Crisis Leadership and Why It Matters

60 December January 2011 threatening H1N1 pandemic. Add to this list the run-of-the-mill business crisis such as a product recall (e.g., Toyota), labor strikes, and class action lawsuits (e.g., Wal-Mart), as well as new crises sparked by the proliferation of social media and you may begin to wonder whether crises, generally defined as rare and extreme high-impact events, have become the new normal in organizational life. The financial implications of a crisis are not insignificant. Crisis events can have associated expenses, such as lawsuits, the loss of business, decreases in stock prices, and declines in productivity. In addition, an organization has to expend not only financial resources, but also human capital to contain the crisis, rebuild the organization’s reputation and for business recovery. Thus, some of these expenses are associated with the “crisis after the crisis” and used for managing the aftermath. For example, the expenses associated with BP’s oil spill in the Gulf of Mexico are estimated at $40 billion.1 These expenses will be allocated to compensating victims, cleaning the Gulf of Mexico and legal costs. Given the prevalence and cost of business crises as described above, few can reasonably argue against the need for more effective leadership at all levels of organizations and within all industries across the globe. We wrote Leading Under Pressure: From Surviving to Thriving Before, During and After a Crisis as a wake-up call for all current and future leaders, not to mention the business schools and other institutions that train them, in order to highlight the need for a changing leadership paradigm. Circumstances seem to be changing more rapidly than organizations have the capacity to deal with. Moreover, their inability to adequately keep pace with changes in technology, social media, global competition and the public’s expectations for increasingly higher profits in a shorter period of time contributes substantially to the pressure business leaders face and the sometimes questionable leadership tactics Crisis Leadership and Why It Matters By Erika Hayes James and Lynn Perry Wooten