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Archive for the ‘Management’ Category

COMPANIES IN CRISIS
WHAT NOT TO DO WHEN IT ALL GOES WRONG

Exxon Mobil and the Exxon Valdez

Many companies have faced a crisis during their history, whether due to external forces beyond their control, through their own failings or management problems, or a combination of the two. Only a few, however, come to personify corporate irresponsibility through one pivotal event. Such a one is Exxon’s experience with the Exxon Valdez.

What happened?

In 1989, the Exxon Valdez oil tanker entered the Prince William Sound, on its way towards California. In spite of the fact that the weather and sea conditions were favorable and the Bligh Reef clearly marked on the maps, the ship ran aground and began spilling oil. Within a very short period of time, significant quantities of its 1,260,000 barrels had entered the environment.

At the moment of the collision the third mate, who was not certified to take the tanker into those waters, was at the helm. The probable cause was established that the Captain and many of the crew had been drinking alcohol in considerable quantities.

• What did the company do?
  
  According to most observers, too little and too late. The action to contain the spill was slow to get going. Just as significantly, the company completely refused to communicate openly and effectively. The Exxon Chairman, Lawrence Rawl, was immensely suspicious of the media, and reacted accordingly.

  Shortly after the accident had taken place, and the world’s media had piled in to begin extensive coverage, a company spokesman pointed to the existence of procedures to cover the eventuality – procedures which the TV shots showed were demonstrably failing. When asked in Rawl would be interviewed on TV, the response was that he had no time for that kind of thing.

  Meanwhile the operation on the ground was getting nowhere fast. Around 240,000 barrels had been spilled, with another million still on the ship. During the first two days, when calm weather would have allowed it, little was done to contain the spillage. This spillage spread out into a 12 square mile slick.

  Then the bad weather struck, making further containment almost impossible.

  After more than a week, the company was still giving no ground on the request for better communication. The media clamor became so hostile that eventually Frank Iarossi, the Director of Exxon Shipping, flew to Valdez to hold a press conference. It was not a success. Small pieces of good news claimed by the company were immediately contradicted by the eyewitness accounts of the present journalists and fishermen.

  John Devens, the Mayor of Valdez, commented that the community felt betrayed by Exxon’s inadequate response to the crisis, in contrast to the promises they had been quick to give of how they would react in exactly this eventuality.

  Eventually, Rawl deigned to go onto television. He was interviewed live, and asked about the latest plans for the clean-up. It turned out he had neglected to read these, and cited the fact that it was not the job of the chairman to read such reports. He placed the blame for the crisis at the feet of the world’s media. Exxon’s catastrophe was complete.

• Cost and benefit
  
  The consequences for Exxon of its two-pronged disaster – the spill and its environmental consequences, alongside its disastrous communications – were enormous. The spill cost around $7billion, including the cleanup costs. $5 billion of this was made up of the largest punitive fines ever handed out to a company for corporate irresponsibility.

  The damage to the company’s reputation was even more important, and more difficult to quantify. However, Exxon lost market share and slipped from being the largest oil company in the world to the third largest. The “Exxon Valdez” entered the language as a shortcut for corporate arrogance and damage.

• Conclusion
  
  The features that made Exxon’s handling of the crisis a failure included the following:

1. The company failed to show that they had effective systems in place to deal with the crisis and in particular their ability to move quickly once the problem had occurred was not in evidence
2. They showed little leadership after the event in showing their commitment to ensuring such problems would never happen again
3. They quite simply gave no evidence that they cared about what had happened. They appeared indifferent to the environmental destruction.

1. Single Use Plan
   An identified set of specific activities (project) to arrive at a specific goals or targets, with a determined budget and within a determined (limited) time period is known as Single Use Plan. Single-use plans are often used to cope with certain problems or to reach specific objectives. While these plans are limited in time and scope, they often contain issues that should be considered for inclusion in the management system (or “standing plan”) to prevent re-occurrence of the same or similar problems or to maintain performance at a desired level.
2. Standing Plans
   An identified set of more generic activities to arrive at broad rather general goals or objectives, not having a specific budget and without a determined time period. Standing plans (essential parts of a “management system”) are used to reach strategic objectives. Rather than being directed at particular issues or problems, these `standing plans are intended to both prevent specific issues through risk or (potential) problem identification as well as uncover those at an early stage of development. These plans are not limited in time and will normally exist during the life time of the related activity or organization and beyond that as applicable. They will be adapted over time depending on results obtained as well as due to changes in industrial, social, political and environmental conditions
3. Contingency Plans
   A plan involving suitable backups, immediate actions and longer term measures for emergencies such as attacks or accidental disasters. Contingency plans are part of business resumption planning.The process of developing such a plan involves convening a team representing all sectors of the organization, identifying critical resources and functions and establishing a plan for recovery based on how long the enterprise can function without specific functions. The plan must be documented and tested until it works effectively. Also called a “disaster plan,” a contingency plan must be updated continuously.