis events and post-crisis). Thanks to the findings gained when conducting this paper, I now have broader understanding about crisis management and some field related (Human resources, Communication…) which contribute to the preparation for my job in the future. In daily perspective, crisis is unavoidable, so I can also employ some techniques discussed above to solve my problems in a systematic way. The thesis; however, is subjected to some limitations. Due to the time limit and my humble experience, it may limit the extent to which the study can be generalized to other populations. In conclusion, this paper is a small contribution to the study of business crisis management that would benefit from a deeper study of other common particles in business such as Finances, Human resources, Communication…

E. References
Nadler, D. (2004). What’s the board’s role in strategy development? Engaging the board in corporate strategy. Strategy and Leadership, 32(5), 25–33. Pearson, C. M., & Clair, J. A. (1998). Reframing crisis management. Academy of Management Review,23, 59-76 Mitroff, I. I. “Crisis management and environmentalism: A natural fit” . California Management Review, 36(2) (1994): 101-113. Coombs, W. Timothy. “Ongoing Crisis Communication: Planning, Managing and Responding” 2nd ed. Los Angeles, London, New Delhi and Singapore: Sage, 2007 Fink, S. Crisis management: Planning for the inevitable. New York. AMACOM, 1986

References: Nadler, D. (2004). What’s the board’s role in strategy development? Engaging the board in corporate strategy. Strategy and Leadership, 32(5), 25–33. Pearson, C. M., & Clair, J. A. (1998). Reframing crisis management. Academy of Management Review,23, 59-76 Mitroff, I. I. “Crisis management and environmentalism: A natural fit” . California Management Review, 36(2) (1994): 101-113. Coombs, W. Timothy. “Ongoing Crisis Communication: Planning, Managing and Responding” 2nd ed. Los Angeles, London, New Delhi and Singapore: Sage, 2007 Fink, S. Crisis management: Planning for the inevitable. New York. AMACOM, 1986