How management impacts recovery in mass fatality disasters

April 05, 2015

How management impacts recovery in mass fatality disasters

Like many people, I’ve been following the Lufthansa crisis non-stop as more information continues to surface. A recent article in Quartz on the horrific tragedy reminded me of the excellent work that comes out of Oxford Metrica, an analytics and advisory firm on reputational issues. I have written about them before and am pleased to write about them again in the context of the Germanwings crash because their analyses of crises and leadership are always illuminating. I first learned about them when I wrote my first book, CEO Capital, and was interested in explaining how CEO and company reputations  are shaped when crisis strikes. Oxford Metrica’s first report uncovered the fundamental truth that during crisis situations, investors get to see the CEO upfront, close and personal and any insights they gleam at that time into management’s character gets factored into the long-term shareholder value of the company.  Rory Knight and Deborah Pretty, principals of Oxford Metrica, posit that companies fall into two camps when crisis hits and the recovery begins — Recoverers and Non-recoverers. Strong and honest communications from the top are paramount to recovery according to their diligent work.

I had not realized that they had researched crisis recovery impact from “mass fatality events” until I saw the Quartz article. Here is the pdf. They’ve looked at a wide range of disasters where many people have died  — from 9-11 to the tsunami in Asia to hurricanes, airplane crashes and fires. In fact, they dedicate their report to the “234,339 people who lost their lives in the tragic events reported herein.” That gave me a chill.

Their findings are fascinating in light of the Lufthansa disaster. They looked at 22 aviation disasters from the last five years where 1,886 people lost their lives. Again, they saw the same pattern between Recoverers and Non-recoverers. “Beyond the obvious moral rationale for good behaviour by management, it is clear that the markets respond positively to firms which demonstrate essential human qualities; sensitivity, compassion, honesty and courage. The managerial awareness of what is required, and the courage to act accordingly, sends a strong signal of skill to investors.” As the researchers say, handling a disaster such as what Lufthansa is now facing matters even more to long-term shareholder value because of the enormity of the tragedy.

Interestingly, they found that the market reacts with an initial drop in share price during airline disasters but ultimately takes about three months for the market to discern between the two distinct recovery groups. As they say, “In some cases, it is difficult to discern objectively how compassionate or honest or courageous a management team has been in responding to extreme and tragic circumstances. In other cases, it is either humbling or painfully clear.” With regard to Lufthansa’s response to the purposely crashed flight in the Alps on March 24th, we might not be able to tell just yet whether their reputation will fully recover and whether their share price will suffer or bounce back over the long-term. My sense is that they will succeed over the long-term.

Also fascinating to me was what I learned about the impact of specialist service firms to recovery, something I know very little about. These firms specialize in mass fatality disaster management which includes “contingency planning, disaster management response and recovery, identification of human remains and personal effects, training, family assistance, call centres, memorials and humanitarian services.” One of the leaders they cite is Kenyon International who has ben around since the 1920s. Oxford Metrica found that there is a 40% value premium when these types of specialist firms are engaged. Rightfully so. It is hard to imagine how can a CEO and management team can handle the shock and chaos resulting from a mass fatality and simultaneously manage the complex process of emergency response. Just thinking about what Lufthansa is going through makes me wince when I think about all the media scrutiny and details regarding the families and victims. As much as a company and CEO are prepared, reality has to be something quite different.

The Oxford Metrica report is definitely worth reading. I’m so pleased that I learned about this report. It can help a CEO and management team remember what they will be judged on and what matters when so many lives are lost, often unexplainably. As Knight and Pretty say, recovery depends to a larger extent on how the crisis is handled by the CEO and team than the direct financial financial consequences of the loss.

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Leslie Gaines-Ross
Leslie Gaines-Ross
lesliegainesross@gmail.com

As Weber Shandwick’s Chief Reputation Strategist, I focus on the ever changing world of reputation. For the past 25 years, I have relentlessly observed, researched and commented on the rise and fall of reputations.

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