A few years ago a colleague and I conducted research that disturbingly revealed that the announcement of the appointment of a female CEO provokes significantly more negative investor reaction relative to the announcement of the appointment of a male CEO. At the time, we argued that the status differences accorded to men and women, and the infrequency with which women are named to executive positions, made the appointments feel more risky to investors. Risk translates into reduced confidence, and reduced confidence yields reduced investment, thereby negatively affecting the stock price upon news of the new executive appointment.
Although in recent years, we have seen ostensible growth in women holding top leadership jobs (think Ursula Burns at Zerox, Ginny Rometty at IBM, and Indra Nooyi at Pepsi), the scrutiny of women in these positions tends to outpace that directed to their male counterparts. Imagine, therefore, the pressure for recently appointed General Motors (GM) CEO Mary Barra. The first female CEO to lead one of the big three U.S. auto manufacturers is now also facing a highly publicized crisis – something else that tends to draw scrutiny and invite reduced confidence in leadership and firm performance.
GM is embattled in a significant recall for millions of cars with ignition and other defects dating back more than a decade. The recall is both financially costly and damaging to the beleaguered automaker’s reputation. For Barra, investors and other stakeholders are voyeurs peering into her crisis handling, prepared to comment (and criticize) at every turn. Below the surface her gender may make this an even more intriguing case than your average corporate crisis.
There are some things Barra can do to mitigate the threat associated with the recall, and potentially stave off some of the risk associated with the crisis. While the basic crisis management techniques, such as communicating early and often to control the message, are common-sensical (despite not generally being executed well by leaders in crisis), there are equally germane but less obvious crisis handling considerations that Barra should employ. One is minding the initial rhetoric used in messaging about the crisis. The other is minding how the crisis is framed, whether as a threat or as an opportunity.
Early responses matter…
In my crisis research I found that initial verbal responses to a crisis set the leader and the organization down a path from which it is difficult to change mid-course. In many cases, a leader’s initial response is to deny wrong-doing. Self-preservation entices most of us to rebuff actual or perceived wrong-doing. Yet, unless there is unequivocal evidence to support innocence, it is often a dangerous path to pursue. Eventually, something is revealed that can implicate the firm or its leaders and initial denials foster an inability to effectively modify one’s crisis response over time. According to research, denial rhetoric is also associated with subsequent defensive actions by the firm such as a cover-up and retaliation – behaviors often perceived to be negative.
In short, early denial rhetoric often sets a firm down a path from which it can be difficult to recover in the minds of stakeholders. Consider, for example, the repeated denials made by Toyota’s CEO in 2009 following allegations of faulty acceleration on several Toyota product lines. Weeks later, as evidence mounted against the firm, it became increasingly difficult for the car maker’s president Akio Toyoda to gain credibility and effectively manage the crisis. Toyota’s reputation has yet to return to its former glory.
So what is the alternative? If denial is a potentially unattractive option what about admission? Company lawyers generally balk at the thought, fearing the litigation that would ensue.
My research suggests that a viable option for early verbal responses to a crisis is an acknowledgement. Here the leader recognizes the situation and may even apologize for the negative impact on stakeholders, but does not necessarily admit guilt. Acknowledgment rhetoric is perceived by stakeholders as a firm’s willingness to take corrective action and is correlated with a leader and his or her organization taking on a learning orientation. Acknowledgement rhetoric can limit the risk associated with an admission, while also appealing to stakeholders who sense the company’s empathy for those affected by the crisis. As a result, the opportunities for future communication and actions by the firm are expansive relative to denial or admission-based communication.
In Part II of this blog series I’ll talk about how a crisis is framed by leaders also matters to the subsequent handling of the crisis.