Crisis? What crisis? Companies ignoring the risks and realities of crises are the least likely to cope, writes Vanessa Burrow.

IT WAS just a snippet. But the radio announcer definitely said poison. And when the phone rings, you know the news is not good.

At least three people have been taken to hospital. They’re in a critical condition and they’d all been taking XYZ pain medication.

The journalist on the phone wants answers. “What is the company doing? Why weren’t proper precautions taken? Who’s to blame?”

Emergency procedures, written up last year, are floating through your brain and there’s the sudden thought what’s happened to our share price?

You had been hoping for a quiet afternoon

Even in this mock scenario, organised by crisis management consultants, there’s a rush of adrenaline as you and your team hurriedly prepare a statement.

But the reality is, just last month a competitor was almost ruined in a similar incident. Your company doesn’t want to be caught napping.

Ross Campbell, who runs Melbourne-based crisis management consultancy Ross Campbell & Associates, says his company stages hundreds of such scenarios a year to help clients prepare for a potential disaster.

“Some of them are very small situations,” he says. “Others are full-scale exercises.”

The biggest productions involve emergency services, lawyers, actors playing family members and journalists, and, in some cases, “injured” people complete with make-up and props.

“If you came upon them, you would think it’s the real thing,” Campbell says.

It’s symbolic of the prominence crisis management and its cousin issues management has acquired. It’s a hot business, and more and more people are jumping in.

While practitioners admit they’re “brought in through the back door”, they also command fees approaching $1000 an hour.

Melbourne crisis management practitioner Michael Smith says it all started about eight years ago, as companies braced themselves for Y2K.

Of course, all the world’s computers didn’t crash and the world awoke on January 1, 2000, as usual.

But the preparation that went into Y2K showed a higher level of crisis planning was possible and acquainted executives with a previously mysticised area.

“Everyone had to have a plan for a crisis that never happened,” says Smith, a former journalist and editor of The Age who founded Inside Public Relations in 2001. “Crisis management is a much broader and more detailed industry than it was a decade ago and much more specialised.”

The Public Relations Institute of Australia estimates there are about 10,000 public relations practitioners in the country, and the ranks are growing by 10 to 15 per cent each year.

Many of those people will work in crisis or issues management and every year, thousands of students enrol in university public relations degrees, hoping to get a slice of the action. But why this increased demand for crisis management services? And what’s at stake?

Robina Xavier, acting head of the Queensland University of Technology’s advertising, marketing and public relations school, says research suggests about 8 to 15 per cent of a company’s share price is based on reputation.

“Clearly that’s at risk during a crisis,” she says.

But depending on the extent of the crisis, there’s also the risk of extended negative publicity, a product being “killed off”, or even government intervention.

AWB is one recent case of crisis management gone wrong. The wheat exporter’s share price dropped from a record high near $6.50 in early 2006 to a record low under $2.50 as it became clear the company had paid about $300 million in kickbacks to Saddam Hussein’s regime and lied about it.

According to US-based crisis management consultant Peter Sandman, who was initially hired by the company in December 2005, simply apologising could have spared AWB from some of its pain.

“If AWB had apologised thoroughly, sincerely, and skilfully for what it did wrong, I think the public would have been much more willing to take note of the mitigating factors and forgive the company,” he says.

“Blame typically happens on a see-saw. That is, how much you blame me for something I did wrong depends largely on how much I blame myself. If I emphasise how bad I was and how sorry I am, you tend to see all the more clearly the mitigating factors.”

AWB’s Sandman-inspired apology letters never surfaced at least not until the company was forced to make them public during the Cole inquiry. But by then it was too late to apologise.

“The fundamental problem was, they were in the wrong, and they were never prepared to admit it,” says RMIT University adjunct professor in communications Noel Turnbull.

“The ‘Sandman’ approach of apologising actually works. You have to face up to reality and accept responsibility. It’s a pity AWB didn’t take Sandman’s advice.”

In the end, despite any mitigating factors, AWB’s reputation was trampled, and only in recent weeks has the share price again touched $4.

National Australia Bank also faced external scrutiny when it was discovered four rogue currency traders had cost the bank $360 million.

In a performance-driven culture, the four men took excessive risks, pushed the boundaries of the law, and eventually ended up in jail.

The scandal claimed the scalp of former chief executive Frank Cicutto, and prompted extensive changes to the board.

NAB media relations manager Brandon Phillips, who was part of a team that won an award for their crisis management strategy, says the $360 million loss never jeopardised the bank financially.

But the only way to reassure investors and customers and restore the bank’s reputation was to make as much information available as possible, and be as forthright as possible, he says.

Gavin Anderson & Company’s Ian Smith, who recently advised Qantas and helped the Federal Government with the T3 (and T2) share sales, says managing a company’s reputation before a crisis issues management has become the biggest priority.

“The bottom line nowadays is there’s a huge commercial impact in not managing your reputation,” he says.

With 12 years in the crisis management business, and a background in journalism, Smith has seen a shift in the way companies prepare for negative events.

Five years ago, he says, 10 per cent of Gavin Anderson & Company’s work would have been defensive work such as building up relationships with customers and investors, and preparing crisis management plans.

Now about 60 to 70 per cent of its work is pre-emptive and the remaining portion is the “last-minute stuff”. Or “the ‘Oh shit’ phone calls”, as RMIT’s Turnbull calls them.

Unfortunately, with the expansion of the internet and its 24-hour news cycle, there’s not much time to make those phone calls any more.

Crisis management consultants such as Smith, and British-based Mike Regester, call it “the ‘golden hour’, it’s all about what you do in that first hour”, Regester says.

Lahra Carey, of Lahra Carey Media & Communications, thinks giving yourself an hour is way too generous.

“It’s the first few minutes which is responsible for where the company’s reputation is and a reputation can take years to rebuild,” she says.

In practical terms, depending on the type of crisis, Carey says you can use those crucial minutes to: make sure you’re not hiding anything, choose a media spokesperson, ensure the company’s website will be brought up to date, set up a 24-hour hotline, call some journalists, brief employees, draft an advertisement for tomorrow’s papers, investigate the situation further and, finally remain calm.

Tell that to GlaxoSmithKline, which seemingly sat on its hands for almost three years after two New Zealand schoolgirls demonstrated the company had overestimated the amount of vitamin C in some of its Ribena products.

The girls contacted the company with their findings, produced during a school experiment. But their claims were dismissed.

It was only after a New Zealand consumer affairs show took up their case that the New Zealand Commerce Commission charged GlaxoSmithKline under the Fair Trading Act. Three years after the initial claims were made, in March this year, GlaxoSmithKline was ordered to pay $NZ217,500 and run corrective advertisements.

“It was too little, too late,” says Rupert Hugh-Jones, of crisis management consultancy Scaffidi Hugh-Jones.

“It was a slow-burning issue and it took a long time for the company to make a response and to recognise that it was a valid concern.”

Astonishingly, Xavier of QUT says research shows about 60 to 70 per cent of company crises are smouldering, with the company oblivious, or choosing not to act.

In contrast, University of South Australia school of management associate professor Robert Heath says his No. 1 crisis management strategy is to avoid it. “Cut it off at the pass,” he says.

Heath says if the public can retain at least some confidence in a company, total disaster might be averted.

As if to prove the value of prompt, clever crisis management, he suggests the strategy might have worked for defunct US energy company Enron.

“I still believe that even though there was some obvious criminality, that they could have got through without the whole company collapsing.”

At the other end of the scale, crisis consultant Sean Mulcahy who along with lawyer partner Robert Hill represented Michelle Leslie when she was arrested in Bali for possession of drugs says he believes convicted drug trafficker Schapelle Corby would have escaped a 20-year sentence if she had been properly represented.

“We would have loved to have helped Schapelle,” he says. “We could have helped her a lot.”

Mulcahy and Hill, who started Frontline Crisis Management two years ago, were also instrumental in assisting so-called B1 and B2 Jupiter Mines directors Jeremy Snaith and David Evans from escaping more severe punishment for their alleged antics on board an Etihad Airways flight to Abu Dhabi.

Mulcahy is now attempting to contact Australian DJ Nicholas Taylor, who was arrested in Bali on drug possession charges. He wants to offer Frontline’s services.

After all, crisis management consultants need to earn a living too. Case study: Qantas

The failed takeover of Qantas

WHEN? Late 2006 to May 2007.

WHAT HAPPENED? Airline Partners Australia consortium, made up of Allco Finance Group, Allco Equity Partners, Macquarie Bank, Texas Pacific Group and Onex, offered $5.45 a share for the airline, or more if it acquired 100 per cent of the company. The board, including chairman Margaret Jackson, endorsed the offer. However the deal collapsed when APA failed to secure 50 per cent of Qantas by a deadline. There was talk the share price would collapse.

WHAT WAS DONE? When the deal collapsed, Qantas swiftly returned to a business-as-usual scenario, began a television advertising campaign and moved to soothe staff.

WHO CONSULTED? Ian Smith, Gavin Anderson & Company.

WHAT WAS THE RESULT? Chairman Margaret Jackson announced she would resign after this year’s annual meeting in November. Qantas was re-rated by the market and the share price has stayed above APA’s offer price. Case study: NAB

NAB’s rogue traders

WHEN? Late 2003, early 2004.

WHAT HAPPENED? Thanks to an internal whistleblower, National Australia Bank discovered four of its foreign currency traders had been making unauthorised trades and covering them up. They had lost $360 million of the bank’s money.

WHAT WAS DONE? When the wrongdoing had been investigated, NAB’s crisis management team made an internal, independent report and the Australian Prudential Regulation Authority report publicly available. On the resignation of Frank Cicutto, new chief executive John Stewart became available to media.

WHO CONSULTED? Former NAB general manager group, corporate affairs, Robert Hadler, current group media manager Brandon Phillips and team.

WHAT WAS THE RESULT? The four traders were jailed for a variety of terms. The last two were sentenced in July 2006. The National Australia Bank won an investor relations award for best crisis management in 2004. Case study: Michelle Leslie

Michelle Leslie jailed in Bali

WHEN? Began August 2005.

WHAT HAPPENED? The Australian model was arrested on her way to a dance party in Kuta, Bali, for allegedly possessing two ecstasy tablets. She was facing a maximum 15-year jail sentence. The arrest came soon after Schapelle Corby was sentenced to 20 years’ jail for importing a large quantity of cannabis into Bali and the

Bali Nine were arrested for smuggling heroin.

WHAT WAS DONE? After a false start or two, Leslie hired a crisis management team. She began wearing a traditional Muslim headscarf and said she was a Muslim.

She revoked a statement drawn up by a Balinese lawyer that said she was addicted to ecstasy.

WHO CONSULTED? Frontline Crisis Management’s Sean Mulcahy and Ross Hill.

WHAT WAS THE RESULT? Leslie was sentenced to three months jail. As she had already served the time, she was deported but was criticised for abandoning the hijab on her return. Case study: AWB

AWB caught paying kickbacks to Saddam Hussein’s regime

WHEN? 2005

WHAT HAPPENED? In order to sell wheat to the Iraqi Government, “single-desk” wheat exporter AWB Ltd agreed to pay inflated transportation fees on the wheat they supplied. To cover the costs, it changed the written down price of the wheat paid for through the United Nations’ oil-for-food program. The issue was a “sleeper” but allegations AWB had paid kickbacks to Saddam Hussein’s regime eventually had to be investigated.

WHAT WAS DONE? At the start, AWB executives were encouraged to apologise profusely but they chose not to accept the advice.

WHO CONSULTED? Initially advised by Peter Sandman. Later by Ian Smith, Gavin Anderson & Company

WHAT WAS THE RESULT? The Federal Government established the Cole inquiry, questioning AWB executives in public hearings. There may still be legal action against individuals. AWB has had to accept the Federal Government’s recent decision to introduce new wheat harvest marketing arrangements for 2008-09. Its share price has recovered, somewhat, touching the $4 mark in recent weeks, after a time near $2.50. Case study: The Governor-General

Governor-General Dr Peter Hollingworth’s resignation

WHEN? 2002-03

WHAT HAPPENED? The Governor-General was severely criticised over his handling of child sex abuse cases when he was the Anglican Archbishop of Brisbane during the 1990s. One of the issues was a decision to allow a bishop who admitted to having a sexual relationship with a young girl, several decades previously, to continue working.

WHAT WAS DONE? The issue stretched out, but Dr Hollingworth expressed deep regret that some allegations of sexual abuse were not properly investigated. He appeared on Australian Story, discussing the issue. And there was also an Anglican Church inquiry into Dr Hollingworth’s actions.

WHO CONSULTED? Mike Smith, Inside Public Relations

WHAT WAS THE RESULT? The Australian Story interview was not well received and the Anglican Church inquiry was critical of Dr Hollingworth’s actions. There were increased calls for Dr Hollingworth’s resignation and he resigned in May 2003 citing “misplaced and unwarranted allegations”.

(09-20) 08:20 PDT WASHINGTON (AP) —

Federal Reserve Chairman Ben Bernanke told Congress Thursday the credit crisis has created “significant market stress” and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.

Bernanke made the statement in testimony before the House Financial Services Committee. It came just two days after the Federal Reserve sliced a key interest rate by a bold half-percentage point to prevent the weight of housing and credit problems from sinking the economy. It was the first time in more than four years the Fed cut this rate.

“Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans,” the Fed chairman said. The situation, he acknowledged, “has created significant market stress.”

The meltdown in the housing and mortgage markets has shaken Wall Street and Main Street.

President Bush, at a White House news conference, was asked Thursday to assess the chances of a recession.

“I say that the fundamentals of our economy are strong,” he replied, although Bush acknowledged problems in the housing market and said he looked forward to working with Congress to solve them. But he also said he would fight any move on Capitol Hill to raise taxes.

Bernanke promised lawmakers that the Fed will take steps to crack down on abusive or bad lending practices.

“The Federal Reserve takes responsible lending and consumer protection very seriously. Along with other federal and state agencies, we are responding to the subprime problems on a number of fronts,” he said. “We are committed to preventing problems from recurring, while still preserving responsible subprime lending.” The Fed has taken a number of steps already and other proposals are being considered.

Treasury Secretary Henry Paulson, who also appeared at the hearing, signaled that the administration would consider allowing the big mortgage companies Fannie Mae and Freddie Mac to temporarily buy, bundle and sell as securities any loans exceeding $417,000, known as “jumbo” loans.

The idea, which represents a policy change for the administration, is portrayed as a way to inject liquidity into the stretched mortgage market.

Paulson said the change involving jumbo loans could occur only in tandem with tighter oversight of the two government-sponsored mortgage companies.

Bernanke also weighed in, saying that if Congress were inclined to make let Fannie Mae and Freddie Mac buy jumbo loans, it should be done only on a temporary basis. He didn’t specify how long that should be.

In his prepared testimony, Bernanke did not offer new clues about the Fed’s next move on interest rates.

The Fed chief, repeating the rationale offered on Tuesday for cutting rates, acknowledged that the financial turmoil stemming from the troubled housing and credit markets have “increased the uncertainty to the outlook.” That was the same language he and his Fed colleagues used on Tuesday.

Some economists believe the Fed probably will reduce rates again at its next meeting in late October.

Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits. Lax lending standards during the housing boom came to roost after the housing bust.

Lawmakers in Congress and administration officials have been scrambling to curb the fallout. The carnage has been the worst, with “subprime” mortgages held by borrowers with spotty credit or low incomes. Many are at risk of losing their homes.

Analysts estimate that at least 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can’t afford to refinance or even sell their homes.

Addressing the larger issue of bad lending practices, Rep. Spencer Bachus, R-Ala., said: “There is general agreement that abuses have occurred in the subprime market. There is widespread agreement that these are practices that should not be tolerated.”

To help struggling homeowners, proposals in Congress would expand federal backing of mortgages. The House on Tuesday passed legislation that would give more leeway to the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The Senate has its own bill. The administration, meanwhile, is working with the FHA to help squeezed homeowners.

“Foreclosure isn’t good for anyone,” said Alphonso Jackson, secretary of Housing and Urban Development, urging lawmakers to move quickly on FHA reform.

There’s been a big debate in Washington about how Fannie Mae and Freddie Mac could help out. The government on Wednesday nudged up their investment caps, a move aimed at alleviating stress in the mortgage market.

For its part, the Federal Reserve is conducting a thorough review of possible actions to help consumers and would-be homeowners and prevent problems from recurring. Bernanke said the Fed is committed to providing more effective disclosures to help consumers defend against improper lending.

The Fed also is considering new rules in several areas, including restrictions on loans that don’t require proof of a borrower’s income and limitations on financial penalties for borrowers who make early payments.

Bernanke said more uniform enforcement in the fragmented market of brokers and lenders also would help protect consumers.

___

AP Business Writer Marcy Gordon contributed to this story.

For Americans sitting in cinemas watching the summer’s fun movies, such as The Simpsons and Hairspray, the trailer for Lions for Lambs is jarring and unexpected. It opens with a moody shot of the Washington Memorial, and shifts to a series of quick-fire scenes about President George Bush’s “war on terror”.

Lions for Lambs, scheduled for release in the US on November 9, is not a documentary nor an art house film nor even a Michael Moore-style piece of agitprop. It is mainstream Hollywood, starring Tom Cruise, Meryl Streep and Robert Redford, who also directed it. It is one of about a dozen Hollywood films due for release or being made that deal with America divided, the national debate over Iraq and Afghanistan, and other consequences of 9/11.

This is a departure for Hollywood. During the second world war, there were almost no films made other than propaganda ones. The same happened during Vietnam: it was three years after the fall of Saigon before film-makers felt brave enough to make explicit anti-war movies - Mash hid its colours behind humour and a previous war.

Controversy

Jerry Sherlock, director of the New York Film Academy and executive producer of movies including The Hunt for Red October, welcomed the prospect of movies coming out while wars were being waged. “I think it is great because films do influence people. I hope that the films coming out influence people. The truth sets us free, after all the bullshit that we get every day in Washington and the airways and Cheney… I am surprised it has taken so long,” he said.

Lions for Lambs interweaves the stories of two American students who end up in Afghanistan, their idealistic professor, a senator and a journalist. The trailer shows Cruise, who plays the senator, in his office on Capitol Hill shouting at the journalist, Streep: “Do you want to win the war on terror? Yes or no? This is the quintessential yes or no question of our time.”

The films are bound to be politically controversial, particularly coming in the run-up to next year’s presidential election. American conservatives, without having seen it, have begun vilifying Lions for Lambs as anti-war propaganda.

Other films on the way include Rendition, with Reese Witherspoon as the wife of an Egyptian chemical engineer spirited away for interrogation by the CIA. In the Valley of Elah, due for release on September 14, is directed by Paul Haggis, and stars Tommy Lee Jones, Charlize Theron and Susan Sarandon. It is about post-combat stress and is based on a real incident in which a soldier was murdered while on a drinking spree with his comrades on return from Iraq.

That, too, has already run into trouble. Dennis Griffee, national commander of the Iraq War Veterans Organisation, refused to help after learning that Sarandon, an anti-war critic, was involved.

Grace is Gone, due out in October and directed by James Strouse, looks at the impact on a family of the loss of a wife and mother killed in Iraq, while Kimberly Peirce’s Stop Loss, scheduled for release next March, deals with a veteran who refuses to return to Iraq. Redacted, to be released in December, is directed by Brian de Palma and is about US soldiers persecuting an Iraqi family.

The Hurt Locker, on which filming is due to begin this week in Jordan and Kuwait, is written by Mark Boal, who also worked on In the Valley of Elah. The Hurt Locker concentrates on a US army explosives disposal unit in Iraq.

“It’s the first movie about the Iraq war that purports to show the experience of the soldiers,” Boal, a former journalist, told the Hollywood Reporter from location in Jordan. “We wanted to show the kinds of things that soldiers go through that you can’t see on CNN.”

He added: “Most war movies don’t come out until after the war is over. It’s really exciting for me, coming out of the world of journalism, to have a movie come out about a conflict while the conflict is still going on.”

Hollywood is normally averse to risk but it may have decided the public mood is anti-war and unlikely to change. Darrell West, who specialises in politics and the mass media at Brown University, Rhode Island, said: “I think the outpouring of movies reflects the widespread public disenchantment with the war. It took longer with Vietnam.”

One factor that is different from Vietnam is 24-hour news. “The news cycle is definitely faster now than it was 40 years ago, so when bad things happen, they definitely become aware of them very quickly,” Professor West said.

Pentagon

In the past, many war movies were sanitised because they relied on the Pentagon to provide equipment and extras and the Pentagon in return often asked for a degree of control over scripts.

David Robb, the Los Angeles-based author of Operation Hollywood, which investigated the relationship between film-makers and the Pentagon, is sceptical about whether the films will find a market or even get made. “I think it is impossible to sell an unpopular war while it is going. People go for entertainment. We will see how many get made and how many get distributed and how many get military assistance,” he said.

But while movies such as Top Gun required the help of the Pentagon, most of the present batch of movies do not involve large set pieces or require aircraft carriers or tanks and have been made independent of the military.

Sherlock believes making films while conflicts are ongoing is positive, not least because “this war is lasting longer than world war two”. “I think there are things we did not find out about the Vietnam war until after. I think now the American public is much more advanced. There are fairly few people saying our flag right or wrong,” he said.

Getting serious

Almost all the Hollywood movies made during the second world war tended to be feel-good propaganda ones. The same was true during the Vietnam conflict, led by John Wayne’s Green Berets.

In spite of the high-profile anti-war protests of the Vietnam era, it was very late in the conflict before the public mood turned. And it was not until 1978, three years after the war ended, that the first serious films appeared, Coming Home and the Deer Hunter. Apocalypse Now followed a year later. Platoon, Full Metal Jacket and Born on the Fourth of July were not made until the late 1980s.

Movies about recent US involvement in the Middle East have been thin. Rules of Engagement (2000), an Alamo-like siege in the US embassy in Yemen, mainly involved shooting lots of Arabs. A similar movie, The Kingdom, is due out next month and is based in Saudi Arabia.

But there have been a series of American documentaries about the “war on terror” in addition to Michael Moore’s Farenheit 9/11. Those dealing with Iraq include: Gunner Palace (2005), an account of US soldiers confronting the insurgency, and How I Planned to Kill Tony Blair (2006).