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And Chose Inaction

In the last crisis preparedness study produced by Burson-Marsteller in 2011, it found that 79 percent of the business decision-makers interviewed believed they were 12 months away from a potential crisis.

An eye-opening percentage

Most organizations are aware of a potential crisis well before the public or media find out about it. If Burson-Marsteller conducted a survey today, I doubt that percentage will have changed, or it may have increased.

They know what their next crisis will be. However, the company does not know when or where the crisis is going to take place. By choice, they decide not to mitigate the situation. In other words, they chose not to be proactive. It is a calculated risk, or a gamble many will say, countless large companies are willing to take. Companies have a pre-determined tolerance threshold. A number or outcome for the survival of the company to continue in business. For example, is a 10% drop in the stock price acceptable, or would that make your organization ripe for a takeover? Does survival mean avoiding or minimizing lawsuits from an action?

The Gamble

American power provider PG&E is experiencing an on-going crisis. In fall of 2018, a wildfire in Butte County, California devastated 53,336 acres (62,053 hectares) where whole communities were wiped out. Over 18,000 buildings were destroyed, causing an estimated 16.5 billion dollars. While the physical toll was significant, 85 people lost their lives.

The start of the public crisis for PG&E was the fire disrupting electrical services to millions of people in November 2018. A service people and businesses are dependent on for their lives and livelihood. By January 2019, PG&E filed for bankruptcy protection after coming under pressure from billions of dollars in claims tied to deadly wildfires.

Investigations launched to find the cause of this deadly fire, causing the crisis to continue when it was found that a spark from a PG&E transmission line was the cause. In May 2019, Cal Fire released a final determination that PG&E power lines caused the Camp Fire. In June 2019, PG&E agreed to pay $1 billion in damages to local governments; it is subject to bankruptcy court confirmation.

The worst was yet to come as it was shown that they knew about the danger and repeatedly failed to perform the needed upgrades. According to documents obtained through the Freedom of Information Act by and published in The Wall Street Journal in a July 2019 article, PG&E knew that parts of its 18,500-mile transmission system were dangerously outdated and there was a high likelihood the lines could fail and spark fires. This information was known long before a spark caused the Camp Fire and documented in a regulatory dispute over the company’s spending on its portion of the electrical grid.

Since the fire, the company has stepped up its efforts to prevent its equipment from sparking more fires. Through this process, they discovered nearly 10,000 problems with more than 1,000 immediate safety risks and repairing them. They still have more than 3,700 additional repairs to complete during California’s wildfire season.

The Loss

The possibility of failure causing a fire was in their risk matrix. The company was aware that this could develop into a crisis. Now they are paying the price.

Could they be prosecuted under California’s Corporate Criminal Liability Act, passed in 1989 to punish corporations that commit offenses against the public health and safety? Will they go out of business?

Not the first time PG&E has run afoul of the law. In the deadly 2010 San Bruno gas pipeline explosion, the company was convicted of felony charges. There is a possibility they may be charged under the act. As for going out of business, highly unlikely since they are an energy giant on the West Coast and as the saying goes: too big to fail.

The PG&E crisis should not be taken lightly by other organizations. During your risk management and crisis planning, define a precise desired outcome from the disaster. It may sound flippant, but most people will say that surviving the crisis is the goal. While that is an important goal, it is somewhat unclear; it is essential that everyone agrees on what survival means. You need to know these answers upfront. Was it a cost-savings for PG&E not to make the repairs it needed over them paying fines and claims? Was it an ethical choice they made?

Companies know of their next crisis, but often make the choice of inaction because they do not see the long-term picture. They really need to understand the real costs of a specific situation, including the health and safety of the public. PG&E gambled the house twice and lost.

Want to learn more: West Virginia Chemical SpillĀ 

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