The restructuring and reengineering of AT&T: Analysis of a public relations crisis using organizational theory

Abstract

In this study, five perspectives from organizational theory were used to interpret the public relations crisis surrounding the restructuring and downsizing of AT&T in 1995–1996. Organizational legitimacy and resource dependence theories highlighted two key reasons why efforts to manage the crisis were unsuccessful: AT&T's failure to construct a shared system of beliefs that made sense of the need to downsize, and its inability to cope with the conflicting demands of key external publics. Such insights underscored the value of using organizational theory when trying to understand and respond to crisis situations.

Introduction

In September 1995, increased competition, concern with shareholder value and the changing nature of technology led AT&T to announce the second largest corporate breakup in history. The announcement sparked a surge in AT&T stock prices, which increased $11 a share to $66 in less than a month. The following January, AT&T announced that 48,500 jobs would be eliminated as part of the restructuring. The planned layoffs were a public relations disaster, receiving front-page coverage in newspapers nationwide. AT&T stock prices began to drop as investors worried that negative publicity was diverting AT&T's focus from its core business. By March 1996, AT&T was in damage control mode, running advertisements in major newspapers, providing job placement assistance, offering voluntary buyouts and lowering layoff estimates. Despite these efforts, public criticism remained high. Revelations that AT&T Chairman Robert Allen had received a $1.5 million bonus and 858,000 stock options fueled the crisis. By September 1996, AT&T stock prices had plummeted to $51 a share and employee morale was reportedly at its lowest point ever.

This study examined the public relations crisis surrounding the restructuring and reengineering of AT&T. The primary purpose was to assess the utility of organizational theory in understanding and responding to crisis situations. Theories drawn from two of the four major perspectives in organizational analysis were employed to interpret the crisis: symbolic management, organizational legitimacy and procedural justice (cultural metaphor); and strategies contingencies and resource dependency theories (political metaphor). Based on findings, the merits of using organizational theory as a lens for examining public relations crises were assessed.