42x The Cost of Crisis Communications Management and Everything Else in the Universe

When Douglas Adams wrote “The Hitchhiker’s Guide to the Galaxy,” he added a joke which has become famous over the years: “The answer to the ultimate question of life, the universe and everything is 42.”

Like the broader narrative of Hitchhiker, which follows the (mis)adventures in space of the last surviving human hoping to be returned to his previous peaceful life, hope as a strategy is the final refuge of management when considering crisis preparation and managing a crisis.

Many CEOs and CFOs don’t want to invest the necessary time and money in preparedness, hoping this year will be another in which they are rewarded for being frugal.

As a strategy it works… until it doesn’t. A CEO recently stated to me that they would prefer to spend the money on mitigation rather than preparedness. That is when the number 42 becomes real and no longer a joke: it becomes the multiple of the cost of preparedness that is actually required to be spent in crisis mitigation and in a suffered financial loss.

Crisis preparation for a company can run from $60,000 to $500,000 (depending on the industry and range of geographies to be covered), whereas unprepared companies in a crisis can spend millions of dollars in mitigation and lose hundreds of millions in reputation and shareholder value.

“The Hitchhiker’s Guide. What to do if you find yourself stuck with no hope of rescue: Consider yourself lucky that life has been good to you so far. Alternatively, if life hasn’t been good to you so far — which, given your present circumstances, seems more likely — consider yourself lucky that it won’t be troubling you much longer.”

The corporate landscape is littered with the souls of CEOs who lost their jobs and their personal reputation from botched attempts to manage their company’s crisis.

A study published in The Economist ¹ last year looked at the eight most notable corporate crises since 2010 and found that while the companies had survived, they were, on average, worth 30% less today than they would have been based on a comparison with a basket of their peers. For the eight The Economist looked at, the total forfeited value was a substantial $300 billion.

What could crisis preparedness have done for them? They could have had a well thought out strategy and response plan on how to manage a crisis in real-time. In a crisis the one thing you cannot buy is time, you must communicate at the speed of your audience and in this hyper-connected, always-on world, that is measured in Twitter-speed (seconds).

Management must act immediately and demonstrate leadership with the correct strategy to solve the crisis. Why so quickly? Because they need to control the narrative, but management can’t do that if they are still discussing, for the first time, what their strategy should be when an incident occurs. The vast majority of crises are identifiable in advance; they can be prepared for with drafted and pre-approved company policies, strategies and statements.

More importantly, preparedness means management can practice responding in real-time and be trained to become a high-functioning team when addressing a serious situation.

People do accept that bad things happen to good companies, therefore companies are usually judged more on how they react to and manage the crisis than the actual incident itself. Furthermore, the higher the reputation, the higher the expectation of the company’s management and the harsher the judgment for a failed response.

When management has failed to prepare, it has prepared itself to fail in a crisis, and that is when the Vogon constructor fleet arrives to build the reputational bypass, often involving a change in management because they are seen as part of the problem and not the solution.

¹ The Economist, 18 March 2018. Schumpeter. Getting a handle on a scandal. Corporate crises drive the media and politicians wild. But do they damage shareholder value?