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Toyota, Terrorist iPhones, and Red Rings of Death: A Practical Guide to Crisis Management in Six Steps

The video games industry is no stranger to crisis. Red Rings of Death. GamerGate. And more recently, the troubled release of No Man's Sky. But while crises mean rough times ahead, they also represent opportunities to cement your reputation for the better.

Justin Fischer, Blogger

September 12, 2016

22 Min Read


An Xbox360 console displaying the infamous "Red Ring of Death"

Image source: Droobey at English Wikipedia - Transferred from en.wikipedia to Commons., Public Domain, https://commons.wikimedia.org/w/index.php?curid=1974936

No Man's Sky is finally out, and Hello Games has marched right into a sea of controversy. Twitter and gaming-blogs contain more than enough chin-wagging about the alleged PR crimes of the game's marketing. I have nothing meaningful to add on that front. But the episode does bring up a critical element of the working world: crisis management.

What is a Crisis?

First, let's define the term "crisis". Merriam-Webster describes it as "an unstable or crucial time or state of affairs in which a decisive change is impending;especially one with the distinct possibility of a highly undesirable outcome."  Dicitonary.com offers "a condition of instability or danger, as in social, economic, political, orinternational affairs, leading to a decisive change." And Google returns "a time when a difficult or important decision must be made."

In other words, a crisis is more than just a terrible event. It's not just a disaster. It's a decision point. A burning building full of people is a disaster. But the choice of whether or not to go in and rescue them? That's a crisis.

A crisis is more than just a terrible event. It's not just a disaster. It's a decision point.

More specifically, a crisis is a test of your values. Protect your profits or order a mass-recall? Shield your reputation or issue a mea culpa? Side with conservative voters or side with their progressive fellow citizens?

Crises can be macro. A widely defective product is a crisis. So is a public scandal. But they also come in the micro variety. If a major deadline AND a massive, dangerous blizzard are both bearing down on your team, do you close the office until the weather passes or demand that your team keep working? If your publisher is asking you to do something unethical in support of your game's launch, do you honor your moral compass or do what it takes to keep the lights on.

Shirking His Duty

Perhaps the best example of a crisis from our collective nerd heritage is the infamous Kobayashi Maru. In the 2009 Star Trek reboot, Spock describes the simulation as a way to expose cadets to fear. But that's just dramatic license. The real point of the simulation is to put officer cadets in a moment of crisis. To test their ability to be decisive in the face of a no-win situation.

More to the point, the simulation puts cadets in a position that tests their values. Uphold your responsibility to preserve your crew and ship or uphold your mandate to protect civilians at any cost? The goal of the Kobayahi Maru is not to persevere, which is clearly impossible, but to make a call under pressure. And then live with the consequences.

Nerd lore celebrates Kirk for His roguish moxxy. But in reality, hacking the Kobayashi Maru was a bombastic failure of leadership.

And in that regard, when Kirk decides to hack the simulation in order to win, he completely misses the point of the exercise. Nerd lore celebrates his stunt for its roguish moxxy - it's one of the highlights of his maverick career in Starfleet. But in reality, it was one of his most bombastic failures of leadership. He prefered to rig a system in order to "win", rather than face a decision point with no clear answer. And a person who does that is the last person you want in charge of any organization. Or starship.

The Upside of Crisis

Perhaps it's ironic, but with crisis also comes opportunity. Not for profit or reward, but for reputation. A crisis is a singular opportunity to demonstrate to the world what you are really made of. How steadfastly you hold to your values in the face of adversity.

In short, talk is cheap. But your behavior in a crisis situation is the clearest, most credible indicator for the world about who you really are and what you truly value. Anybody can claim to run a values-based organization. Anyone can claim to reject discrimination, to value his or her customers, to be honest in his or her dealings.

Perhaps it's ironic, but with crisis also comes opportunity. Not for profit or reward, but for reputation.

It's when the pressure and spotlight are on you or your organization - when you're going to piss somebody off or negatively impact some group no matter what you do - that you need to put up or shut up.

How To Handle a Crisis in 6 Simple (But Not Easy) Steps

Step 0: Know Your Values

It's hard to do the right thing if you don't know what the right thing is. And the "right thing" is subjective, both to the person and the situation. In order to effectively respond to a crisis in the future, you need to know what you stand for today. What are your priorities? What are your values? What is the North Star of your moral compass?

It's hard to do the right thing if you don't know what the right thing is. You need to know what you stand for. What are your values?

You need to ask this question both of yourself and of your company. Because if there is a crisis, and your company responds in a way that is not consistent with your values, think hard about what you do next. Your company's actions reflect on you, and your response is a tacit (or overt) statement about those actions.

When Your Company's Products Can Kill

In August of 2001, dialysis patients in Europe started dying. The one common factor between the deaths was the filter used in the dialysis machines, all of which came from Althin Medical AB, a recently acquired subsidiary of the American corporation Baxter International. There was no eveidence to actually suggest the filters cauased the deaths, but journalists ran with the lead anyway.

Baxter's CEO at the time was Harry Kraemer, a man who places a premium on self-reflection, and knowing and following one's values. When European news agencies started to report on the Althin filters, Kraemer did something remarkable for a corporate CEO: he apologized without reservation. He subjected his company to a $189MM loss. He told Baxter's board of directors to reduce his compensation.

Kraemer was a professor of mine in graduate school, and one of his oft-repeated mantras was "I don't know what we're going to do, but we're going to do the best we can and we're going to try to do the right thing."

That was his personal value and one he worked to instill at Baxter during his time as CEO. When crisis struck and when the facts were murky at best, he stuck to that value. He did what he felt was the right thing, and took responsibility, both personally and as the head of a company. "Of course we'll do the right thing." he said in an interview with Fast Company. "As opposed to what?"

Step 1: Decide If You Actually Need To Respond

Dwight Eisenhower once said that "What is important is seldom urgent, and what is urgent is seldom important." But a true crisis is both. So, first decide whether the issue you face is truly a crisis. Some public outburst are tempests in teapots, and your energy is best directed elsewhere. Sometimes, it's best just to let the situation blow over. 

If the situation you're looking at is not both truly urgent AND truly important, it might be best not to fan the flames. In which case, you're done. Otherwise, read on.

Tread Carefully - Small Problems Can Become Large Ones With A Single Viral Post

In 2008, baggage handlers at Chicago O'Hare broke Dave Caroll's beautiful, $3,500 guitar. When he informed United Airlines of the problem, the company denied him compensation based on the simple fact that he hadn't reported the issue within 24 hours of the flight. United figured it was absolved of liability. No crisis here, folks.

Your customers have a different view of what is important. See things from their perspective before you decide that something is a non-issue.

And then a $3,500 claim became a multi-million dollar, reputational nightmare:

Check the view counter. 15.8 million as I write this. It's a permanent pop-culture stain on United's record. There isn't a bag of frozen peas in the universe large enough to put on that black eye. And Caroll's laughing all the way to the bank.

Moral #1: Your customers have a different view of what counts as truly important. Engage your empathy and see things from their perspective before you decide to write something off as a non-issue.

Moral #2: Never underestimate the destructive potential of social media and one determined, highly pissed-off creative.

Step 2: Decide Whom to Appease and With Whom to Reconcile Later

Typically, in a crisis, there is no way to make everyone happy. Your move to correct the situation is probably going to burn someone: your customers, your investors, your employees, the government, the public at large. Somebody (or multiple collections of somebodies) will not be happy with your decision, whatever it is. You can't change or avoid that. If you try going middle of the road, you'll just piss off everyone.

Somebody will not be happy with your decision, whatever it is. You can't change or avoid that.

Decide which constituency you are going to address now. This is entirely a judgment call, and the answer depends on several factors. The first is your personal and company values - what path forward is most consistent with what you believe? The second is to identify which constituency will have the single most negative impact on your company if you don't prioritize it.

Six Degrees of Accountability

You also need to take into account which groups of constituents have constituents of their own. Government agencies, unions, civic groups, trade organizations and others are beholden to their own constituents. Individuals can also have their own constituents: their families, friends, and communities.

Your overtures might fall deaf ears if those appeals are in conflict with a person or group's constituency to which he, she, or it answers.

You need to take into account which groups of constituents have constituents of their own. Even individuals have their own constituents.

Once you've decided which group to address, decide how you can repair your relationship with any groups that your decision might offend once the crisis is over. Start laying the groundwork to make amends.

Apple and the San Bernardino iPhone

When faced demands from the Justice Department to help unlock the San Bernardino Shooter's iPhone, Apple decisively picked a constituency: its customers. In his open letter on the issue, Tim Cook was unequivocal: 

"If the government can use the All Writs Act to make it easier to unlock your iPhone, it would have the power to reach into anyone’s device to capture their data. The government could extend this breach of privacy and demand that Apple build surveillance software to intercept your messages, access your health records or financial data, track your location, or even access your phone’s microphone or camera without your knowledge. Opposing this order is not something we take lightly. We feel we must speak up in the face of what we see as an overreach by the U.S. government."

His stance angered the government. Talking heads accused Apple of being childish. But the message to his customers was crystal clear: we value your privacy and you can trust us to protect it, even in the face of demands from the Federal Government.

You can take umbrage with Apple and it's products. You can feel outraged that Cook seemingly prioritized data privacy over counter-terrorism. But respect the fact that he made a call in a difficult situation. In the face of a true crisis, he didn't flinch.

AIG Picks the Wrong Constituency

Ed Liddy became CEO of AIG Insurance in September 2008. His job was to right the ship - get AIG back on track in the wake of the financial collapse that triggered the Great Recession.

When it became know that AIG was using bailout money to pay large bonuses to members of the Financial Services Division - the same group that participated in the credit default swap schemes that helped kneecap the economy - Liddy was promptly hauled in front of congress.

Liddy could have decided to side with his employees and come to their defense. He could have pointed out that the bad eggs had already cashed out and were living abroad and the people who remained - those who received the bonuses in question - were the people trying to fix the problem.

The message from Apple was crystal clear: we value your privacy and you can trust us to protect it, even in the face of demands from the Federal Government.

He also could have explained that the term "bonus" has a different meaning in the financial services sector. What we thought was a gratuity was actually a poorly named, performance-based compensation model. It wasn't a sweetener on top of their base salaries - it was salaries (or the bulk of it, at any rate). He could have said "We're paying them bonuses because they're doing an amazing job straightening out the mess their predecessors left them."

Or, he could have sided with the American people. He could have acknowledged the outrage, held himself accountable, and demanded that the employees and executives of AIG return the money, under threat of termination. He could have taken a stand and said AIG would weather any legal action from employees in order to get the bonuses back. He could have offered to do a better job being accountable to the tax payers that saved his company's bacon.

"There were two ways down the mountain. I took the third."*

Instead, Liddy decided to waffle in a nebulous middle ground. His testimony to Congress was preposterously limp, and essentially amounted to "Hey everybody. I agree, this totally sucks, and I think these bonuses are disgusting. But, see, I kinda need to pay them those bonuses, because it's in their contracts. And we don't pay them those bonuses, they go work somewhere else. But I'll ask to please return the money, m'kay?". Here's a portion of his testimony:

Do you think anybody was happy with that response? It sent tax payers right around the bed. And AIG employees felt like they had been thrown under the bus.

So what was Liddy thinking? 

Well, one interpretation is that he was addressing a third constituency: congress itself. He was trying to be accountable to them as administrators and law makers. But he neglected a critical dynamic. Congress has constituents of it's own: voters. And there is no way in hell congress is siding with a scarlet letter company like AIG over voters.

Liddy resigned in May of 2009 after a grand total of less than 9 months in the hot seat. 

Step 3: Take Responsibility. Publicly

If you want to get a handle on a crisis, it's imperative that you assume responsibility for it. It doesn't matter if you actually caused the problem. If the crisis is in motion, it's already too late to pass the buck. If the public is laying the blame on your doorstep, be publicly accountable for fixing the problem. Own it. Anything else will just make you look like you're trying to dodge responsibility.

Southwest Airlines and Josh Woods

On December 8th, 2005, Southwest Airlines flight 1248 skidded off the runway and Chicago Midway airport onto an adjacent street, causing multiple injuries and the death of a 6-year-old boy named Josh Woods.

Any number of issues could have cause the crash. Defective equipment from the manufacturers, pilot error, insufficient management of ice by the runway crews at Midway. None of that mattered from a crisis management standpoint. All that mattered in the public eye was that a Southwest Airlines plane had crashed and a child had been killed.

It doesn't matter if you actually caused the problem. If the crisis is in motion, it's already too late to pass the buck.

Southwest CEO Gary Kelly immediately held a press conference to describe what had happened and then promptly flew to Chicago to personally oversee the airline's response. He held a second press conference 18 hours later to provide an update. He never blamed anyone. He never suggested that Southwest was not responsible. But he did put several operations in place, at the airlines expense, to support those affected and their families, and to provide timely updates.

Southwest emerged from the tragedy with it's reputation in tact. The message Kelly sent was clear: we put all lives, not just our customers', ahead of profit.

Or, you could be like British Petroleum CEO Tony Hayward during the Deepwater Horizon spill, and publicly whine that you want your life back. That went well for the firm.

Step 4: Take Action

Once you've made your choice, act decisively. Your response will almost certainly be ad hoc, and hastily assembled. But if you take the time to get every duck in a row, you'll miss your opportunity to turn the crisis around.

Offer the refunds. Fire the offending person (or state publicly that you will not fire the offending person, depending on your situation). Issue the mea culpa. Whatever your values tell you is the right thing to do to resolve the crisis, do it. Don't waffle or ride the fence.

Don't act in haste, but act with urgency. Your ability to salvage a crisis and recover from it is highly correlated to the speed with which you address it.

The Red Ring of Death

2007, not even a year into the Xbox 360's life, Microsoft ran head-first into the infamous Red Ring of Death. 1st run 360 consoles started bricking left and right as improperly assembled motherboards warped from sustained heat.

Microsoft was faced with two options: protect its profits or make customers whole. The company decisively and expensively opted for the latter, replacing RROD'ed consoles free of charge.

Microsoft sided with gamers over profits. And with that choice they made a strong statement: buy with confidence, because we will take care of you.

You can take issue with the manufacturing quality control issues that led to the defects. You can find fault with the ad hoc process Microsoft threw in place to replace the consoles. You can gripe about the fact that the replacements (or some of them at least) were refurbs that themselves also RROD'ed.

But appreciate the fact that the company made a choice to side with gamers over profits. And with that choice they made a strong statement: buy with confidence, because we will take care of you.

Step 5: Offer Transparency

As you act to resolve a crisis, be visible. Give regular updates. Respond to questions from the press. Set up phone lines, Twitter accounts, or RSS feeds that your constituents can use to stay up to date. Identify what you've accomplished. Acknowledge what you could be doing better. Communicate what you've learned about the problem.

A crisis is an inflection point for you and your company's trustworthiness. Whether that's a positive or a negative inflection point is largely a matter of how transparent you can be.

In the absence of information, people fill in the gaps with assumptions. And those assumptions will be entirely colored by their perceptions and personal biases. You've almost certainly seen this in your own career. In some moment of stress (a merger, an acquisition, a layoff, a deal falling through), your leadership team failed to maintain transparency, and the rumor mill immediately went into full swing.

A public crisis has exactly the same dynamic, just several orders of magnitude larger.

Toyota's Sudden, Unintended Acceleration Crisis

On August 28, 2009, Highway Patrolman Mark Saylor and his family were killed when the car he was driving - a Lexus loaned to him while his own car was in the shop - suddenly accelerated, resulting in fiery crash. There has been no end of speculating and blame-gaming regarding this issue. The Revisionist History podcast has a fascinating examination if you're so inclined.

A crisis is an inflection point for your company's trustworthiness. Whether that's a positive or a negative inflection point is largely a matter of how transparent you can be.

But, of particular relevance to this post is how Toyota responded. Faced with an existential threat to its long-standing reputation for safety, Toyota's PR machine promptly crapped in its own bed.

A study by none other than NASA would eventually determine that the cases of sudden, unintended acceleration (SUA) were caused by user error and had nothing to do with the quality of Toyota's vehicles.

And yet the firm ended up paying $1.2B in fines to the United States government to avoid prosecution for allegedly attempting to hide safety problems. They spent millions more on recalls and suffered some untold loss of value to the brand because of those same safety problems.

Let that sink in for a second. Toyota paid over a BILLION dollars and suffered an enormous loss of reputation for covering up a safety issue that didn't actually exist.

How to Create Your Own Liability 

This turn of events is not without its irony. Toyota, in an attempt to shield it's reputation, was remarkably opaque, even evasive, in it's PR approach to the issue. And this evasiveness only served to convince an angry, frightened populace - and a news media which profits from feeding said anger and fear - that the firm had something to hide.

Toyota paid over a BILLION dollars and suffered an enormous loss of reputation for covering up a safety issue that didn't actually exist.

Go back and read news stories and public statements from government representatives. Toyota got itself eviscerated in the public eye.

It created a financial, reputational, and prosecutorial liability for itself out of whole cloth simply through the act of trying to avoid external inspection of a problem it hadn't actually caused.

And that, my friends, is why transparency in a crisis is critical.

Hindsight is 20/20. But It's Also Informative.

What should have Toyota done? Been transparent. Met with the families of those affected. Assigned a PR rep who's only job was to provide regular updates about what the company currently knew about the issue. What the company was doing to gain more info. What it would do to correct any defects it found.

Toyota should have let the world know that it had nothing to hide and demonstrated it's commitment to customer safety, not matter the cost.

It should have provided a hotline consumers could call for the latest updates (if you can afford a $1.2B fine, you can afford an ad hoc phone line). It should have let the world know that anyone who had been impacted by SUA, or was concerned about it, could receive a safety inspection, on Toyota's dime, at any affiliated dealership.

In short, it should have let the world know that it had nothing to hide and demonstrated it's commitment to customer safety, not matter the cost.

Always Remember: In Crisis There Is Opportunity

If you work for a public facing company, crisis is generally a matter of "when", not "if". So be prepared. And always remember that, while nobody wants to go through a one, a crisis also represents opportunity.

It's easy to say that you or your company stand for something. But a crisis gives you the opportunity to prove it on the record. It gives you a chance to add permanent feather to your reputation's cap. When the chips were down you were willing to act decisively and endure hardship in order to do the right thing for someone else.

And that is a public relations win that money can't buy.

Justin Fischer is a studio founder (www.agencyprinciple.com) and production consultant. His game credits include the upcoming Ray's The Dead, The Occupant, and Disney Infinity. He earned his MBA from Northwestern University's Kellogg School of Management. His mission is to improve the day to day experience of making games through better processes. He writes about that at his personal blog here: http://www.breakingthewheel.com

Follow him on Twitter: @justin__fischer (two underscores!)

His LinkedIn profile can be found here

Note: This post was heavily influenced by Daniel Diermeier's awesome book on crisis management, Reputation Rules, as well as the lectures of Kellogg School of Management Professor Timothy Feddersen.

*This quote isn't from Liddy, but was the pithy way my camp councilor summarized getting us lost during a day hike when I was 12.

Source for the Baxter/Kraemer anecdote: "Harry Kraemer's Moment of Truth" by Keith Hammonds, from Fast Company, November 2002

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