When to Divulge a Company Crisis

Q: We are a manufacturer of components for other companies' products, and we have grown rapidly in the past five years. Recently, we've had a rash of complaints and returns, and we think the problem can be traced to a faulty component that we purchase and use in many of our products. We've kept the lid on it so far, but worry that it could destroy our customer relationships and even put us out of business. What do you recommend we do?

A: There are three kinds of secrets in business, and each should be handled differently. You need to decide which one yours is:

1. Secrets that are kept for political or other nonproductive reasons, and therefore can be made public with no major impact on anybody. For instance, there are many are things we keep from employees because we feel we want to maintain control, but in truth end up creating a less-trusting workplace rather than benefiting anyone. I often find myself urging employers of all sizes and stripes to open up their books and plans, simply to eliminate unhealthy politics and distrust. But that's not the kind of secret you're talking about here, is it? This is more than a routine secret; this is a major problem. Perhaps it is an example of the second type of corporate secret:

2. Secrets that have to be kept in order to give the company an advantage. If you have a special formula or method that gives you advantage--the formula for Coca-Cola is the classic example--then keep this "trade secret" well-protected. But that's not what we are talking about either, is it?

3. Secrets that you are keeping because you're afraid of what might happen if they came out. These are the types of secrets that WorldCom was keeping (and perhaps still is?) about its accounting. When it looks like we may be at fault or at least could be perceived to be at fault, it is awfully hard to be the one to share this news with the public. But at the risk of sounding like everyone's third grade teacher, what was it that George Washington was famous for as a youth? He said to his father, "I cannot tell a lie, it was I who chopped down that cherry tree." By coming clean immediately, he avoided most of the bad effects of this mistake and demonstrated his presidential leadership at a precocious age.

I think you have an example of this third kind of secret, and when that's the case, the best policy is to spill the beans openly and fully, in as accurate and also as considerate a manner as you can. Accuracy is important. You need to use this crisis to show your customers that you're more trustworthy than they thought, not less. Consideration is also important, because your news may affect your customers negatively, and so you need to be as concerned and helpful as you possibly can in order to survive the crisis with your relationships intact.

Is keeping the lid on things a considerate or accurate approach? Obviously not. Better follow Washington's example, not WorldCom's. Or better yet, think about how Bridgestone handled its supplier relationships in the aftermath of the Firestone tire/Ford Explorer disaster. Public perception here last year was that Firestone tires could be defective. Distributors might have dropped the line, but didn't. Bridgestone (the Japanese manufacturer) was candid and supportive with its distributors, who gave the company high marks and are now helping rebuild Firestone sales in the U.S. market.

Alex Hiam runs a consulting/training firm that focuses on increasing human performance in businesses. He is also the author of numerous books on management, motivation and marketing, including Making Horses Drink: How to Lead and Succeed in Business.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.