Lessons to be learnt from crises
Firms, especially small ones, must prepare for the inevitable disaster
COMPANIES are being tested to the limit on their ability to handle major crises. In the past two months we have seen Volkswagen threatened with an $18-billion fine in the US market for cheating on diesel car emission tests, MTN hit by a $5.2-billion (about R72billion) fine for missing the deadline to disconnect Nigerian subscribers with unregistered sim cards, and the Murray & Roberts bridge collapse in Johannesburg, in which two people died.
These crises can be expensive, with Volkswagen losing more than $15-billion in market value within three days of the scandal breaking, MTN R50-billion in just two days.
No company wants to deal with such events, but they are useful in demonstrating that business must play by the rules from the outset — prevention is always better than cure. Both Volkswagen and MTN could have prevented these crises by doing the right thing.
However, given the complexities associated with doing business today and how quickly news stories go viral, such crises have become inevitable. So much so that there is already a playbook for the actions a business can take to minimise the impact of such events. These actions can be extrapolated from the outcomes of the enormous corporate and political scandals that the world has witnessed in the past couple of decades.
This is why it is disappointing to see big companies still failing to get some of the basics of crisis management right.
I urge the owners of small businesses to take note of these disasters and become familiar with the fundamentals of crisis management as soon as possible.
This will eventually create businesses with management teams strong enough to handle the catastrophes that will inevitably strike as companies get bigger.
One lesson to be learnt from history is that, if a crisis breaks, it is important to act fast. Develop and communicate a response as soon as the problem comes to light. This reduces the risk of speculation clouding the minds of customers and investors. Fortunately, both Volkswagen and MTN followed this rule, with official statements made within days of the initial announcement.
However, if the JSE investigation finds that MTN was aware of the implications of the fine long before the information became public, the cellphone operator will be badly hurt — worse than if it had been honest with the public from the outset.
Another lesson from history relates to taking responsibility. This holds true whether a company is in the wrong or not. In times of crisis, being defensive further alienates stakeholders, whose confidence in the company has probably already been weakened. For a big company, this means a further loss in market valuation.
For a new venture, this could mean losing anything from a potential anchor investor to a major contract.
This year, Volkswagen did better than in 2013, when it refused to recall cars during a scandal in Australia. When the German manufacturer eventually took responsibility, its mistake had cost it hundreds of millions of dollars and tarnished its brand image.
This time, Volkswagen accepted responsibility within two days of the news breaking.
MTN, on the other hand, is still releasing official statements that it is “not confirming any wrongdoing” — despite the facts being clearly laid out. This is adding to the concern of already anxious shareholders.
Another lesson from history relates to succession planning. Major crises like these almost always lead to someone being sacrificed, usually the CEO — as happened at both Volkswagen and MTN.
Succession planning is critical for survival, and big corporates are usually good at having these kinds of plans in place. For example, MTN is fortunate in being able to rely on respected former CEO Phuthuma Nhleko.
Poor succession planning is more of a problem for small companies, which normally do not have a backup plan to replace managers who leave.
These lessons from history are not rocket science, and although applying them will not guarantee that the business will eventually survive unscathed, they have repeatedly helped companies to minimise the effects of major crises.
MTN is among notable South African companies that have successfully gone global.
Its leading market position in the Nigerian market only affirms the need to manage this crisis properly — for the benefit of both the company and its 62 million customers in Africa’s biggest economy.
To build more companies that can make it to and beyond where the likes of Volkswagen and MTN are presently, studying crisis management 101 is a no-brainer.
ziphosikhakhane@gmail.com
Sikhakhane advises and funds African entrepreneurs. She is an international retail expert, writer and motivational speaker, with an honours in business science from the University of Cape Town and an MBA from Stanford University
MTN’s leading market position only affirms the need to manage this crisis properly