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Organizational Dynamics, Vol. 34, No. 2, pp.

141152, 2005 ISSN 0090-2616/$ see frontmatter


2005 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2005.03.005
www.organizational-dynamics.com

Leadership as (Un)usual:

How to Display
Competence in
Times of Crisis
ERIKA HAYES JAMES LYNN PERRY WOOTEN

I n recent years, U.S. newspapers and tele-


vision news broadcasts have almost daily
featured some company in crisis. Images of
Contrast J&Js corporate image with the
negative view that many people still harbor
for Exxon Corp. 15 years after an accident
embattled companies and their leaders have where the oil tanker Valdez precipitated one
become commonplace. The crises have ran- of this nations most extensive oil spills.
ged from corporate fraud in accounting pro- Unlike the Tylenol scare at J&J, no one died
cedures to allegations of widespread sexual from the oil spill, but Exxon (now ExxonMo-
harassment or discrimination. In almost all bil) was and is heavily criticized for both the
cases, the leaders of these companies are accident and its handling of it. Consequently,
caught off guard, yet with the world watch- and despite its unequivocal corporate success
ing, they are expected to say (and do) some- in the oil and gas industry, the Exxon brand
thing to manage the situation. suffered severe damage to its reputation.
The consequences to a firms reputation For numerous reasons, the comparison
from mishandling a corporate crisis can lin- between J&J and Exxon is essentially one
ger for decades. We want to emphasize that it comparing apples to oranges. Johnson and
is often the (mis)handling of crises, not the Johnson was the victim of product tamper-
crisis itself, that can have the most conse- ing. In other words, the crisis was perceived
quences positive and negative for a firm. to be beyond its control. So although J&Js
What differentiates those firms that thrive corporate culture and leadership signifi-
following a crisis from those that do not is cantly contributed to creating a successful
the leadership displayed throughout the pro- outcome to a tragic situation, stakeholders
cess. were sympathetic to the organization and its
Consider, for example, how most people leadership because of the companys victim
continue to hold Johnson and Johnson (J&J) status in the crisis. Conversely, with the Val-
as the standard for how to effectively manage dez accident, circumstances were such that
a crisis situation, based on the companys the public placed fault on Exxon employees
response when cyanide-laced Tylenol tablets and management for the crisis. As research
caused numerous deaths in Chicago in the has shown, it is difficult to recover when the
early 1980s. To this day, the popular press organization and its leadership are blamed
consistently rates J&J as one of Americas top for a crisis, regardless of the response strat-
companies, despite a crisis situation that egy employed by the firm for resolving the
could have adversely affected consumer situation. Our point is that one cannot over-
trust and firm performance. state the notion that crisis situations and the
141
handling of them can literally make or break manage a crisis, it helps to understand what
a firms long-term reputation. Moreover, as differentiates a crisis situation from an unfor-
we describe below, a bad reputation can have tunate or unpleasant business challenge. For
debilitating effects on a firms financial example, on the surface a train derailment
health and even survival. might seem like a crisis. We argue that in
In this paper we introduce six competen- many cases, a derailment is an unfortunate
cies for leading organizations in turbulent consequence and risk of doing business. Yet
times. Our fundamental assumption is that if a train derailment caused the deaths of
crisis leadership is more than managing cor- passengers or personnel, or resulted in the
porate communications and public relations leaking of a toxic substance in a heavily
(PR) during a crisis. Communication and PR populated area, the situation moves from a
activities are a necessary but insufficient ap- problem to a crisis. To more fully appreciate
proach to leading an organization through business crises, we define them as:
crisis. Rather, we argue that the best crisis
Any emotionally charged situation
leaders are those who build a foundation of
that, once it becomes public, invites
trust not only within their organization, but
negative stakeholder reaction and
also throughout the organizations system.
thereby has the potential to threaten
These leaders then use that foundation to pre-
the financial wellbeing, reputation, or
pare their organizations for difficult times; to
survival of the firm or some portion
contain crises when they occur; and to lever-
thereof.
age crisis situations as a means for creating
change and ultimately a better organization. In the terminology of the Institute for
At first glance, these criteria seem appro- Crisis Management (ICM), there are two pri-
priate for business leaders in all situations mary types of crisis situations: sudden and
and they are. Displaying these leadership smoldering. Christine Pearson and Judith
competencies during times of crisis, how- Clair identified a number of crises, which
ever, poses a unique challenge. First, leaders we position as either sudden or smoldering
in crisis are forced to operate in full public in Table 1.
view, with the media and others positioned Sudden crises are those unexpected events
to report and critique their actions. Second, in which the organization has virtually no
during a crisis, there is the tendency to want control and perceived limited fault or
to make the crisis simply go away, resulting responsibility. To call the devastation asso-
in decisions and actions that are oftentimes ciated with the terrorist attacks on September
suboptimal (e.g., cover-ups and deception). 11, 2001 a crisis is an understatement for sure,
These shortcuts can ultimately undermine but for some businesses located in New
effective leadership. However, by con-
sciously being attuned to the big picture of
crisis situations and the opportunities that
can be created for the organization as a result TABLE 1 TYPES OF
of crises, leaders and their organizations can ORGANIZATIONAL CRISES
thrive. In short, in todays competitive busi- Sudden crises Smoldering crises
Natural disasters Product defects
ness environment, developing crisis leader- Terrorist attack Rumors/scandals
ship competencies is mandatory. Plant explosion Workplace safety
Workplace violence Bribery
Product tampering Sexual harassment
Sabotage Consumer activism
DEFINING CRISIS Hostile takeover Mismanagement
Executive kidnapping Whistle blowing
Organizations are susceptible to an array of Environmental spill Class action lawsuits
crises. While each one poses a different type Technology disruption Labor disputes
of threat, and there is no one way to
142 ORGANIZATIONAL DYNAMICS
Yorks World Trade Center and surround- States most notorious class-action racial dis-
ing areas, and the Pentagon in the metro- crimination lawsuits was filed against the
politan Washington, DC area, the attacks Texaco Inc. in the mid-1990s. The allegations
represented a sudden crisis of the highest against Texaco involved disparate salary and
magnitude. Business leaders in this country promotion treatment between African-Amer-
could not have conceived that such tragedy ican and white employees. Tape recordings of
was possible, and therefore most were senior executives of the firm using racial
unprepared for it. Employees, customers, epithets and making other disparaging com-
and other stakeholders were left in the dark ments about black employees subsequently
for weeks or longer. For example, disrup- became public fodder. Although it was these
tions in technology such as phone lines recordings that made headline news, both the
and computer systems left many employees inappropriate behavior of those managers
unsure of where or when to report to and the unjustified discrepancy in salary
work. The ensuing loss of productivity and promotion decisions for white and min-
and the associated workplace chaos was ority employees were a function of poor man-
not blamed on the leaders of the affected agement, and led to a costly, smoldering crisis
firms. As was true with the J&J incident, situation.
there was an outpouring of support for the Generally speaking, stakeholders res-
leadership of these organizations at least pond much more antagonistically to crisis
initially. situations that are perceived to be the fault
Such empathy and assignment of no- or responsibility of management. Conse-
fault is common for many types of sudden quently, on average, these organizations tend
crisis situations, precisely because they are to suffer much more reputation damage than
perceived as being beyond management do firms experiencing sudden crises. As weve
control. Nevertheless, firm leadership is still already indicated, however, its not the crisis
expected to resolve the crisis, and any dis- itself that necessarily threatens an organiza-
plays of empathy become short-lived if sta- tion, but the handling of the crisis. Therefore, a
keholders perceive firm leadership as well-managed smoldering crisis will likely do
mishandling the execution of the crisis less harm to an organization than will a poorly
response. managed sudden crisis.
Smoldering crises are those events that
start out as small, internal problems within
a firm, become public to stakeholders, and,
PHASES OF A CRISIS
over time, escalate to crisis status as a result
of inattention by management. According to Researchers including Ian Mitroff and
the ICM database, nearly three-quarters of all Christine Pearson have established a mini-
business crises fall into the smoldering cate- mum of five phases depicting a typical
gory. Consider, for example, the plethora of business crisis. These phases provide some
cases of corporate fraud, mismanagement, insight into effective leadership practices
labor disputes, and class-action lawsuits during times of crisis. In a subsequent sec-
reported in the news media in the early tion, we will build on this framework in
2000s. Such events have been the downfall order to showcase a model of leadership
of firms like Enron Corp., Arthur Andersen, competencies for managing organizations
and WorldCom Inc., and have wreaked in turbulent times.
havoc on others such as Microsoft Corp.,
ImClone Systems Inc., and Adelphia Com-
Phase 1 Signal Detection
munications Corp.
Unlike sudden crises, smoldering crises While these are less evident in many sud-
are generally perceived as the fault of a firms den crisis situations, smoldering crises
leadership. For example, one of the United nearly always leave a trail of red flags or
143
warning signals that something is wrong. organization as a result of the crisis experi-
Unfortunately, these warning signals often ence.
go unheeded by management. This likely
occurs for several reasons. The first is an
Phase 4 Business Recovery
illusion of invulnerability, leading people
to think that serious problems only happen One of the ultimate goals of any crisis
to other people. Next, and in a related man- situation is to get back to business as usual.
ner, are ego defense mechanisms such as In our own research of firms involved in class
denial that allow leaders to preserve a pris- action discrimination lawsuits, we found that
tine image of themselves and their organiza- executives are constantly trying to reassure
tions even in light of evidence to the contrary. stakeholders that, despite the disruption,
Last, and most troubling, is a failure in signal business affairs are operating smoothly or
detection precisely because it is the decision- will be returning to normal soon. In the
making and behavior of organizational lea- business recovery stage, what differentiates
ders that are contributing to the pending crisis managers from crisis leaders is the
crisis. This is an all too common occurrence, ability to consider both short and long-term
as represented by data from ICM that over 50 recovery efforts and to think beyond the
percent of all crises are sparked by manage- business-as-usual paradigm to a business-
ment activity. anew paradigm.

Phase 2 Preparation/Prevention Phase 5 Learning


The preparation and prevention phase Organizational learning is the process of
suggests that with proper planning and pre- acquiring, interpreting, acting on, and disse-
paration, firms can avoid many crisis situa- minating new information throughout the
tions. This is not to suggest, however, that the firm. When it comes to managing crisis situa-
goal for managers is to prevent all crises. This tions, however, firm leadership generally
would be impossible. But with some realistic adopt a reactive and defensive posture that
planning and expectations, they will be bet- prevents learning. The typical sequence of
ter positioned to prevent some crises and events is as follows: crisis event occurs; firm
better able to manage those which are una- scrambles to contain the crisis; crisis is even-
voidable. tually resolved. In a learning approach, the
same stages would occur, but would be
enhanced by an explicit attempt by firm
Phase 3 Containment/Damage
leadership to understand the underlying
Control
organizational factors contributing to the cri-
Containment and damage control tend to sis and then leveraging this insight to facil-
preoccupy management time and attention itate fundamental change in firm systems
when crises occur. Indeed, it is these activ- and procedures.
ities that people associate with crisis manage- Understanding these phases of a busi-
ment. Clearly, this is an important step ness crisis is a necessary precursor to
toward business recovery (phase 4), and developing the leadership competency to
the goal of this phase is to limit financial successfully lead organizations in turbulent
and other threats to firm survival in light times. Table 2 identifies key questions asso-
of the crisis. Effective managers of damage ciated with each phase that leaders may
control and containment are those who exe- want to consider in preparation of becom-
cute a strategy that ends the crisis. As we ing crisis leaders rather than crisis managers.
highlight later, however, ending a crisis is not We use these phases as a backdrop to focus
the same as leading a firm through a crisis leaders attention more explicitly on the
with the (dare we say) vision of being a better knowledge, skills, and abilities (a.k.a compe-
144 ORGANIZATIONAL DYNAMICS
TABLE 2 ASKING THE RIGHT QUESTIONS FOR EACH CRISIS PHASE
Crisis phase Questions leaders ask
Phase 1 signal detection  What are the organizations vulnerable areas?
 How can the organizations vulnerable areas result in a crisis?
 What situations and practices does the organization ignore that
may lead to a crisis?
 Does the organization acknowledge things that may be uncomfortable
to confront?
 How do the organizations systems and policies contribute to potential
crisis situations?
Phase 2 preparation/prevention  Has leadership created a plan for reacting to crises?
 Has the organization allocated appropriate resources
for crisis prevention?
 Will the organizations infrastructure facilitate or hinder the
resolution of a crisis?
 Has the organizations culture developed a readiness mentality for
responding to crisis?
Phase 3 containment/damage control  Is the organization positioned to implement a strategy for limiting
damage during a crisis?
 How does the organization control crisis-related information?
 Who are the stakeholders with whom the organization needs to be
concerned, and what do we need to do to satisfy them?
 What message should the organization communicate to stakeholders
and how should it communicate them?
Phase 4 business recovery  What are the organizations short- and long-term recovery
plans after the crisis?
 What critical activities must leadership be engaged in to
recover from the crisis?
 What metrics will we use to evaluate the performance of
our business recovery strategy?
 How will leadership communicate the end results of the
business recovery phase?
Phase 5 learning and reflecting  What did the organization learn from the crisis?
 Did leadership reflect on past mistakes and behaviors?
 Has the organization engaged in a change of behavior to
prevent future crises?
 Has the organization developed a memory to prevent future crises?

tencies) needed to holistically address busi- tions (PR) concerns, or on legal matters.
ness crises. Moreover, in on our own research we found
that damage control activities tend to be
defensive or reactionary understandably
so, given that firms in crisis are swimming
CRISIS LEADERSHIP: SIX
up tide against the rip current of negative
COMPETENCIES FOR USING
publicity. This traditional approach to crisis
CRISES TO PROMOTE
management, however, is insufficient given
ORGANIZATIONAL CHANGE
the magnitude of the challenge that crisis
Traditionally, firms in crisis adopt manage- situations present. What is needed is not
ment activities associated with the contain- simply management of the situation but a
ment phase described earlier. This phase leadership approach whereby the organiza-
often encourages a one-dimensional focus tion, the crisis, and the environment are
either on communication and public rela- considered fully and completely. Weve
145
identified six core competencies for crisis public, Adelphias stock dropped 99.75 per-
leadership. cent, representing a profound decline in pub-
lic trust.
To build trust, leaders need to commu-
nicate openly, honestly, and often. A will-
BUILDING A FOUNDATION OF
ingness to share information sends a signal to
TRUST
stakeholders that they are important. Sharing
Without trust, organizational decision-mak- information, however, is risky. The informa-
ing and strategy implementation are doomed tion can be used against the leader or against
to fail. While the failures may not be immedi- the firm. Sharing information may also be
ate, they are imminent. Quite simply, we perceived as a sign of weakness because
cannot ignore or underestimate the human access to information is power; by sharing
element of organizations. This includes the it, one is essentially giving power away. In
need for employees to feel safe in their work addition, some messages that leaders need to
environments and with the people with communicate may reflect poorly on them-
whom they must interact on behalf of their selves or on the firm. Yet giving away power
organizations; the need for customers to have and allowing oneself and the organization to
faith in the products or services rendered by be vulnerable is precisely the behavior that
the firm; and the need for business partners fosters trust in the workplace.
to expect cooperative intentions and actions. Building a foundation of trust also
What this means for business leaders is that involves managing expectations. Explicitly
they must create an environment of trust that communicating what it is you expect of
spans across the entire supply chain and is others is imperative. Unspoken assumptions,
inclusive of all aspects of business in which inferences and other implicit communication
crises can occur. open the door to misunderstandings and
One cannot fully appreciate the signifi- misperceptions, as well as inappropriate
cance of trust without first understanding behavior and justification for that behavior.
betrayal. Betrayal is the perceived or actual
breach of explicitly or implicitly communi-
cated expectations. Unfortunately, betrayal is
CREATING A NEW
an all too common experience in organiza-
CORPORATE MINDSET
tions and can result in an overall loss of
credibility for the very institutions on which Organizational leaders are influenced by a
most societies depend. Take for example the number of external factors. Chief among
widespread racial discrimination at Dennys them is the need to respond to stakeholders
Corp. restaurants, whereby customers were that have power over the firm. For publicly
betrayed by management practices that owned organizations, the institutional and
encouraged race-based discrimination. The individual investors who have certain expec-
subsequent lawsuit resulted in negative pub- tations of firm performance represent one
licity for the restaurant chain, a severely such group. In recent years, some organiza-
tarnished reputation, and $54 million in set- tions have succumbed to this pressure in
tlement fees. More recently, Adelphia Com- ways that are both unethical and illegal.
munications betrayed employees, customers The leadership of these crisis-ridden firms
and shareholders when it was found to have are not necessarily bad people, but indivi-
made multi-billion dollar off-balance-sheet duals who find themselves in extraordinary
loans to the company founders, who were pressure-filled positions, the likes of which
then also the firms chief executive officer most will never experience and therefore
(CEO) and chief financial officer (CFO). Sub- cannot fully appreciate.
sequent to the Securities and Exchange Com- The external pressure of profit and per-
mission (SEC) investigation becoming formance has given rise to a corporate mind-
146 ORGANIZATIONAL DYNAMICS
set focused primarily on a single stakeholder. engaged in the process and empowered to
Consequently, decisions are made, and beha- create solutions.
viors are adopted and encouraged which are
perhaps too narrowly focused. Moreover,
once leaders experience success in satisfying
IDENTIFYING THE (NOT SO)
a particularly influential stakeholder group,
OBVIOUS FIRM
and are rewarded for that success, pressure
VULNERABILITIES
intensifies to keep doing so, thereby, and
oftentimes unintentionally, creating a mind- With the new, expanded corporate mindset
set that allows for risky behavior and the should also come a concerted effort to identify
neglect of other stakeholders. The now the firms vulnerabilities. In a manufacturing
defunct accounting firm Arthur Andersen environment, for example, workplace safety
is a notable example of a firm with a pattern and equipment malfunctions are obvious
of risky behavior. Before its demise, Ander- crisis triggers. The crisis management
sen had been investigated by the SEC and the mind-set readily allows for and plans for
Department of Justice (DOJ) for auditing such inevitabilities. Yet crisis leaders will
improprieties. Included among the Arthur anticipate and consider the less obvious sce-
Andersen scandals were: (1) an obstruction narios, such as intentional sabotage of
of justice conviction in the Enron investiga- machinery, or worse, the use of company
tion; (2) a $7 million fine for overstating equipment as a weapon. Certainly a leader
earnings for Waste Management and (3) a can never anticipate all possible crisis scenar-
$110 settlement for inflating the earnings ios, but at the very least one should consider
statement for Sunbeam Corp. and plan for many of the obvious and a few
The challenge we pose to corporate lea- of the less obvious threats.
ders is to create a new, more expansive mind- The need to identify less obvious orga-
set. By taking a big-picture approach, leaders nizational vulnerabilities is easily under-
will see their organizations more completely stood but difficult to adopt, in part because
and recognize and appreciate their respon- of ego needs and psychological defense
sibility and accountability to all stakeholders. mechanisms that prevent us from thinking
In so doing, they will be forced to make negatively about ourselves or our organiza-
decisions and enact behaviors that take tions. Consider, for example, the discrimina-
into consideration multiple perspectives, tory behaviors promoted by the management
thereby reducing the likelihood that crises team at Dennys and implemented by
will emerge. employees. In this example, Dennys leader-
In addition, the expanded corporate ship failed to anticipate the negative conse-
mindset competency may provide clues as quences of what must have seemed like a
to how best to lead a firm out of a crisis, as reasonable business strategy. In other words,
was the case with Dennys. In strategizing they failed to see the way in which the orga-
how to resolve the discrimination crisis, Den- nization was vulnerable to its own decision-
nys leadership team took its obligations to making.
multiple stakeholders into consideration. When we fundamentally believe in the
Instead of focusing only on profitability, goodness of our intentions, it becomes extra-
Dennys considered the needs of various ordinarily difficult to consider that our
groups, and as a result implemented control actions are anything less than above-board.
systems and incentives that encouraged and In fact, our mind can find ways to justify our
rewarded diversity initiatives. Moreover, the deeds, so much so that we are genuinely
prevention of discrimination was not rele- disturbed when others interpret our beha-
gated to the human resource management vior as unethical, immoral, or illegal.
department. Instead, multiple groups, both In short, leaders must continually chal-
within and outside the organization, were lenge themselves to consider not only the
147
possibility that undesirable situations occur The tendency to overly rely on the advice
in their organizations, but also that they may of others during decision making is a result of
have played a role in creating environments what we call the power of the expert, or
where bad things happen. At Dennys this employees who have specialized knowledge
began with management honestly acknowl- in a particular area and whose sole function it
edging the firms problems with discrimina- is to use and share that knowledge for the
tion. After doing so, management made betterment of the firm. Leaders will often rely
structural and policy changes that would on expert opinion during crises because of the
help minimize this vulnerability in the amount of uncertainty often associated with
future. For example, Dennys broke down crisis situations. Because of their deep knowl-
silos after recognizing that such a structure edge base, experts can often reduce this uncer-
prevented the organization from creating an tainty. Savvy organizational leaders will
organization-wide system for recruiting and recognize, however, that it is not the expert,
developing minority talent in the firm. but himself or herself who has the broadest
perspective on the organization, and thus is
best positioned to make appropriate deci-
sions. The narrow focus of the expert is impor-
MAKING WISE AND RAPID
tant, but only in the context of the leaders big-
DECISIONS
picture perspective of the firm.
Crisis leadership also involves the ability to Consider Dennys leadership decision to
make wise and rapid decisions. Traditional move quickly to settle the firms discrimina-
approaches to decision-making involve tion lawsuits. This decision took into account
information gathering; generating alterna- the cost, time, and energy that litigation
tives; evaluating those alternatives and would require of the firm. Yet resolving
reaching a decision. During times of crisis, the lawsuit was not the end of Dennys crisis
however, this traditional approach is less response strategy. As Dennys moved for-
relevant, in that it assumes access to complete ward it listened to not only the advice of
information and unlimited time neither of its legal team, but it also partnered with civil
which is generally available in crisis situa- rights groups, minority businesses, and
tions. Yet what we have found in examining diversity management trainers to obtain a
business crises is that some leaders neither wide perspective of opinions on how best
adopt traditional decision-making nor a sui- to position the organization going forward.
table alternative. Instead, during a crisis
situation, there is a tendency for leaders to
abdicate decision-making power to a select
TAKE COURAGEOUS ACTION
group of others.
Oftentimes, firm leaders who find them- In crisis leadership it is imperative that a
selves managing a crisis will solicit the leader take courageous action. Executives con-
advice of their corporate counsel. This likely sistently rate courage as an important com-
explains why the most common initial crisis petency and a desired trait for future leaders.
communication is a denial or a no-comment. In times of crisis, however, the tendency to
Lawyers often encourage leaders to say as become risk averse is strong. There is already
little as possible or to deny allegations alto- so much ambiguity associated with the crisis
gether in order to avoid or limit legal culp- situation, and its impending outcome, that
ability. Denials are fine if in fact the firm is managers attempt to counter that risk by
completely guilt-free of any wrongdoing, but becoming extra conservative in their
time and again we find that those same firms response to it. The tendency toward conser-
are forced to back-peddle and engage in even vatism has been named threat rigidity by
more damage control when additional infor- Barry Staw, Lance Sandelands, and Jane Dut-
mation suggesting firm guilt becomes public. ton in their research examining how people
148 ORGANIZATIONAL DYNAMICS
respond to threats. Crisis leaders, on the managing in this reactionary mode are less
other hand, will embrace the opportunity competitive in the marketplace.
to think and act big, yet responsibly. This Keeping with our firefighting metaphor,
often entails making decisions and adopting we believe that in order to lead organizations
behavior that is counter-intuitive or that goes for the future, leaders need to spend time in
above and beyond what might be mandated the firehouse the place where firefighters go
by the situation. Leaders who approach to reflect on and debrief the last fire, and
crises as an opportunity for the firm rather prepare for the future. Firehouse time is essen-
than as a problem open themselves up to the tially a time for learning. Learning entails
possibility that a new, better organization can examining the organization its culture, poli-
be created as a result. cies and procedures in such a way that the
root causes of crises can be exposed. Learning
entails facing information that might suggests
that fault lies with the leadership of the firm.
LEARNING FROM CRISIS TO
Learning entails encouraging and rewarding
EFFECT CHANGE
people who communicate truthful informa-
Most business crises do not have to be the tion about problems in the firm. Learning
downfall of an organization or its leadership. entails sharing information. Learning entails
In fact, it is possible to use a crisis as an making changes to the organization that fun-
opportunity for creating a better organiza- damentally revamp systems or remove peo-
tion. To do so, however, requires that leaders ple who are toxic to the organization. Martha
adopt a learning mentality. Stewart Living Omnimedia, Inc. (MSO)
It is no accident that the term fighting learned the value of firehouse time after its
fires has been used to refer to the barrage of founder and CEO, Martha Stewart, was con-
issues, big and small, that surface and call victed for lying to investigators and conspir-
leaders attention away from running the ing with her stockbroker. With the temporary
business. In fact, you will often hear people absence of its leader, the company had to
talking about their organization being in con- reevaluate its dependency on a single person
stant fire fighting mode. There are two reasons to markets its ideas, products and services.
for this. First, fighting fires is exciting it is This resulted in a fundamental change in the
where the action is. People want to feel useful administrative structure and re-branding its
and needed, and firefighting allows them to core competency.
feel as if they are contributing to their orga- A leadership approach to crisis manage-
nizations. Second, fighting fires gives the illu- ment requires an investment of time, energy
sion that work is getting done. Managing by and resources. Quite simply, it requires lea-
deadlines, responding to or meeting the needs ders to change the way they think about and
and demands of others, and putting out the respond to crisis situations or turbulent
fire provides tangible evidence of productiv- environments. Is it worth it? We say unequi-
ity. But, at the end of the day, what has been vocally yes, as evidenced by a study we
produced? There is a difference between conducted examining the effect of crisis man-
being busy and being productive. Oftentimes agement versus crisis leadership responses
we are too busy to be productive. on firm reputation.
While firefighters exist to react to crises,
corporate businesses cannot afford to man-
age in this same way. They exist not to react
LEADING AMIDST CRISIS: A
to market trends or employee concerns, but
STUDY OF REPUTATION
to manufacture products, provide services,
EFFECTS
and create value. In short, the opportunity
costs of fighting fires, figuratively speaking, Although our approach to crisis leadership is
are great so much so that firms constantly fundamentally more than about managing
149
specific crisis situations, these leadership that acknowledged the crisis situation and
skills are most evidently displayed during took a proactive and corrective stance was
a crisis. In this way, it is much like a baseball labeled crisis leadership. The proactive and
game, in that fans most enjoy the mis- corrective strategic approach is consistent
takes on the field that result in hits and with the taking courageous action leadership
runs by one team and force defensive stra- competency in that the adoption of such
tegies by the opposing team. Yet the best behaviors goes against conventional wisdom
played baseball games are those in which and oftentimes against legal counsel.
hits and runs do not occur. In other words, Participants were randomly assigned to
baseball is really about preventing these a crisis response scenario, and using a survey
mini-crises. But fans usually view such design, we asked them to evaluate the firms
games as boring because they are unable reputation as an employer following its
to see the action (e.g., player diving to catch response to the crisis based on the scenario
a fly ball and prevent a run) in the game. they read. ACMEs response to the lawsuit
Similarly, the best organizational crisis lea- was effective in terms of protecting the firms
dership is generally not evident because reputation and Employees would recom-
these firms are less likely to experience a mend ACME as a potential employer to
crisis, and when a crisis does occur they are friends are representative items from the
managed in such a way that the sensation- reputation measure. We found that partici-
alism of the crisis is weakened. pants rated the crisis leadership firm
Just as the best baseball pitchers rarely response significantly more favorably than
pitch a perfect game, the best organizational either the crisis management or combination
leaders cannot avoid crises altogether. Thus, strategies. In other words, crisis leadership
the best way to evaluate the crisis leadership responses were associated with higher firm
approach is to do so in the midst of a crisis. reputation ratings than were crisis manage-
We examined the courageous action compe- ment responses. Fig. 1 illustrates our results.
tency in a study in which 132 MBA students These findings are particularly meaningful in
evaluated an organizations (fictitiously light of firm desires to attract and retain top
named ACME, Inc.) response following a talent in the organization. If employees or
class action lawsuit against the firm. Partici- potential employees view the firm in a nega-
pants were instructed to read company data tive light, their commitment to the organiza-
that clearly indicated black employees were tion and interest in joining it will likely
paid significantly less for the same job than decrease.
white employees, and that blacks were pro- In summary, crisis management activ-
moted at a significantly slower rate than their ities are an important component of overall
white counterparts. Participants were then crisis leadership. However, firms that desire
presented with one of three firm response to consistently rate high in corporate reputa-
scenarios. These scenarios ranged from those tion and other measures will recognize that
that were crisis management focused to those such activities are insufficient for creating a
that were crisis leadership focused. External world-class, crisis-adverse, learning organi-
evaluators had previously rated the various zation. Crisis leadership is a process. It is the
scenarios to determine the extent to which ability to demonstrate the core set of beha-
the scenarios represented a crisis manage- viors identified here in a complex and
ment, crisis leadership, or combination dynamic environment, and to do so under
approach. For example, the scenario depict- a spotlight. The consequences of not building
ing a firm decision maker responding with and using the repertoire of crisis leadership
rhetorical denials of the allegations and competencies can be significant, both person-
defensive, reactive, damage-control based ally for the leader and organizationally. So,
activities was labeled crisis management; although the crisis leadership competencies
whereas the scenario depicting firm rhetoric we have outlined are emerging, as scholars,
150 ORGANIZATIONAL DYNAMICS
FIGURE 1 EFFECT OF CRISIS MANAGEMENT (CM) VERSUS CRISIS
LEADERSHIP (CL) ON FIRM REPUTATION

practitioners, and executives begin the tran- nizations capabilities for learning from and
sition from the traditional crisis management leveraging those crises that do occur.
strategies (e.g., managing public relations
and firefighting) to a crisis leadership stance
we fully expect to see a decrease in smolder-
ing crises coupled with an increase in orga-

151
SELECTED BIBLIOGRAPHY

Christine Pearson and Ian Mitroff have been annual report of crisis trends. Some of the
leaders in the area of crisis leadership and crisis statistics we used in this paper are from
were among the first to write about organiza- the ICM Crisis Report: News Coverage of
tional crises as an opportunity for leadership Business Crises during 2002, v. 12 (nl, Insti-
rather than management. Some of the seminal tute for Crisis Management, 2003).
work by these scholars that is relevant here are Our conceptualization of organizational
ReframingCrisis Management, by Chris- trust and betrayal was built on the work of
tine Pearson and Judith Clair, Academy of Dennis and Michelle Reina, Trust & Betrayal
Management Review, 1998, 23, 5976; and in the Workplace (Berrett-Koehler Publishers,
From Crisis Prone to Crisis Prepared: A 1999).
Framework for Crisis Management, by To learn more about the Dennys discri-
Christine Pearson and Ian Mitroff, Academy mination lawsuit and how the organization
of Management Executive 1993, 7, 4859. revamped its image, we encourage readers to
The Institute for Crisis Management read How Dennys Went from Icon of
(ICM) provides crisis communications con- Racism to Diversity Award Winner, by J
sulting and training. In addition, ICM tracks Adamson, Journal of Organizational Excellence,
business crises each year to produce an winter 2002.

Erika Hayes James received her Ph.D. from the University of Michigan
and is currently an associate professor at the University of Virginias
Darden Graduate School of Business, P.O. Box 6550, Charotttesville, VA
22906-6550, USA where she teaches organizational behavior and an
elective called crisis leadership. James conducts research in crisis
management, social capital, and workplace diversity and discrimination,
and has had her work published in several leading academic journals.
She is an active consultant to firms in the public and private sectors in the
areas of leadership, crisis management, and building trust in the
workplace (Tel.: +1 434 924 4796; fax: +1 434 924 0714; e-mail:
JamesE@darden.virginia.edu).

Lynn Perry Wooten joined the University of Michigan Business School


faculty in 1998, Wooten studies how organizations utilize human
resource management policies to attain a competitive advantage. In
addition, she studies strategic-consequences of employee-centered crises
and the effectiveness of diversity management programs in organiza-
tions. Her research on executive development and diversity has won
awards from the Academy of Management and the McKinsey & Co.
consulting firm. She consults with both profit and nonprofit organiza-
tions (Tel.: +1 734 763 0486; e-mail: lpwooten@umich.edu).

152 ORGANIZATIONAL DYNAMICS