Mallen Baker looks at some basic rules of crisis management
Next month, Ethical Corporation will be holding its conference on managing social and environmental risk.
It includes a session that focuses on keeping cool in a crisis – what to do when it all goes wrong. Although the event is primarily aimed at the heavy industries, you can't help but feel that Toyota could benefit from booking a couple of places.
Perhaps in years to come, Toyota's 2010 meltdown will take its place alongside the Exxon Valdez and Japan's own Snow Brand as case studies of how NOT to handle a crisis.
Let's remind ourselves of some of the basic rules of crisis management.
1. Get through denial of the crisis through to acceptance very quickly.
Nope. Toyota had indications of a problem some time before the recalls started. They give every indication of having been dragged into action. They certainly don't give the impression of caring deeply about their customers.
2. As soon as the crisis hits, communicate concern and regret. You don't have to immediately admit culpability – but you have to show that you care.
The head of Toyota US Jim Lentz did a bit better – with messages via YouTube outlining the company's regret. They were a bit too late, and rather conspicuous from coming from the US rather than from head office. Once Toyota President Akio Toyoda made his abrupt public appearance, expectations had gone up to such a degree that his lukewarm apologies failed to placate.
3. Show that you care for customers by going beyond the immediate evidence and recalling all products that may have a cause for concern, even if the probability is not very high.
Fail again. The extension of the recall to the Prius came long after awareness of its own problems were circulating on the rather public rumour mill. By allowing a late recall after others had known for some time it would be needed, the company once again gave the appearance of being dragged reluctantly.
That this will turn into a classic negative case study is by no means guaranteed. The company has recognised the problem, albeit too slowly. Now that it has gotten the scale of the crisis in which it finds itself, it is showing top level leadership, it is responding with an energy that is appropriate, and it is communicating better.
It has been hurt by the fact that the crisis struck to the core of its brand values. Its values are that it makes the highest quality, safest and most reliable cars in the world. This is a crisis that didn't just affect customer's trust in one aspect of the product – it has led consumers to wonder what the brand is for if it could have such a major failing on squarely on its central brand proposition.
It may be saved by rapid and focused action. If Toyota was surrounded by nimble competitors, a number of them would be jumping through the door they have left open. Honda has had recall problems of its own, and 'nimble' is not a word that has been used to describe the Detroit manufacturers at any point recently.
Of course, a corporate crisis doesn't only come when something has gone wrong with the company's products. John Browne has released his autobiography, and there is a classic case in the making there on how a well–respected, reputedly well–run company allowed the systemic failings in health and safety that led to the Texas explosion – the worst US industrial accident for 20 years.
These crises do have one thing in common, however, which seems to be the main element that prevents companies from responding well. They have been caused by their own failings, and therefore they have to come to terms with those failings before they can take action – a process which always seems to take too long.
Other types of crisis don't share this shortcoming. For instance, Rio Tinto has seen four of its employees charged by the Chinese government of bribery and violating commercial secrets – apparently because the company has had fractious relations with a number of Chinese steel makers.
In this case, the company has become a proxy agent in a high level political and economic battle involving national governments. It must look at Google's recent Chinese spat with some degree of envy as it faces a much harder set of choices.
That said, Rio Tinto has been handling its crisis with a very cool head. It has expressed concern, whilst not breaking faith in the Chinese judicial system. It has hinted that the quiet approach will be abandoned if the men are convicted, and it will revisit its activity in China. It is caught in a bigger political struggle, but it knows the hand it has been dealt, and it is playing it as well as it could be expected to.
Why the difference? The simple truth that it is easier to deal with a crisis that arises from the activity of a powerful adversary than it is when the problem arises from within. When you don't have to wonder about the impact of admitting liability, of recalling product or apologising to customers – somehow it is easier to take clear and appropriate action.
Of course, when your adversary is as powerful as the Chinese government, such action can only increase your odds of success – not guarantee it. When your enemy is yourself, the levers of control come more easily to hand, if you could but bring yourself to grasp them.
It's worth asking how these crises come about in the first place. In the case of both Toyota and BP, there is a significant focus on the distance that grows between leaders and the realities on the ground.
Customer complaints about defects in the Toyota cars were not getting through. Likewise, the cult of personality around Browne had made it increasingly difficult for him to stay in touch with what was happening on the ground, and people became reluctant to be the bearers of bad news.
A key requirement for handling a crisis is getting closely in touch with what's happening on the ground, and establishing strong two–way flows of information.
Just the same approach in less strained times might just prevent the crisis from happening at all.