Honesty is the best policy during crisis

If a new car built by my company leaves Chicago travelling west at 60 miles per hour, and the rear differential locks up, and the car crashes and burns with everyone trapped inside, does my company initiate a recall?" so asks the narrator in Chuck hniuk's novel Fight Club.

The character, played by Ed Norton in the film, goes on to explain that his unnamed company has a formula for working out whether a recall is necessary. You simply multiply the number of vehicles by the probability of failure and the average cost of a court settlement. If that is higher than the cost of a recall, the company issues a safety alert. If not, it keeps quiet.

This is a deeply cynical – and one hopes entirely fictional – account of how car companies calculate the need to recall and fix faulty vehicles. However, Palahniuk taps into an underlying suspicion among many car owners that the manufacturers of their vehicles are more concerned about money than driver welfare. I'd like to say that this fear is a load of rubbish but the way certain manufacturers behave does make one wonder.

Take, for example, the sorry saga of Ford and Firestone, the tyre maker. About 10 years ago it emerged that Ford Explorer vehicles had a nasty habit of rolling over and 178 people are reported to have died in such accidents. Ford blamed the vehicle's Firestone tyres and issued a recall on 13 million of them, which triggered a bust up between the two companies over who was to blame for the Explorer's problems. Firestone insisted that its tyres were not the issue, leaving consumers who had bought non-Firestone clad Explorers to worry that their vehicles were also unstable.

Investigators later claimed in testimony to Congress that both companies had known there was a problem with Firestone equipped Explorers long before it became public. Needless to say, neither company came out of this affair with much credibility and you might think that other car makers would have vowed never to be caught in a similar scandal. Fast forward a decade and it is Toyota, the world's largest car company, being put through the wringer after a series of recalls.

Toyota has so far recalled eight million vehicles worldwide because of random acceleration problems and the company has shut down production in North America.

The Japanese auto giant has known for some time that problems existed but the recalls have been handled in piecemeal fashion. First, some cars were withdrawn because accelerator pedals were getting stuck under floor mats; then, last month, Toyota recalled US cars because pedals were sticking. Finally, the company issued a worldwide recall last week. In addition, it appears that Toyota's Prius vehicles may also be recalled over a possible brake defect.

As this saga has dragged on, Toyota has appeared in denial about the scale of the problem. The first time Akio Toyoda, the chairman, officially addressed the subject was the end of last week – a day after authorities in the US and Europe advised people to stop driving their Toyota cars.

What is most puzzling about this sorry episode is that Toyota appears to have lacked a rigid crisis-response strategy. Planning for rainy days is never particularly fun but company executives have a duty to consider the unexpected. Such strategies, if handled well, give consumers confidence in a brand during the bad times and help stem financial losses.

The benchmark for good crisis management was set in 1982 when Johnson & Johnson discovered that someone was deliberately poisoning bottles of Tylenol, the pain reliever, and seven people died. J&J acted swiftly to remove 37 million bottles of Tylenol from supermarket shelves across the US. The company's chief executive then fronted television adverts to tell consumers directly what had happened and what J&J was doing about it. This rapid and honest handling of the incident boosted consumer confidence in the brand and Tylenol was quickly back on shelves and regaining market share.

If J&J had handled the situation in the dithering way that Toyota has done with its accelerator problem, Tylenol would probably never have recovered. The battering Toyota has received must encourage executives in other firms to think carefully about how they might handle a crisis in their own organisation. As Toyota has discovered, hoping it will go away is not a viable strategy. 


- The writer is Business Correspondent of the Times of London