Richard Torrenzano on Crisis Management
Richard Torrenzano is the chairman and chief executive of The Torrenzano Group.
He managed some of the most visible global corporate crisis in our lifetime including the October 1987 market crash, and the 1998 Federal Reserve Bank’s billion recapitalization of Long-Term Capital Management (LTCM), financed by a consortium of 14 of the world’s largest financial institutions. His counsel and work helped restore confidence in U.S. capital markets.
Rich is a frequent speaker and author on digital attacks and issues, crisis management, social media and conducting business across cultural barriers. He is often quoted in business periodicals and makes numerous appearances on network news programs
Question: Has crisis management evolved over the past few years?
Richard Torrenzano: Social media and the Internet play an enormous role today. The digital presence, the instantaneous nature of it, whether you're on one side of a crisis or another, is the major difference.
Question: Does the internet make it easier or more difficult to manage a crisis?
RT: It is much more difficult for a corporation when they're on the receiving end of an attack. Most corporations today do not have the process -- or apparatus -- to deal swiftly with a digital attack.
Question: With the advent of new media, is it easier to handle a crisis?
RT: It is more difficult to handle a crisis because you don't have the obvious six or seven or ten traditional outlets, but hundreds or thousands of outlets, and people commenting on the crisis. There's lots more planning necessary, and many more moving parts. The most important thing is to have a crisis plan in place. Unfortunately, most companies do not think about a problem... until they have a problem.
Every company needs to think about what are the key issues that can harm them based, on their industry. It must start at the top of the organization. Once the plan is in place, they have to practice that plan.
Question: Do you think the BP, Goldman Sachs or the Toyota crises would have been smaller or had better outcomes had the communications had been different?
RT: There would have been much better protection of those companies’ reputations and community or customer satisfaction.
They're all different issues. BP had a level of arrogance in their operations. Goldman also had a level of arrogance that was very visible before Congress. Toyota was clearly a cover up.
The principle is that companies need core values on how they will operate within communities and with their constituents.
Question: Do you think that in all those cases they had the "this couldn't happen to us" kind of mentality?
RT: Many executives have that mindset. It can't happen to us, it's not going to happen to us so there's no reason to think about it; or let's not spend the time or money until we have to. And of course, then it’s too late. Core values should drive your business. Have a constituent friendly environment whether it is with investors, media, customer satisfaction, local communities or anyone else.
Question: How can a company control their reputation from character assassins in a 24/7 social media world?
RT: If you post something on the Internet in, say, Detroit, it's worldwide instantly. If something happens in Japan, the news is all over the world in a matter of seconds and retrievable on a 24/7 basis. The Internet has an ethereal memory.
Question: How do companies like BP -- that were beat up in 2010 -- move forward and rebuild their reputation?
RT: Research and core values are the first steps. A good example of that is Denny's. Denny's had a serious diversity issue several years ago. They became the gold standard of just the opposite of that, of customer service and diversification. They did it by training, by changing their culture, by understanding the importance of customers and employees.
Simply, many companies lose sight of the importance of human relations and the effects their operation have on communities.
Question: How do communications play a role?
RT: If people understand what's happening and what you are doing about it -- you have credibility -- people feel good that there is a specific direction and someone in charge.
If you have a void of information, someone will fill that void with incorrect information and nonsense. It will grow, fester and become problematic. Think about trying to get someone on the phone and nobody returns your call. It's that kind of frustration.
Question: As the world truly becomes a global market, what will companies need to be aware of now more than ever?
RT: The biggest problem companies face in the next two to four years is their ability to respond in a matter of minutes and hours, rather than days and weeks.
A good example is Dominos Pizza. Dominos had that horrible video and it took them almost three days to respond to their crisis. In four days their stock had been cut by more than half and they had lost many, many customers. Years later they are still paying a price.
Question: What you're saying is a great crisis communication plan can mitigate damage?
RT: Yes, a crisis communication plan can begin to mitigate the damage, save your reputation, hold your customers and could reduce the impact on your stock value.
Question: Going back to Dominos as an example. How can companies harness the power from social media to a positive rather than negative effect?
RT: It's not just social media; it's the internet, a company's entire digital presence. Corporations need a trained crisis team in place that understands the issues. Someone could attack your product. How could they attack your product? What do you do? Executives must be empowered to move quickly.
Question: Do you know if there are any companies in crises that handled themselves well?
RT: There have been several who have handled themselves well. Pepsi's a good example. Perrier's a good example. The NYSE is a good example. They're all companies that had a plan and worked against the plan and had people empowered to make decisions.
Question: Is it more than just having a plan? Plans can become stale.
RT: It's having a plan and practicing the plan. To have a plan and put it on the shelf has no value. People change, contact information changes, issues change. It must be updated regularly. Some companies, in certain industries, like utilities, are required by law to have these kinds of plans and it's becoming a necessity today that boards require their management to have such plans.
Question: Is crisis preparedness a topic that should be discussed on the board level?
RT: It is discussed today at the board level. Boards need to not only assess financial risk but reputational risk. Look what happened to Toyota, Goldman, HP and BP. Reputation risk will generate financial risk both in terms of revenue and equity valuation.
Question: Recently Wiki Leaks said that they were going to take down an American bank and Bank of America shares went down 3% in one day. Would you define that as reputational risk and can you address the crisis that's playing out at Bank of America?
RT: I think whenever you have an attack on a company, you cannot hold back immediate reaction to stock value. Three percent a day is dangerous but not devastating. However, if I was Bank of America and I knew this could be coming, I would say, "Where's your crisis plan? What are you doing about it?" I'm not so sure they've done anything except have some internal discussions internally. If I were a member of that Board, I'd say, "Where's your plan and where are the five or six or seven or eight actions against what could happen and what the response will be?"
Question: Do you think that there are any industries besides financial services that are high risk and need to pay particular attention to crisis communication and reputational risk?
RT: Any company that sells products or services has risk. Anyone who has a national or global infrastructure has risk. Everyone has to assess that risk to determine if something happens, what plans and process are in place, what resources both internally and externally do they need and where is the plan, who's involved with the plan and how it will be practiced.
What are the five or seven or ten worst case scenarios that can happen to you based on industry or geography and do you have a plan to address those worst case scenarios? I would bet you that better than 95% of the non-regulated companies in this country do not have that plan.
Question: Let's talk about leadership in terms of a crisis. Do you assign that to the CEO, the CFO? Does that come when you are thinking about the crisis communication plan? How do those roles play out?
RT: In a crisis you need leaders, not managers. Managers are responsible to manage resources, whether they are people, financial or physical resources. Managers are taught how to do that.
Those skills are the wrong skills in a crisis. In a crisis, you have to create a vision of what's going on, where you want to go and take people in that direction. Those people are your employees, your customers, your constituents. If you do not lead, your company will face a bigger crisis.