RISK AS THE FOUNDATION FOR

CRISIS MANAGEMENT AND CRISIS CHAPTER 2

COMMUNICATION
 MAIN CONTENT
Enterprise Risk Management
 Issues management
 Reputation management
 Risk management
 LEARNING OUTCOME
 LO2: Demonstrate an understanding of the concepts, theories and
practice of issues management and crisis communication
 LO3: Analyse and develop strategies for organisational issues using
the theories, models and methods of issues management and crisis
communication
 LO4: Gain the capacity to critique organisational and industrial
responses to issues and crises in terms of attitude and ethics
 LO6: Identify and apply ethical standards of practice when dealing
with issues management and crisis communication
OVERVIEW
 The best way to manage a crisis is to prevent
one:
 seek crisis-warning signs
 take measures designed to reduce or eliminate the
possibility of the warning sign evolving into a crisis
 seek to identify and cope with risks:
 Risks: vulnerabilities that could develop into
crises
ENTERPRISE RISK MANAGEMENT
Enterprise risk management (ERM):
 A form of business strategy based upon identifying, assessing, and
preparing for risks faced by managers that can interfere with the
organization’s objectives and operations
 Integrated: a comprehensive risk management approach for
organizations designed to cover all risks, including physical (disasters) and
symbolic (reputation attacks)
 A useful and ideal framework for crisis management
ENTERPRISE RISK MANAGEMENT

3 strategic functions:
 Issues management
 Reputation management
 Risk management
ISSUES MANAGEMENT
Issue:
 “a trend or condition . . . that, if
continued, would have a significant
effect on how a company is operated”
(Moore, 1979, p. 43)
 a type of problem whose resolution
can impact the organization
ISSUES MANAGEMENT
Issues management:
 the identification of issues and actions taken to affect them
 A systematic approach intended to shape how an issue develops and
is resolved in a manner that avoids a crisis
 a proactive attempt to have an issue decided in a way that is
favorable to an organization
 emphasis is on external issues
 communication is used to influence an issue’s resolution
ISSUES MANAGEMENT
Jones and Chase (1979) model
 Action step centers on communicating the
organization’s position on the issue to
stakeholders involved
 Develop goals and objectives for the
communication program
 Select the means and resources needed
 Decide the specific messages, when to
communicate them, and the channels of
communication
ISSUES MANAGEMENT
Example
Legislation is proposed that
would threaten the financial
viability of the railroad by
making trucking companies
more competitive with rail
transportation.
The issues management effort
prevents a crisis by persuading
Congress to reject the legislative
proposal.
 ISSUES MANAGEMENT
Example
How the railroad company use issues management to shape their environments:
 Goal: to prevent passage of the pro-trucking legislative proposal
 Targeted stakeholders: Legislators, the media, and voters
 Message:
 centers on the danger to automobile drivers created by the pro-trucking
legislation
 must be sent immediately because a vote will be held in a few months
 Communication channels: advertisements, publicity, and lobbying
ISSUES MANAGEMENT
Issues management can also involve
changing the organization
 The best way to resolve an issue
would be to correct or improve
operating standards and plans

Airlines in Vietnam dealt with the government’s travel

restrictions during the Covid-19 pandemic by raising
the in-flight health safety standards
Image source: Bamboo Airways
 ISSUES MANAGEMENT
 Some issues can develop into crises, making issues management
relevant to crisis scanning
 Issues management effort prevents an issue from developing its crisis
potential
 Issues management can be a form of crisis prevention
 ISSUES MANAGEMENT
A crisis or ineffective crisis management can spawn an issue, creating
the need for issues management.

Formosa Ha Tinh Steel discharged toxic

industrial waste illegally into the ocean through
drainage pipes, which led to an environmental
disaster (2016)
Image source: tuoitre.vn
DISCUSSION
1. What does it mean to say a risk can develop into a crisis?
2. What is reputation? How does it relate to crisis management?
REPUTATION MANAGEMENT
Reputation:
 an evaluation stakeholders make about an organization
 favorable reputations
 unfavorable reputations
 are formed as stakeholders evaluate organizations based on direct
and indirect interactions
Reputation management: involves efforts designed to influence
stakeholder evaluations of an organization
REPUTATION MANAGEMENT
Direct interactions:
 form the basics of the organization—stakeholder relationship
 positive interactions build favorable reputations
 unpleasant interactions lead to unfavorable ones
 Favorable stakeholder relationships: a marker of a positive reputation
 Organizations build favorable relationship histories that create positive
reputations by meeting and exceeding stakeholder expectations
REPUTATION MANAGEMENT
Indirect interactions:
 mediated reports of how the organization treats its stakeholders
 Important sources of information for evaluating organizations:
 news reports  comments from friends or family
 online comments  messages sent by an organization
 Stakeholders are more likely to draw on indirect than direct
experiences when crafting their personal views of an organization’s
reputation
REPUTATION MANAGEMENT
Relationship:
 the interdependence of two or more people or groups
 A reputation is a reflection of the organization—stakeholder
relationship
 A threat to the relationship is a threat to the reputation

Stakeholders: any persons or groups that have an interest, right,

claim, or ownership in an organization
REPUTATION MANAGEMENT

 Stakeholder Theory
REPUTATION MANAGEMENT
Primary stakeholders Secondary stakeholders
(influencers)
 People or groups whose  People or groups who can
actions can be harmful or affect or be affected by the
beneficial to an organization actions of an organization
 Can stop organizational  Cannot stop an organization
operations and trigger a crisis from functioning, but can
damage it
REPUTATION MANAGEMENT
Typical Primary Stakeholders Typical Secondary Stakeholders
 employees
 media
 investors
 activist groups
 customers
 competitors
 suppliers
 government
REPUTATION MANAGEMENT
Stakeholders are interdependent with an organization
 Links between stakeholders and the organization: economic, social,
and political concerns

Reputation management: management of the relationships between

the organization and its various stakeholders
 Organizational success is predicated on maintaining an effective
balance in these relationships
 Stakeholders can play an important role in crisis management
REPUTATION MANAGEMENT
Primary stakeholders Secondary stakeholders
(influencers)
 Failure to maintain a  Problems in relationships with
continuing interaction with a secondary stakeholders can
primary stakeholder could also harm reputations and
result in the failure of the trigger crises
organization
REPUTATION MANAGEMENT
Example (Primary Stakeholder - Customer)
In 2008, United Airlines had broken the
Taylor guitar of the songwriter Dave Carroll in
checked luggage. After 8 months of pestering
the company for compensation, he turned to
his best tool—songwriting—and vowed to
create a YouTube video about the incident.
4 days after its launching, the first million
people had watched “United Breaks Guitars.”
United stock went down 10 percent,
shedding $180 million in value. United
relented.
 REPUTATION MANAGEMENT
Example (Secondary Stakeholder - Media)
In 2019, HCMC Women Newspaper had
criticized a major Vietnamese property firm,
Sun Group, saying it was destroying the
environment through its developments.
Within 2 months, the newspaper published 7
stories in print or online criticizing the
company for harming the environment. The
stories featured Sun Group's projects at the
Ba Na-Nui Chua nature reserve in the central
city of Da Nang and Tam Dao national park in
the northern province of Vinh Phuc.
REPUTATION MANAGEMENT
 Mismanaging the organization—stakeholder relations:
 damage an organization’s reputation
 evolve into a crisis
 Watching organization—stakeholder relationships contributes to
crisis scanning as a part of reputation management
 Early problems related to reputations: signs that a crisis could
erupt
REPUTATION MANAGEMENT
Corporate social responsibility (CSR)
 the management of actions designed to affect an organization’s
impacts on society
 a key driver and integral part of reputation management
 generate 2 distinct forms of reputation risk:
 greenwashing
 reputational attacks related to irresponsibility
REPUTATION MANAGEMENT
Reputations’ effect on crisis management:
 Negative reputation prior to a  Positive reputation prior
crisis: to a crisis:
 makes the crisis more  acts as a resource that
difficult to manage can make crisis
 increases stakeholder management easier
perceptions that the  reputation suffers less
organization is responsible and rebounds more
for the crisis quickly
 increases reputation
damage
DISCUSSION
Is it accurate to say that reputation management is the larger
concept because of how the other functions can impact it?
RISK MANAGEMENT
 Risk management: attempts to reduce the vulnerabilities faced by
an organization

 Vulnerabilities are:
 weaknesses that could develop
into crises
 basically risks
RISK MANAGEMENT
Risk assessment:
 the base for risk management
 more of an internal rather than an external focus
 attempts to
 identify risk factors or weaknesses
 assess the probability that a weakness will be exploited or
developed into a crisis
RISK MANAGEMENT
Risk factors: exist as a normal part of an organization’s operation
 personnel  competition
 products  regulations
 production process  customers
 facilities
RISK MANAGEMENT
Example - personnel risk:
On 30 January 2022, footballer
Mason Greenwood was accused of
assault against a woman, in a
series of posts on her social media.
Following his arrest on suspicion of
rape and sexual assault, his club
Manchester United have
suspended Greenwood and
dropped all Mason Greenwood
merchandise from the club’s online
Image source: Sky News
store.
RISK MANAGEMENT
Example - production process risk:
In 2019, a fierce fire broke out inside
a warehouse of Rang Dong Light
Source and Vacuum Flask Joint Stock
Company.
The total surface area of 6,000m2 in
the South-east was destroyed
beyond repair. 480,000 fluorescent
light bulbs that were burnt in the fire
Image source: Sai Gon Giai Phong News released 15.2-27.2 kilograms of
mercury into the environment.
RISK MANAGEMENT
Example - product and customer risk:
In 2016, a six-year-old boy has reportedly
been rushed to hospital after a Galaxy
Note 7 exploded in his hand. This
accident follows a string of reports of
Galaxy Note 7s exploding, either when
being used or whilst charging. Over 35
cases were confirmed, including one
which caused a car to burst into flames.
Samsung had to globally recall 2.5 million
handsets and suspend sales of the
Image source: Fox News
phone.
 RISK MANAGEMENT
Risk aversion:
 Elimination or reduction of a risk
 Cost drives the use of risk-aversion decisions
 use risk balancing to compare risk’s costs to risk reduction’s costs
 may take no action when risk reduction’s costs outweigh the
costs estimated from the risk
 ignoring risk can be a more costly move than anticipated
 RISK MANAGEMENT
Risk aversion:
 Risk management = crisis prevention
 Actions are taken to
 completely eliminate the risk
 or reduce it to as low a level as reasonably possible
 Exact action varies according to the actual risk
 RISK MANAGEMENT
Example: The use of dangerous chemicals in a manufacturing process
 Approach to designing safer chemical plants, storage facilities, and
chemical processes:
 Using inherently safer practices:
 reduce the amount of hazardous material on site
 substitute a less hazardous substance
 use a less hazardous process or storage condition
 Training
 RISK MANAGEMENT
Example: Computer risks (such as viruses)
 Ways to prevent risks:
 Antivirus software
 Firewalls
 Employee Internet use policies
 RISK MANAGEMENT
 When a risk becomes manifest, a crisis can occur
 Crises often create new risks
 Risk communication: a dialogue between the organization creating
the risk and the stakeholders who are asked to bear the risk
 Organizations explain what the risks are, what can be done to
protect people from the risk
 Stakeholders explain their concerns about and perceptions of the
risk
RISK MANAGEMENT
 Traditional risks:  New risks:
 such as those related to  CSR
personnel and safety  social media
 easy to quantify  illustrate how closely the
 have close connections proactive management
with insurance functions are interconnected
with one another
CONNECTION BETWEEN
PROACTIVE MANAGEMENT FUNCTIONS
 All functions can contribute
to crisis scanning: provide a
broad radar system for
detecting warning signs
 Challenge: how to integrate
them into an effective crisis-
sensing mechanism

Proactive Management Tetrahedron

 CONNECTION BETWEEN
PROACTIVE MANAGEMENT FUNCTIONS
 Crises will damage a reputation
 Prior reputations can be an asset or a liability in crisis
communication
 Exposure to risks can erode a reputation
 Supporting or opposing an issue can enhance or erode a reputation
depending how stakeholders view the issue
 Risks can manifest into crises
 Crises can create the need to engage in risk communication
 CONNECTION BETWEEN
PROACTIVE MANAGEMENT FUNCTIONS
 Risks can become issues
 Effective risk management can prevent a crisis
 Issues can become crises when the issues threaten an organization
 Crises can create an issue because people want government help to
control the risk related to the crisis
 Effective crisis management can prevent an issue from emerging
 CONCLUSION
 Risk is the foundation for crisis management
 Enterprise risk management (ERM) seeks to place all organizational
risks into one system
 Crisis risks can be distributed through a variety of organizational
functions and departments, including issues management, risk
management, and reputation management
DISCUSSION
1. While this chapter separates issues, risk, and reputation
management, the three areas are interrelated. How can a risk
become an issue, an issue become a risk, a risk threaten
reputation, or an issue threaten reputation? How do you see
these three functions being interrelated?
2. Would you argue for an organization to create a separate
department to manage these functions? Why or why not?
NEXT CHAPTER

Chapter 3
THE CRISIS MITIGATION PROCESS:
BUILDING CRISIS RESISTANT ORGANIZATIONS