Organizationally-based technological disasters have become a strategic problem for companies.
Disasters caused by industrial or transportation accidents, environmental pollution incidents, product harm and occupational diseases, trigger crises for companies they originate in. These crises cause extensive damage to human life and the natural environment. They inflict large financial or reputational losses on companies and may even threaten their very survival.
This paper attempts to support the importance of organizational readiness in crisis management involving companies in sensitive businesses such as coastal shipping. The conditions of the operating environment for these companies are sometimes unpredictable mainly because of the weather. Of course, there are several other reasons that can trigger a crisis, such as human error or mechanical malfunctions. However, the main factor that increases the danger level of coastal shipping companies is the transportation of human lives. Therefore, accidents involving such companies may result in human victims. So, the need for effective contingency planning is completely clear in such organizations.
A brief literature review on organizational crisis and disaster recovery organizational crisis shows that scholars have described the evolution of crises in terms of several distinct phases. These include:
Crisis preconditions: Usually, a period of frequent failures, resource shortages, cost cutting pressures, lack of planning and surveillance over safety issues.
Triggering event: The event that triggers a crisis (industrial accident, environmental pollution incident, mechanical failure, product or service injury, occupational disease, etc).
Crisis expansion: It follows the triggering event and spreads the impact of the crisis to related domains. The impact may expand from being primarily medical and environmental to one including economic, social, political, cultural and symbolic implications. The crisis expands to engulf other organizations, institutions or individuals.
Crisis resolution: Crisis stakeholders re-establish normal conditions through organizational restructure and improvements, regulatory changes, cleanup, and compensation, relief and rehabilitation of victims. Organizational recovery also deals with regaining the confidence and trust of organizational stakeholders.
Recovery from crisis is by itself a complex issue involving many stakeholders, such as consumers, the government, the media, the public, regulatory agencies and the organization itself.
The literature on organizational recovery from disasters is scant, especially in transportation businesses such as shipping companies and airlines. There are few relevant studies focusing on organizational recovery from airline disasters. There are, of course, several similarities between the airline and shipping business, but their main common crisis-related characteristic is people’s transportation, often under dangerous circumstances.
Minoan Flying Dolphins S.A. is a subsidiary of Minoan Lines S.A., the leader of the Greek coastal shipping market. Minoan Lines, founded in 1972, is the largest coastal shipping company in Greece and one of the largest in Europe.
According to Constantinos Klironomos, company president, the commitment to “total customer satisfaction” and the development of strong trustful relationships both with customers and society comprise the main company’s competitive advantages.
The most important figure in this entire situation was Pantelis Sfinias, the then vice-president of Minoan Lines, and managing director of MFD. He managed to develop a great “umbrella” through acquiring and merging most of the Greek coastal shipping companies. It was a common secret that Sfinias, and Minoan Lines in general, had the Greek government’s favor. In addition, it must be noted that Klironomos was a former deputy in the European Parliament representing the governmental party.
What actually triggered the crisis and brought MFD in front of an unexpected damage? What went wrong?
On Sept. 26, 2000, at 10:15 p.m., Greece experienced the most serious nautical tragedy of the last 35 years and one of the most serious ever at a European level. The ship called Express Samina, with 445 passengers and a crew of 66, crashed against the rocky islands Portes, three nautical miles from Paros Island in the Aegean Sea.
The ship was bathed one hour after the crash and all people on board started falling in the sea trying to save themselves before the arrival of other ships sailing nearby. It was dark and everyone panicked as the ship was sinking. The weather conditions were very bad, making things much more dramatic.
The way the ship sank raised a lot of questions. The factors that resulted to this accident were a series of human mistakes and mechanical problems. The final report of the tragedy was 82 dead people.
The company responded to the accident in a completely inadequate manner and proved that it was completely unprepared for handling a crisis of this magnitude. There was not a formal organizational response except for some poor announcements and a few interviews of its managing director, Pantelis Sfinias. In one of his interviews, Sfinias appeared very sad. He apologized for the accident on behalf of the company and claimed the ship was in good condition, with no safety problems and that everything about it was according to regulations. In other words, he attempted to impute most of the responsibilities to human errors committed by crewmembers, putting aside company’s responsibilities for operating a 34-year-old vessel. He finally burst into tears, an event that was reported widely in the media.
The company was giving the impression that it was trying to hide so as not to face the public and the media pressure. Since there was not any other reaction from its side, public opinion viewed Sfinias and the company as completely responsible for the “unexpected” tragedy.
The charges for the accident were imputed to:
• Members of the crew, and especially the captain, the lieutenant and the trainee captain, for being delinquent in their duty.
• MFD, as the ship owner company, for some important faults and defaults concerning some mechanical parts of the ship.
• Greek Authorities, for having favored the company, disregarding the conditions of competition, and for not responding properly and effectively after the accident.
The Evolution Of Crisis For MFD
The crisis preconditions were developed through time for MFD. First of all, the fact that MFD was the leading company in the sector, made it face some of the faulty rationalizations that could seriously harm any organization and its environment like the fallacy of size and the fallacy of excellence, in particular. The managing capabilities of Pantelis Sfinias resulted in the growth of a strong belief that MFD was the one and only shipping company in the market. All these beliefs led to an increased arrogance profile of the company.
The facts proved the company’s internal organization was irrelative to its growth. MFD had not developed any contingency or a crisis management plan. In addition, the company’s connections with some governmental officers were also having indirect – but completely negative consequences – on the quality level of the service process, a fact that has been indisputably confirmed by the accident of Express Samina. The connections resulted in a favored treatment and loose control of company’s ships by the state authorities. In other words, there was a lack of planning and surveillance in safety issues.
The fallacy of size, combined with the dominating, arrogant profile that MFD had acquired resulted in some serious problems in the service provision process. One of these serious problems was that safety rules were put aside.
The triggering event was obviously the shipwreck. It was an unexpected event with many victims. The factors that lead to the trigger event can be summarized as follows:
• The company’s policy to continue operating the old ship in order to increase profits, ignoring the ship’s real capabilities. The ship had dangerous incidents in the past (in the years 1986 and 1994).
• The role of the Greek government in the regulation of the coastal shipping sector that allowed a number of mergers and acquisitions that resulted in an oversized MFD, the company that dominated the industry.
• The irresponsibility exhibited by the ship officers and especially the lieutenant, who was not at his position during the crucial time period.
Soon after the incident, crisis expansion was a reality. The company found itself in a very difficult crisis situation. Public opinion was completely against it, holding the company responsible for the death of 82 innocent people. Sfinias was seen as the most responsible person in MFD and was strongly criticized by the company’s shareholders. The Greek justice prosecuted him as directly responsible for the accident together with the ship’s officers and other managers of the company. All this pressure was extremely hard and forced him to commit suicide on Nov. 29, 2000 by jumping from his sixth floor office. The whole situation was loaded emotionally by Sfinias’ suicide, an event that had further political and social consequences in Greece.
The company was prosecuted by the district attorney with the charge of human lives exposure to danger, given that 82 lives were lost in the shipwreck. This prosecution was directly related to the several accusations concerning the old age and the incomplete maintenance of the ship.
The captain, the lieutenant and the trainee captain were prosecuted with the same charges.
A lot of people that had been harmed by the shipwreck (victims’ relatives, rescued passengers and some crewmembers) sued MFD, asking for large sums as compensations. The cases have not been tried yet but some experts estimate that MFD will be asked to pay a lot of money for compensation. These estimations also consider that this will be very difficult for the company.
A major negative consequence of the shipwreck was that MFD drew away from the prospect of entering the Athens Stock Exchange (ASE). The shipwreck and the negative perceptions developed for the company fended it away from this prospect.
The crisis resolution stage is probably going to last for a long time. There is a long delay observed in the investigation process, which has given the impression to the public opinion that the company, together with governmental agents tries to encurtain the whole case. The return to the pre-crisis conditions will be a very difficult task for MFD.
The shipwreck brought up a pathogenesis of the entire Greek coastal shipping sector. An extensive strong argument has begun concerning the cabotage regime and the sector’s overall situation. Besides, a public discussion with strong argumentation started about the safety level of the Greek ships and the degree to which national regulation of the industry is in accordance to EU’s regulations.
The government faced a very difficult situation as a result of the shipwreck. The opposition parties started an intensive blaming effort, accusing the Ministry of Merchant Marine for doing nothing during the past years to prevent MFD’s monopoly of the coastal shipping sector. The issue of Express Samina reached the European Union Commission. The perception formed was that the Greek coastal shipping is not safe any more and the general director of the commission responsible for transportation sent a letter to the Greek Minister of Merchant Marine asking for clarifications about the shipwreck.
Government reaction toward the event was to energize the responsible authorities to start the necessary investigation process in order to discover those responsible for the accident and punish them. In addition, it ordered all coastal shipping companies to submit special reports to prove that all their ships are safe and capable to offer the necessary services without problems and according to the community’s legislation. Moreover, the Competition Committee started an investigation to find out if MFD had broken the competition laws through its growth during last years. The committee proposed a fine up to €11 million for MFD, which is considered to be very low, reinforcing the common beliefs for company’s favorable treatment.
Greek public opinion faced one of the most serious transportation accidents ever in its history. The reactions were completely against the company involved as well as against the government.
The media played a very important role in the whole situation showing that a company going through a crisis situation must have a very active role in communicating with the public. In some way, the company involved must lead the media to the communication process. In the case at hand, the media accused directly MFD as the main responsible for the disaster.
Although the company promoted itself as the leader of the sector with high prospects for the future, it did not even have a basic contingency plan. The accident found it descended in the dominator’s certainty. This belief, combined with the government’s favorable treatment, completely inactivated some basic organizational structural mechanisms such as environment’s monitoring and organizational readiness mechanisms. It can be supported that this absence of contingency planning magnified the consequences of the very serious accident of Express Samina.
There was not a crisis management team (CMT) to deal with the situation, a fact that was due to the complete lack of contingency planning. There was not a team of people to evaluate the crisis conditions and to propose particular actions that would give the company the opportunity to inform the public opinion instead of hiding from the media, since their people didn’t know what to say about the accident.
There was not a quick and decisive reaction after the accident happened, which implies that MFD neglected one of the fundamental rules of effective crisis management. Although the company had a remarkable promotion image, it proved to be totally detached from the media. The only ones that appeared were its managing director Sfinias and Klironomos. Both of them tried to refuse company’s responsibilities imputing the total situation to human errors of the crew. This was an obvious mistake.
As far as the recovery issue and the victims’ compensations are concerned, MFD has done nothing special to support its business ethics image until today. It waits for the results of the investigation process, which is going on very slowly giving the impression that there is an intended attempt to close the case with minimal consequences for both the company and the government. In addition, the lawsuits of the victims’ relatives and the others that have suffered from the accident are still unsettled.
MFD does whatever is possible to bury the past and to be rejuvenated again. But what is certainly sure is that it has to try very hard to gain public trust back.
Conclusions & Managerial Implications
The present case study has supported the importance of crisis management planning in organizations operating in sectors that include high danger, such as people transportation companies. For these organizations, when an accident happens, it can become a trigger event for a major crisis. During this crisis the most likely phenomenon is that all organization’s stakeholders are against it and the public pressure is generally high. These conditions can bring the organization in a very difficult position.
Effective management of a crisis can depend on several factors. Large organizations should develop and maintain a crisis management team. Members of the team should represent all divisions of the organization and possess individual crisis management skills. These individuals should be taught specific duties to fulfill in the event of a crisis.
The organization’s presentation in the media right after the trigger event is considered as a determinant for the crisis recovery effort. The spokesperson must be a high-ranking official who can convey trustworthiness and have communicative skills. An official spokesperson would benefit the organization by limiting the possibility of conflicting stories and views being attributed to the company.
An ongoing process of fostering healthy relations with the media is essential. In time of a crisis, it is essential to have established a relationship of trust with those who will be asking questions and seeking information.
The immediacy of crisis communications heightens the immediacy of the crisis and sometimes the communication itself becomes the news it is intended to cover. If the media can communicate the news the moment it happens, crisis communications dictate that a company must be prepared to respond almost as fast. The inability to communicate the message and the company’s explanation for the accident skillfully can prove fatal.
A very serious issue in such accidents is the compensation for damages. Every crisis creates victims who suffer health or material losses. In the Express Samina case there have been 82 passengers dead along with severe health and material losses. The victims and their families need to be compensated adequately and speedily. It is a common phenomenon that litigation over liability delays compensation unreasonably. There are other shipwreck cases in Greece, which have not been settled after almost five years since they occurred.
Payment of compensation can be rationalized in several ways. First, even before liability issues are settled, the company should be willing to pay for some expenses, such as medical treatment, psychological support, accommodations, emergency equipment and personnel, and inquiries into the incident. This should be done both as humanitarian gestures and as a way to set a tone of social responsibility. The amount of money spent on such immediate relief efforts is relatively small and can be treated as interim payment to victims.
George J Siomkos is Professor of Marketing at the University of Macedonia, Thessaloniki, Greece. He is the author of three textbooks on marketing and many articles in academic and practitioner journals. His research interests include product harm crisis management, consumer behavior and strategic marketing.
Zissis J. Maditinos is a Doctoral Candidate in crisis management at the University of Macedonia, Thessaloniki, Greece. He is also working as a Head Project Manager in MENTOR Consultants Ltd, a private consulting company in Thessaloniki. His research interests include crisis management, strategic management and marketing.