Chapter Five:
Crisis Management
True/False Questions:
1) Crises happen even to firms that take measures to avoid them.
2) All crises involving businesses have a degree of human involvement.
3) Only firms that have experienced a crisis take measures to reduce the likelihood
of a crisis, formulate management preparedness plans, and develop crisis response
plans.
4) A crisis may be defined as a situation in which harm to people or property either
has occurred or is imminent.
5) Crises do not fester for extended periods.
6) In 1992, seven people died from swallowing Tylenol capsules injected with
cyanide.
7) The 1989 grounding of the Exxon Valdez and the accompanying spill of 11
million gallons of crude oil created an environmental crisis, and Exxon’s response
8) Crises often have a pattern that can be conceptualized using the systems
framework.
9) The stages of crisis management are identification, escalation, intervention, and
resolution.
10) The first stage in the life cycle of a crisis is escalation..
11) The subprime mortgage crisis of 2008 was the result of risky home mortgages
issued over a period of several years that resulted in widespread defaults when the
economy slowed..
12) Some crises have unusual causes and come as a considerable surprise, such as the
case of Société Génerale.
13) The second stage in the life cycle of a crisis is escalation.
14) An important factor influencing the development of the public phase of a crisis is
media coverage.
15) Particularly in a proactive situation, communication with shareholders, the public,
and government through the media can be crucial to dealing with the crisis.
16) Greater media coverage can be expected when the issue at the core of the crisis is
viewed as important to society and when the potential audience is large..
17) The intervention stage of a crisis involves actions by the company or government
18) Intervention involves turning the crisis into a manageable nonmarket issue.
19) Resolution may be accomplished by eliminating any further potential for harm,
assuring the public and the media that the crisis has passed, or compensating those
harmed.
20) Resolution can also involve moving the crisis into the institutions of law.
21) Crisis management has six components..
22) The most important component of a crisis management program is avoidance.
3
23) The second most important component of a crisis management program is root
cause analysis.
24) One aspect of an avoidance strategy is auditing.
25) A type of audit that is part of an avoidance strategy focuses on repatriation risk.
26) Many firms appear to underestimate the strength of their reputation and the
protection it provides.
27) Firms susceptible to a crisis need a crisis management team that can be mobilized
quickly and can substantively address the root cause of a crisis.
28) An important part of preparedness is organizational learning.
29) Root cause analysis has the objective of identifying the effects of the crisis.
30) The appropriate response to a crisis depends on the root cause and the specifics of
the situation.
4
Multiple Choice Questions:
31) _____ happen even to firms that take measures to avoid them.
a) Strategies
b) Successes
c) Crises
d) Dilemmas
32) Many firms, even those that have not experienced a crisis, have taken measures to
reduce the likelihood of a crisis, formulated management preparedness plans, and
developed
a) root cause analysis
b) internal audit standards
c) crisis response plans
d) management succession plans
33) Which one of the following is NOT a component of crisis management?
a) Root cause analysis
b) Preparedness
c) Avoidance
d) Succession
34) What term is defined as follows: a situation in which harm to people or property
either has occurred or is imminent.
a) Crisis
b) Insolvency
c) Bankruptcy
d) Liquidation
35) Which of the following is true of a crisis?
a) It is typically unexpected
b) It can escalate quickly
c) It can damage a firm’s operating performance
d) All are true of a crisis
5
36) In 1982, _____ people died from swallowing Tylenol capsules injected with
cyanide.
a) eighteen
b) two
c) sixteen
d) seven
37) Which of the following is NOT a stage in crisis management?
a) Identification
b) Reconciliation
c) Escalation
d) Intervention
38) The first stage in the life cycle of a crisis is
a) reconciliation
b) escalation
c) identification
d) intervention
39) In what stage do some crises explode as a result of media coverage, government
actions, or company actions?
a) Reconciliation
b) Identification
c) Intervention
d) Escalation
40) An important factor influencing the development of the public phase of a crisis is
a) media coverage
b) company’s admittance of fault
c) company’s denial of fault
d) the economy of the nation
6
41) ______ media coverage can be expected when the issue at the core of the crisis is
viewed as important to society and when the potential audience is large.
a) Lesser
b) Greater
c) Biased
d) Unbiased
42) __________ involves actions by the company or government to deal with the
crisis.
a) Reconciliation
b) Settlement
c) Intervention
d) Postponement
43) Resolution involves turning the crisis into a manageable ________ issue.
a) operating
b) tactical
c) strategic
d) nonmarket
44) Which of the following is NOT a component of crisis management?
a) Response
b) Avoidance
c) Root cause analysis
d) All are components
45) Which is the most important component of a crisis management program?
a) Preparedness
b) Resolution
c) Avoidance
d) Reconciliation
46) The second most important component of a crisis management program is
a) Auditing
b) Preparedness
c) Root cause analysis
d) Budgeting
47) One aspect of an avoidance strategy is
7
a) budgeting
b) auditing
c) strategizing
d) confronting
48) Which step of a crisis management program deals with identifying the cause of
the crisis?
a) Root cause analysis
b) Pareto analysis
c) Avoidance analysis
d) Confrontation analysis
49) What are the two principal components of crisis response?
a) Auditing and analysis
b) Communication and rectification
c) Agreement and settlement
d) Negotiation and settlement
50) What kind of a response did Abbott Laboratories choose in the case of its AIDS
drug in Thailand?
a) Conciliatory
b) Agreeable
c) Hardball
d) Denial
8
Essay and Review Questions:
1) Take a company (such as Lehmann Brothers) that has confronted a major
financial crisis in recent times. Write an essay identifying how the company dealt
with that crisis.
2) What are the similarities and differences in the way Johnson & Johnson dealt with
the Tylenol crisis and Exxon with the Exxon Valdez crisis?
3) Can companies prepare for a major crisis or is the case of Wal-Mart and
Hurricane Katrina an exception?
4) What are the key issues in the case of Buffalo Savings Bank (A)?
5) Evaluate how Merck dealt with the Vioxx issue in the case Merck and Vioxx.
6) You are a newly appointed vice president in a large chemical firm. One of your
first tasks is to develop a crisis management program for the company. Outline
the steps in such a program.