Perception is the reality when it comes to crisis management, explains Michael Regester.

Next week there can't be any crisis. My schedule is already full.

Dr Henry Kissinger while US Secretary of State.

In business as in life, crises come in as many varieties as the common cold. The spectrum is so wide it is impossible to list each type.

Product-related crises alone range from outright failures, as in the case of the widget which resulted in millions of cans of Carlsberg-Tetley beer being withdrawn from the market in 1995, to unanticipated side effects illustrated by the cases of asbestosis and thalidomide. Accidental or deliberate contamination experienced by Lucozade, Perrier and Tylenol and enforced obsolescence as in the case of PCBs are yet two more categories.

However, it is major crises such as aircraft and ferry disasters involving tragic loss of life which lead to greatest public interest. This type of crisis leads to the most visible and measurable erosion of public confidence. The public perception of the risk of such events - fuelled by the disproportionate amount of negative publicity - is often out of proportion with the statistical evidence. For example, it would take two 747 crashes per week to equal the number of people killed on US highways in the same period, but motor accidents rarely make the headlines in the way air crashes do.

Business crises are often created by the mismanagement of the company - injudicious expansion or diversification, evident in such cases as Brent Walker, Next, Saatchi & Saatchi and Ferranti International. Fraudulent behaviour has led to the demise of some major businesses recently of which Barings and BCCI banks are key examples.

Increasingly, business crises are the result of a failure to have in place a risk issues management system which enables companies to spot greater forces at work, such as the underlying economic tides of boom of the 1980s and recession of the early 1990s which the late billionaire Sir James Goldsmith, of Cavenham Foods did see and George Walker of Brent Walker did not.

But the business tribulations of recent years are hardly unique. In 1861, the infant Pony Express in the US met its sudden demise when Western Union inaugurated the first transcontinental telegraph. In 1906, the San Francisco earthquake devastated the city and its banking community - except for A P Giannini, whose small Bank of America continued making loans during the crisis and went on to become one of the world's largest banks - showing that sometimes a crisis can be turned into an opportunity. In 1912 the "unsinkable" Titanic sank.

Perception is the reality

Are you going to believe what you see or what I am telling you?

Groucho Marx.

Virtually every crisis contains within itself the seeds of success as well as the roots of failure. Finding, cultivating and harvesting the potential success is the essence of crisis management. The essence of crisis mismanagement is to make a bad situation worse. Many would argue, for example, that President Nixon's cover-up of the Watergate break-in created a bigger crisis than the original transgression would have produced.

Successful management of a crisis situation is about recognising you have one, taking the appropriate actions to remedy the situation, being seen to take them and being heard to say the right things. Companies often misclassify a problem, focusing on the technical aspects and ignoring issues of perception - as was illustrated by Intel's handling of its Pentium chip crisis and Shell's response to Greenpeace over the disposal of the Brent Spar.

When Intel finally offered to replace the defective chip only an estimated 1% to 3% of individual consumers (who constitute two-thirds of the purchasers of computers with Pentium chips) took up the offer. It was not that people wanted a new chip; they just wanted to know they could get a new chip if they wanted one. As everyone knows, banks do not want borrowers to pay off their loans; they just want to know that borrowers can pay off their loans.

The problem in this stage of crisis management is that perception truly does become the reality. In the case of Shell and Brent Spar, as the Wall Street Journal reported at the time: "Shell made a strategic error. In a world of sound bites one image was left with viewers: a huge multinational oil company was mustering all its might to bully what was portrayed as a brave but determined band". Whatever the reality of the situation, Shell found itself floundering on the shoals of worldwide media perception.

Ordinary people could not get their heads round Shell's scientific and environmental arguments. The company's response focused almost entirely on the print media when television is by far the most influential, and, therefore, important medium. The television pictures showed water cannons being sprayed at the "brave but determined band".

The communications response

Four hostile newspapers are more feared than a thousand bayonets.

Napoleon Bonaparte.

In any crisis situation, the communications response is as important as the operational response to ensure business survival. People, property and the environment can be protected by insurance. Reputation cannot. Yet, often, scant regard is given by organisations to planning for crises and to how they might protect their reputations when a crisis strikes.

There are a number of reasons for this. Some organisations believe their size, location or type of business they are in will protect them. Others believe risk issues and crisis management to be a luxury, or believe crisis is an inevitable cost of doing business. (Indeed, a survey conducted a few years ago among prominent US businessmen found they believed a crisis in business was as inevitable as paying taxes and death.)

Some executives have difficulty admitting to themselves that their companies could face a crisis because, in doing so, they would have to question the excellence of their company and, in some cases, even their own professionalism.

Others subscribe to the fallacy that well managed companies simply do not have crises. This trait can affect even the most public relations conscious companies. Indeed it can affect them more than others. When Nestle was attacked for selling infant formula in developing countries, where it was often mixed with contaminated water, the company's belief in its own caring, nurturing image made it difficult for senior executives to accept the criticism. There was a prevailing belief that anyone who attacked Nestle must be a loony or a communist or both.

As recently as the early 1990s, some companies (especially in the US) even avoided crisis anticipation because of legal liabilities they might assume in doing so. The concern was that if companies identified potential risk areas and failed to guard against them, they might be more responsible legally than if they had not bothered to investigate in the first place.

There used to be an attitude of what you didn't know wouldn't hurt you. Nowadays, however, the courts say if you didn't know, you should have known.

In this age of corporate accountability, the truth is that no organisation is safe from a crisis and the potentially lasting damage it can cause. It is no longer a question of whether a major crisis will strike; it is only a matter of when, which type and how. Getting the communication response right will be as critical to the bottom-line as putting the fire out quickly.

Planning to protect reputation

The vacuum caused by a failure to communicate is soon filled with rumour, misrepresentation, drivel and poison.

C. Northcote Parkinson business academic.

Pre-occupied with the pressures of the present quarter, executives are not inclined to pay much attention to planning for future crises. However, it is instructive here to recall Noah started building the ark before it began to rain.

Planning to communicate effectively in the event of a crisis is a simple, logical process. It requires a bit of management time and a small financial investment. The investment will, however, represent only a fraction of the budget spent on promoting the organisation corporately and on promoting the products and services upon which it depends for its continued commercial success. It is like paying an insurance premium to protect the organisation's most important asset - its reputation.

It involves:

* Understanding the kinds of crises that could occur.

* Identifying audiences who would need to be communicated with.

* Devising simple, practical crisis communications procedures (crises always happen on a Sunday or Christmas Eve).

* Training senior management across the organisation to be effective media spokespeople.

* Establishing and training telephone response teams to cope with hundreds of calls from the media, relatives of employees, customers and others.

* Running exercise simulations to test the effectiveness of procedures and training.

The failure to tell it all, to tell it fast and to tell it truthfully leads to loss of confidence by key stakeholder groups - investors, customers, employees and government. It leads to product boycott and loss of market share; to a collapse in the share price which makes the company vulnerable to a predatory takeover bid; to new regulations and legislation being imposed on entire industries.

The key to crisis management is crisis prevention, whether the vigilance and preparation is self-motivated or enforced by legislation. But if a fire does break out, comprehensive contingency planning can minimise the catastrophe; and a policy of open communication can minimise damage to corporate and individual reputations.

Michael Regester is a senior partner at Regester Larkin, a London based risk issues and crisis management consultancy. His latest book, Risk Issues and Crisis Management, written with Judy Larkin, was published last year by Kogan Page. Tel: +44 (0) 171 831 3839. Fax: +44 (0) 171 831 3632; e-mail: mregester@regesterlarkin.co.uk