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What Makes a Crisis a Crisis?

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If you're old enough and were living in America about 30 years ago, you may remember the scandal in the motion picture industry known as "the Begelman affair" or "Hollywoodgate."

A skillful analysis of the crisis that rocked Columbia Pictures, a leading company in its field, is presented by Steven Fink in his book, "Crisis Management: Planning for the

Inevitable." I am telling the tale over, but not for the sake of relating a "juicy" story (such pastimes being hardly something I care for).

Rather, I believe there's a message for us here, primarily for business and professional people maybe, but also for husbands, wives, parents, educators - or mere "social animals". To paraphrase a popular saying, one real life case is worth a thousand sermons.

At the time our story opens, Columbia Pictures was riding the crest of the wave. Just about everything - profits, stock prices, reputation - was moving in one direction: UP.

For its president and CEO, Alan Hirschfield, things were looking pretty good, to say the least. He was loved by his family, admired by his peers, and respected by the thousands of employees under his command. He was very highly regarded in Wall Street. As for his material situation - well, comment is hardly necessary.

His right-hand man, David Begelman, head of the Columbia studio, wasn't doing too badly either. As one of Hirschfields most trusted and highly compensated employees, he was said to be

the man who actually ran the company in many ways. And as subsequent events indicated, many of his colleagues and associates thought the world of him.

Then the trouble started.

In early 1977, the accounting department sent actor Cliff Robertson an "IRS 1099" form. This official statement of earnings for tax purposes showed that the actor had been paid $10,000 by the studio the previous year. Robertson knew that this was incorrect, and asked his secretary to investigate.

A supervisor at Columbia looked up the Robertson file and found an endorsed check for $10,000 made out to Robertson. The signature on the back looked suspiciously like Begelman's...

Five months later, the matter reached the ears of Alan Hirschfield, and a question was raised with Begelman. The latter said he would take care of it. And he did.

Begelman told Cliff Robertson's accountant that a fictitious young man in Columbia's New York office had written a check to Robertson and forged his endorsement. As a result, the tax form had been issued in error, but certainly the Internal Revenue Service would be issued a correction. Of course, the youngster had been fired, and who'd have the heart to prosecute a kid...

There the matter might have rested, if not for Robertson's insatiable curiosity. How, he wondered, could a kid in New York have cut a company check, cashed it thousands of miles away, got away with forging the signature of a famous name, etc., etc...?

As Arthur Conan Doyle put in the mouth of the immortal Sherlock Holmes: " When you have eliminated all that is impossible, then whatever remains, however improbable, must be the truth."

But in this instance, the stark truth wasn't something that the people at Columbia Pictures could easily come to terms with.

Could a man like Begelman have been so desperate to lay his hands on a "trivial" (in their eyes!) $10,000? Even if he was, he certainly didn't have to forge or embezzle to get an amount like that out of the studio. There were many easier, legitimate ways.

When Alan Hirschfield first confronted Begelman, only a small number of inner-circle people knew about the studio head's "indiscretion". If Hirschfield had fired him and rumors had began to circulate regarding the reason, Columbia could have stated openly with a clean conscience: as a result of some irregularities with company funds, Begelman had "resigned".

But, as author Fink points out, even this, only slightly uncomfortable, scenario need not have taken place. If Hirschfield had indeed fired Begelman at that early stage - as he surely should have - there could easily have been a jointly approved statement that nicely explained away the studio head's departure, without even hinting at the truth.

But Hirschfield missed that opportunity. Then, Begelman's many powerful friends on the board of directors started putting pressure on Hirschfield to give the man a second chance.

Begelman himself, having confessed to the embezzlement, begged for a second chance and said he would seek professional help.

Then three additional improprieties came to light, including a $35,000 contract and payment to a certain architect for acoustical work done on the motion picture "Tommy". In reality, Begelman had hired this architect to design a screening room in his home.

Hirschfield did make some attempts to oust Begelman, but the latter's friends on the board thwarted all of them. One day Begelman was out; next day he was back in again - either in his old position, or as an "independent producer" working with Columbia.

Finally, the media began snooping around.

All hell breaks loose

Now, all hell broke loose. The press went to town with "Holywoodgate", and the entertainment media had a field day, and more. Law enforcement agencies initiated investigations, and because Columbia is a public company, the Securities and Exchange Commission began one of its own.

Needless to add, the price of Columbia stock grew anemic. Talented people Hirschfield wanted to hire wouldn't dream of working at Columbia.

Hirschfield's own reputation plummeted, and his wife's moral character and integrity was impugned. There was no solid basis for the accusations, but it was an easy way to hurt her husband.

For Hirschfield, the Columbia crisis ultimately came to a head at a July 1978 board of directors meeting, when the board voted not to renew his contract. (Ironically, the very board members who had been grumbling about how Hirschfield was "running the studio, had been making it all but impossible for him to do so.

Fortunately for him, he soon bounced back to a new business career at Twentieth-Century Fox.) For the company itself, the climax came with its sale to Coca-Cola for $800 million.

And why did all this happen?

Because of one man's actions (Begelman's), yes. But even more so, because of one man's lack of action. If only Hirschfield had done the right thing at the right time...

What do you think? How would you have handled the situation in Alan Hirschfield's shoes? How would you have reacted as a member of the board?

More significantly - does this sad episode have a lesson for us? As entrepreneurs and managers? As employees? As spouses, parents or teachers?

Hopefully, you've never had contact with criminals, but does some aspect of this story ring a bell? Remind you of something in your life?

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