Corporate crisis causes a company to lose the balanced relationship it had enjoyed with its constituents, stakeholders, etc. An effective crisis management is the systematic recovery of such lost balance. Corporate crisis may occur due to internal or external factors. It may take place in any of the functional areas like finance, human resources, marketing, production, etc. Crisis management embraces many elements like identification of the crisis, crisis planning, crisis communication, team management and effective leadership, each of which plays a crucial role in the process.
The world is full of uncertain- ties and is highly unpredict- able. Crises have struck human beings in the form of floods, earth quakes, famines, cyclones, etc., many a times in the past and threatened their very existence. As individuals are faced with unpredictable eventualities like death, fatal disabilities, significant destruction of property through floods, fire, etc., corporates are also confronted and affected by such unexpected events. They threaten the very existence and reputation of the company and thereby their competitive advantage and reputation. Such unexpected incidents can be referred to as `Corporate Crisis'. In the context of an enterprise, any event that threatens the existence, sustainability and its reputation is termed as a crisis. According to The Institute for Crisis Management "a business crisis is a problem that: 1) Disrupts the way an organization conducts business, and 2) Attracts significant adverse media coverage and/or public scrutiny." As per P Selbst "Any action or failure to act that significantly interferes with an organization's ongoing functions, the acceptable attainment of its objectives, its viability or survival, or that has a detrimental personal effect as perceived by the majority of its employees, clients or constituents."
The history of corporate crises points out that there are a few causes that repeatedly trigger situations of corporate crisis. Based on the experiences of various corporates, it can broadly be said that the common causes for the occurrence of corporate crisis can be any of the following: Defective products, poor customer service, financial frauds or financial misdemeanor, industrial relations violence, HR crisis, acts of sabotage, security lapses, industrial accidents, law suits, ineffective leadership and misbehavior, etc.
Sometimes more than one reason can cause a crisis while at other times more than two factors can also lead to a crisis. In some cases, crisis situations are followed by enquiries and lawsuits either in the form of public interest litigations or government prosecutions from the affected parties. How the companies deal to manage the crisis and come out of such situations provide the future direction to the company, to stakeholders and to general public. The Indian financial crisis of 1991 is a classical example to discuss here. The Indian Government faced the threat of bankruptcy with foreign reserves not going to last for more than one week. The government was not in a position to meet its debt service obligations and finance the imports. The balance of payments situation was so alarming that the government had to resort to mortgaging its gold stocks to obtain foreign exchange and had to use IMF's special facilities such as Compensatory Financing Facility (CFF), Contingency and Compensatory Financing Facility (CCFF) and Enhanced Structural Adjustment Facility (ESAF), etc. The government also had to depend on the emergency bilateral assistance from Japan and Germany. How the corrective measures that were taken subsequently led to economic recovery through economic reforms became history now. Macro stability and financial restructuring were emphasized upon through these reforms.
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