2006 was the year of self-inflicted harm.

The year brought into sharp focus three fundamental principles of crisis management: 

  1.  Many crises are self-inflicted.  Even when a crisis arises elsewhere, most of the harm to a company’s reputation, operations, and financial condition results from bad handling of the crisis.

 2. Most reputational harm comes not from the severity of the crisis itself, but from the timeliness and quality of the response.  

3. Companies and leaders can be forgiven even when things go horribly wrong.  But they won’t – and can’t – be forgiven if they’re seen not to care that things went wrong.  Creating the perception of indifference is the most common mis-step in the immediate aftermath of a crisis.  Attempts to rationalize away a crisis don’t work, and only make matters worse.

Some highlights from 2006:
 
BUSINESS

In the corporate world, Hewlett Packard Board Chair Patricia Dunn ordered surreptitious surveillance of her directors out of frustration that board deliberations were leaking to the media.  Her decision unleashed a chain of events – including the use of pretexting by private detectives to obtain directors’ personal phone records – that ultimately led to her forced resignation from the board.  California Attorney General has charged Ms. Dunn with violating California privacy laws.
Home Depot’s CEO was under fire for his compensation package – and for the company’s relatively poor performance – in the Spring of 2006.  He used a particularly heavy hand in stage-managing Home Depot’s annual shareholder meeting.  Unlike most public company meetings, the Board of Directors was not present at the meeting, and Mr. Nardelli severely limited time for shareholder questions or expression of concerns.  Shareholders predictably reacted with concern and hostility, and over the course of 2006 large shareholders began advocating for changes, including reductions in Mr. Nardelli’s compensation.  Having lost significant shareholder support, Mr. Nardelli eventually lost the support of his champions on the board, and was dismissed in the first week of 2007.  The New York Times drew an object lesson from Mr. Nardelli’s final year in office:  “Arrogance has never been attractive in a leader.  Now, in corporate chief executives anyhow, it may be a career-ender.”[i]

POLITICS AND GOVERNMENT
 
The political world saw no end of self-inflicted harm:
 
The late September revelation that Congressman Mark Foley had pursued the attention of teenage pages – and that the leadership of Congress knew for months, and in some cases for years, but did nothing to stop it – proved to be the tipping point that cost Republicans control of the House of Representatives.
 
  Similarly, Senator George Allen of Virginia used a pejorative – "macaca" – to describe an American of Indian descent who was videotaping an Allen rally on behalf of Allen’s opponent.  Before the macaca incident Allen was thought not only to be heading toward a landslide re-election but also to be a front-runner for the Republican presidential nomination in 2008.  The macaca reference, evoking a monkey, led reporters to comb Allen’s past, which included many prior concerns about racial insensitivity.  In the end Allen narrowly lost the race to Democrat James Webb, and the Senate reverted to Democratic control.
 
In New York State, incumbent Controller Allen Hevesi, the state’s financial watchdog, got tangled in a scandal involving the personal use of a state car and driver by his wife.  Elliot Spitzer, the aggressive Attorney General who was later elected Governor, distanced himself from Hevesi and launched an investigation, even though both he and Hevesi were Democrats.  Hevesi reimbursed the state, and won re-election.  But before his new term began he resigned as part of a plea bargain in which he pleaded guilty of a felony in order to avoid prison.
 
President Bush also committed self-inflicted harm several weeks before the Congressional mid-term elections, when the news was filled with reports of how badly things were going in Iraq.  In an interview he not only supported Defense Secretary Donald Rumsfeld, but said Secretary Rumsfeld was doing a “fantastic” job, and that things in Iraq were going well.  This opened the President to charges of conducting a “Katrina foreign policy,” a reference to his failure to acknowledge the inadequacy of the federal response to the hurricane a year earlier.  In this frame of reference, Secretary Rumsfeld played the “heck-of-a-job Brownie” role, receiving praise despite evidence of his failure to manage the war effectively.  The President’s first act the day after the election was to fire Rumsfeld.  Five minutes after that announcement, I received an e-mail from a friend who is a Republican loyalist and staunch supporter of the President.  The e-mail simply said, “Two weeks and 10 million votes too late.”  (See our brief article in the December 3 Washington Post on Presidential Crisis Management ). 

SHOW BUSINESS
 
The entertainment world also demonstrated plenty of self-inflicted harm.

The year began with Oprah Winfrey doing a quick about-face after initially defending James Frey after the author’s “memoir,” A Million Little Pieces, was found to include a number of invented events.  Oprah, who had earlier endorsed the book to her audience, impulsive defended Frey on Larry King Live when the author’s credibility first came under attack.  Her audience reacted negatively to the suggestion that the truth didn’t matter.  Winfrey quickly recognized her blunder, and apologized to her audience.  Then she had Frey on her program and tore into him. 

Winfrey’s recovery was a lesson lost on Judith Regan, publisher of her own imprint at HarperCollins, part of New Corporation.  She developed a project that had OJ Simpson author a “what if” book, a supposedly hypothetical account of how he would have killed his wife Nicole Brown Simpson and her friend Ron Goldman.  When journalists declined to interview Simpson for the book’s launch, she arranged to interview him herself, and for the program to air on Fox News, also part of News Corporation.  When the reaction to the whole OJ Simpson project turned ugly, Regan initially defended and rationalized both the book and the interview. Ultimately News Corporation chief Rupert Murdoch had to step in, cancel the project, fire Regan, and apologize for the mis-step.

And in the most covered self-inflicted harm story in show business last year, Mel Gibson turned a routine DUI arrest into an all-news-all-the-time story.  His anti-semitic tirade upon being arrested started the news cycle; his excuse that the alcohol caused him to say things he didn’t feel proved unconvincing, and Gibson disappeared into rehab.
 
  
[i] “A Warning Shot by Investors to Boards and Chiefs” by Gretchen Morgenson, The New York Times, January 4, 2007.