It Can’t Happen Here…Can It? Developing a Crisis Management Plan, Part 1

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Most loss prevention professionals are relative experts in the kinds of routine risks we face daily in the form of internal theft, external theft, and paper shrink. However, the most serious risk you may ever face may be one not as familiar—the major corporate crisis that you never expected or saw coming.

Consider the small 800-employee CRM firm in the Midwest that made headlines in 2006. In that case, a routine LP issue, namely internal theft, mushroomed into a catastrophic near-death experience for the firm faster than the CEO and his executive team could have expected. The following quote from that case tells the tale: “My CFO just told me that he has a gambling addiction and diverted almost $780,000 over the past year. Although we’re privately held and don’t have stockholders, this could devastate our growth plans and, if it leaks, could kill morale and possibly the company. We have no crisis plan, no succession plan, and, because we’ve never needed one, I don’t even have a spokesperson.” Sound familiar? Hopefully not.

Most large companies are reasonably prepared to deal with issues that blossom into crises, but not always. In the case of smaller firms, as evidenced above, preparedness is much more in doubt. Large or small, where does your company stand? Are you ready? Will they look to you and your team?

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The Best Crisis Is the One Prevented

We all know what radar is. It’s a device that alerts you to something that you can’t see. One of the most critical parts of any company’s crisis management plan is just that—the radar screen. It usually takes the form of a team that meets regularly, analyzes data, and surfaces issues that, under certain circumstances, could evolve into serious threats against the company.

Crisis team membership can vary based on the company, location, or industry. Core team members often represent legal, LP, human resources, risk management, public relations, internal communications, operations, finance, and information technology.

Issues discussed by this team also vary, but the underlying question remains the same: “What issue could develop that would seriously jeopardize our company’s reputation, earnings, or even survival?” Strikes, product contamination, pandemic, safety fears, rumors, workplace violence, interruption of production, or malfeasance are only a few possibilities.

Being out in front of crisis issues and having specific plans in place to deal with them goes a long way in averting a potential crisis before it begins. Every company needs to take the subject of issues management seriously. An empowered team of senior management should not only meet, but also meet often.

Research has shown that from a crisis perspective, the following are, in rank order, the most commonly occurring type of incidents:
• Product defect leading to recall
• Disaster, such as plant fire or storm, leading to crippled production and delivery
• Workplace violence ranging from threat to actual harm
• Financial crisis, such as shareholder lawsuit or embezzlement
• Employee arrested offsite for non-work-related incident that harms the company’s reputation

The radar screen can’t predict a disaster event, such as a hurricane, but used effectively, it can uncover warning signs that could potentially minimize the impact of the other four.

Who’s the Boss?

Crisis can destroy small businesses and can cause long-term harm even to platinum brands. For example, Ford Motor Company, in the midst of the alarming charge that tires were exploding on its flagship Explorer SUV, found that it needed to staff its emergency operations center 24/7 for more than five months at an unimaginable cost.

Similarly, when Putnam Investments found itself in the middle of a scandal involving alleged after-hour stock trading, regulators and the news media pounded the company so hard that the ability of spokespersons to respond was overwhelmed by thousands of reporters who each wanted their own interview to develop a unique spin on the pending disaster.

Should LP professionals care? We think so. Every CEO’s assumption is that there is someone in the organization who has a wide enough range of talents needed to guide the ship through rough seas. But dig deeper and you’ll find that even the best CEOs find it hard to discern a precise answer as to who that person is. Is it the vice president of loss prevention, communications, public relations, operations, or legal?

It may reside in different places in different companies, but it behooves the loss prevention organization to be sure the subject of crisis management becomes top of mind and that they have a major role in the planning, development, and implementation process. The time to designate a crisis chief is not as the problem unfolds, the switchboard is ablaze with calls, and blogs are brimming with criticism. The time to act is now—today—before it’s too late.

This article was originally published in 2006 and was updated July 13, 2016.

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