Crisis Leadership

By M.K.Lodi
Abstract
Leadership is a well researched topic and many tomes have been written on it. But the study of Crisis Leadership or leadership exercised in a crisis is of more recent origin and researchers have only now started focusing their attention on this less explored facet of leadership. This paper focuses on this fact of leadership by surveying the relevant literature, identifying the vital elements of crisis leadership and looking at outstanding examples of leaders and organizations in crisis situations and examining how they handled it. And finally, an attempt is made to cull out important characteristics or principles that leaders/managers can follow when faced with crisis.

Definition of crisis


It is imperative that we have a common frame of understanding of the term ‘crisis’ within the context of an organization before proceeding further. Therefore the term crisis is defined as follows:
Ø  Any unexpected/unforeseen calamitous event that severely impacts an organization
Ø  the negative impact of such an event should persist for a long duration−at least one year
Ø  the event should adversely impact all stake –holders
Examples:
·         Act of God such as earthquake, Tsunami
·         Major terrorist act such as 9/11 in the USA and 26/11 in India
·         Sudden adverse business developments such as the financial crisis of the Financial Institutions in the USA and the financial crisis in Greece
·         The Prophet Muhammad cartoon controversy in 2007, which affected all Danish products in the Middle East causing huge unforeseen losses
According to James (2004), there are two types of crisis:
o   sudden crisis and
o   smoldering crisis
Examples of sudden crisis:
 natural disasters, terrorist attack, Plant explosion, workplace violence, sabotage, environmental spill, executive kidnapping
Examples of smoldering crisis:
Mismanagement, labor disputes, product defects, sexual harassment, whistle blowing.
This paper focuses on sudden crisis and the leadership displayed during this crisis. Whereas, a smoldering crisis is a result of the management not taking cognizance of a brewing crisis and consequently not taking pre-emptive action in time. However, even in the case of a smoldering crisis, once it blows up into a full-fledged crisis the same crisis leadership skills will be required to handle the crisis, except that in most cases an outside leader may be brought in to deal with the crisis as the crisis itself was the result of the mismanagement of the previous incumbent.
When an Organization is hit by a sudden disaster the public views it with sympathy.
          e.g. Pan Am air crash over Lockerbie which resulted in a payout of $ 652 millions.
This is because of the natural human reaction to view a sudden calamity with empathy, whether it is an individual or an organization. But this feeling of empathy can soon turn into negative opinion if the crisis is not handled in an ethical manner giving rise to lack of credibility of the organization or individual. t
Therefore, when the Organization does not react in a responsible and responsive manner it results in a negative reputation.
          e.g. Exxon oil leak at Exxon Valdez and the Bhopal gas tragedy at Union Carbide
Examples of Organizations that responded to crisis situations well:
          Johnson & Johnson (over the Tylenol incident in the 1980s) and
          the Taj and the Oberoi  Groups in the aftermath of 26/11
Crisis situations are extremely serious and while at best, they may have a temporary adverse effect on the financial well-being of an Organization, but in many cases they may even lead to a survival risk as there will be reduction in sales due to consumers shifting loyalty, increased employee-turnover, law suits for damages et al.

Mitroff &  Pearson, (1993,pp-48-49)
Two important aspects of crisis leadership are:
·         responsiveness and
·         responsibility



Crisis Management versus Crisis Leadership

There is a growing body of knowledge that attempts to differentiate between crisis management and crisis leadership. Broadly speaking, the differences between these two approaches to dealing with crisis may be summed up as follows:
Crisis Management
Crisis Leadership
Crisis management focuses on damage control to the reputation of the Organization-
§  PR blitz,
§  Press releases and statements couched in Legal language to avoid liability
  
Whereas Crisis Leadership focuses primarily on mitigating the ill effects of the crisis taking into consideration –
§  the Organization,
§   the Crisis and
§  the environment
James, ( 2004,pp 7 &8)


Howard Lutnick : The Cantor Fitzgerald story
Cantor Fitzgerald lost 658 employees out of a total strength of 950 in the 9/11. Attack, i.e. three-fourths of its employee strength was wiped out in one fell swoop. One out of every 4 persons who died in the twin towers were Cantor Fitzgerald employees.
10 years later the firm regains its size through sheer hard work, determination and zeal, and now employs more than 2500 staff. Lutnick set aside 25% of the profits for 5 years towards payments to the families of the deceased. Besides, he also gave health insurance cover for 10 years. These were not the norm in the US.
The best way to show someone you love them is to care for the people they love,” Lutnick.
Lutnick was not the most liked man on Wall Street. He was tough, uncompromising, highly task-oriented and was the quintessential hard-nosed CEO. Yet, post 9/11, his outlook changed− for the better.
9/11 brought to the fore qualities and traits he never displayed before.


Indian examples


Lets us now look at some outstanding Indian examples of crisis leadership: specifically we shall focus on 26/11 and its aftermath.
       The Taj re-opened one month after the attack; the heritage wing re-opened one year later−at a cost of Rs175 crores.
       Ratan Tata vowed to restore the glory of the Taj and lived up to his word.
       The Trident Oberoi was badly damaged just like the Taj, but it reopened one month later; the main Oberoi wing reopened 1 ½ years later at a cost of Rs178 crores.
       PRS Oberoi, the Chairman of the Oberoi Group, was less visible, but equally determined and stoic. He, in his own, quiet, understated manner, did the same to the Oberoi that Ratan Tata did to the Taj.
Both these businessmen are renowned for their managerial excellence, yet, on this occasion, it was not business sense that prevailed but a sense of prestige and pride that dwarfed all other commercial compulsions.
       Cost and profits were not the criteria-prestige was important.

Crisis Leadership: Indian examples-Junior employees

          The employees lower down the ladder displayed commendable crisis leadership skills in their respective arenas.
          Karambir Kang, the GM of the Taj, lost his entire family- a wife and two kids. Yet he was on duty for the entire duration of 36 hours managing the hotel and attending to the guests setting aside his personal tragedy aside.
          Other Taj employees risked their lives to ensure the safety of their guests and accompanied them to safety even though they had the option to escape by themselves.
          There was no one to guide them and give them directions, yet they performed their duties unthinkingly by instinct.
          The same story repeated itself at the Oberoi hotel a few kms away; time and again hotel employees risked their lives to help their guests at the Oberoi.
          One must keep in mind that these were junior employees.
What they did went over and beyond the call of duty.
Why did these seemingly ordinary employees do what they did?

Perhaps the answer lies in the book ‘Geeks & Geezers’, in which the authors state “every leader had undergone at least one intense, transformational experience,” which they called a “crucible,” “and that the experience was at the very heart of becoming a leader.”
“One of the most reliable indicators and predictors of true leadership is an individual’s ability to find meaning in negative events and to learn from even the most trying circumstances.” Bennis & Thomas(2002, p. 5).
To summarize, three principles emerge :
a)Transformational experience 
b) Ability to find meaning in negative events and
c) learn from  the most trying circumstances
Bennis & Thomas(2002).
A study was made by a two-member team from HBS of the Taj crisis management of 26/11 and they identified the following managerial practices, which they termed as the 3 pillars of HR practices:   
1.       A recruitment system that hires for character and not for grades
  1. Training programs that not just mentor employees but also empower them to take decisions
  2. A reward program that recognizes employees on a real-time basis
                                             Deshpande & Raina,(2012)



Conclusion


On a careful scrutiny of the research on crisis leadership and on examining the exemplary                    crisis- leadership displayed by the leaders/managers/staff, not only in the US, but also in India the following common elements of responsible and responsive crisis leadership have been identified:
Crisis leadership skills

          Ability to take quick decisions
          Willingness to take courageous action
          Placing concern for others over concern for self−selflessness
          Showing great fortitude and determination in the face of tremendous adversity
          Humility combined with honesty
          Altruistic outlook−ability to see the larger picture


Bibliography



—  Pearson  C.M.& Clair J.A.,1993, “Reframing  Crisis Management,” Academy of Management review
—  Mitroff I.I., Pearson C.M., 1993,“From crisis prone to crisis prepared: A framework for Crisis Management,”  Academy of Management Executive
—  James E., 2004 Crisis leadership, pp 1-8
—  Gaufin J., 2006 ,Key Principles for effective Crisis Leadership, Great Basin Public Health Leadership Institute,
—  Covello V., Ph.D., 2003,National Public Health Leadership Development Network,
—  Kotter J., 2001,Defining Leadership, Harvard Business School,
—  Bennis W., Thomas R.,2002,Geeks & Geezers
—  Bennis, W. G. & Thomas, R. J. (2002). Crucibles of leadership, Harvard Business Review
—  Shoenberg A.L., (2004) “What it means to lead during a crisis: an Exploratory Examination of Crisis Leadership”




















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