Crisis management

I think bad news comes in threes. Thinking about President Obama and the recent bad news he has received regarding the terrorist attack in Benghazi, the IRS targeting of conservative groups and the secretly snatched AP reporters’ phone records, it has to be true. It is the culmination and convergence of these three reputation hits that changed the political balance in favor of the Republicans and Tea Party members for a change. Not a full tilt but enough to rain on the President’s parade.

When I talk to company leaders about what drives a reputation into the ground, I often use the baseball metaphor that all it takes is three strikes and you are out. The first mistake happens to just about everyone these days. The second reputation hit is basically unforgivable but no one wants to put you out of business. The third hit takes you down because it is clear that leadership was absent and judgement was non-existent or negligent (even worse). When I think of the perfect example of the Three Strike Reputation Rule, I think of BP. First, they were tied to 15 deaths when the Texas Refinery blew up in 2005 in the US. Second, an oil leak in Alaska from their pipeline in Prudhoe Bay captured negative attention. But third, and for the final straw, the horrific Gulf of Mexico oil spill that ultimately drove their reputation into the ground, along with their CEO’s Tony Hayward. After the third strike, it’s time to call it quits.

Yet, from what I’ve been reading, President Obama’s approval ratings have barely budged from their high marks. Perhaps we will see the proof in the pudding at the next election cycle. Hard to tell. And BP, after much soul searching, is coming back again with new leadership, better values and a new heartbeat. The rest is yet to come.

I had heard of a new CEO listening tour but to me, this was a first. JCPenny is running a social media Apology tour. We’ve all heard CEOs apologize for one thing or another and we’ve all worked in companies where a new CEO visits different employee facilities to meet and greet and hear what is on people’s minds. But JCPenny now has a new campaign on TV that apologizes for letting customers down and thanks them for coming back. If you recall, the former CEO Ron Johnson from Apple fame was booted out when his plan failed, possibly because of the elimination of coupons which drove customers into the store. The former CEO, Myron Ullman, was asked to return and now they are in recovery mode. The two ads say:

“It’s no secret. Recently, J.C. Penney changed. Some changes you liked, and some you didn’t. But what matters with mistakes is what we learn. We learned a very simple thing: to listen to you. To hear what you need to make your life more beautiful. Come back to J.C. Penney. We heard you. Now we’d love to see you.”

“At J.C. Penney, we never stop being amazed by you. How you work so hard without looking like you do. How you make every dollar stretch so far and keep your family so close. So we brought back the things you like about J.C. Penney, gave you new things to explore and now, we’re happy to say, you’ve come back to us. We’re speechless, except for two little words. Thank you.”

But back to social media….using the hashtag #jcplistens, JCPenny is in response overdrive from what I saw on Twitter today. They are in constant contact with its Twitter-ites. Every customer or tweet seems to get a personal and speedy response asking to help out, mentioning they will share the feedback with the team if something was amiss and thanking customers for comments. As pointed out on Business Insider, they even told people when they were retiring for the evening. On its Facebook page, JCPenny is polling fans about their favorite brands that they want back after having been cut by the former CEO. And it looks like they are bringing back St. John’s Bay, a favorite. So they are listening hard.

You’ve got to hand to them. They’re trying. And social apology tours are a smart redemption move.

Many clients ask what is the potential impact of a crisis. How long will it last? When will the scrutiny die down? How does it compare to other scandals or crises? How much will it impact my reputation? When should we start the recovery process? The New York Times’ insanely smart Nate Silver who writes the FiveThirtyEight blog had an interesting post yesterday on which political scandal — the IRS targeting of conservative groups or the Benghazi attack in Libya — would be longer-lasting and possibly impact the next election cycle. Silver chooses the former (the IRS scandal) and explains so in his article. More importantly for my interests and for those that follow me was Silver’s five questions that he developed on whether a scandal “has legs.”  He credits Bill James’ Keltner list for the initial questions. To determine whether reputational injury will be enduring, these questions are a good place for companies, leaders and others to start:

1. Can the potential scandal be described with one sentence, but not easily refuted with one sentence? Using the 140 character Twitter test is one good way to see if the scandal has legs. Can you say it in 140 characters. Or try it with as few as 16 words which if you recall is all it took to sink former President Bush in 2003 when he said in his State of the Union Address, “The British Government has learned that Saddam Hussein recently sought significant quantitites of uranium from Africa.” Silver’s argument that if it cannot be easily refuted in a similarly short string of words, you have a problem on your hands. I might add that it could be even less than one sentence…it could be a video or photo today.

2. Does the scandal cut against a core element of the candidate’s brand?  The word candidate could be substituted for company or CEO. In this case, a company that proclaims transparency but is caught doing damage to the environment behind the scenes or engaging in financial manipulation is going to lose its credibility 1-2-3. Think about Enron and their much heralded reputation for innovation at the time. It turns out that their innovativeness was in their financial shenanigans, not in reinventing business processes that led to success. Even though Enron was long recognized by Fortune as one of the most admired and innovative companies in the world, the scandal essentially decimated that impression. In fact, it took its leaders from pinstripes to prison strips.

3. Does the scandal reinforce a core negative perception about the candidate? Or company/CEO in this case. As Silver says, “A scandal can be equally dangerous if, rather than undermining a candidate’s strengths, it reminds voters of what they like least about him.”  I think that Congressman Anthony Weiner’s late night racy Twitter sexting reminded people of his unlikeability and brashness. Perceptions that confirm what you already thought of a person or company are hard to shake loose. Another example would be BP’s then CEO, Tony Haywood, who at the time said that he wanted his life back while oil was spilling into the Gulf of Mexico. Unfortunately, the general perception was that BP did not care about the damage being done to the environment by the oil spill and the CEO’s statement only reinforced that negative reputation.

4. Can the scandal be employed readily by the opposition without their looking hypocritical, risking retribution or giving life to a damaging counter-claim? Most competitors in business do not take advantage when their peers are knocked down by scanal. Companies today easily recognize that a scandal for one company affects all and impacts the entire industry. The question for company reputation is “Can this scandal spread to peers and further damage the industry sector that might already be struggling?” Not a perfect example I fear but an example that comes to mind might be the quality issues that emerged years ago in China when lead paint was supposedly found in children’s toys. That perception continues to linger for products manufactured out of China today. I was recently in a children’s store when a customer asked the cashier where a T-shirt was made because she only bought children’s clothing made in the USA.

5. Is the potential scandal occurring amid an otherwise slow news cyle? This is a good question to ask when a potential reputation disaster emerges. There are countless examples of company reputation debacles that get drowned out by other news that draw the media’s attention. I always think about how some recalls get scant coverage when bigger business stories are erupting. Or how some stories are not uncovered until the cycle is very slow and investigative reporting resumes.  Silver mentions how the crude measure of a Google search shows that today, American’s appetite for political news stories is at an eight year low. So President Obama and the Democrats might just avert the sting from the IRS scandal because it’s not the tantalizing subject for readers as it might have been eight or nine months ago. Perhaps when the Dow is reaching 15,000, some stories just fade away.

Warren Buffett, the CEO of Berkshire Hathaway, said the company’s next chief executive officer will bolster the company’s reputation as a source of stability in times of crisis. Talk about a shot of credibility if your company is in crisis or in doubt. He was referring to his infusion of funds into leading financial institutions when their stocks were slipping during the Great Recession.

At the company’s annual meeting in Nebraska, Buffet said the following:

“Berkshire is the 800-number when there’s really sort of panic in markets.”

I know I should get out of the house (the sun is shining) but I was so excited to read in the Wall Street Journal about a reputation committee being formed at Goldman Sachs. The lead director James Schiro is heading this effort as the lead director on the board and is apparenlty VERY focused on reputation, according to his first letter to shareholders. Reason I am excited? Because I am a chief reputation strategist, I am always looking for trends and firmly believe that reputation committees are going to being popping up in more Fortune 500 companies than in years past. For a speech I gave before women-directors-to-be a few weeks ago, I mentioned two companies who had reputation committees but that was all I could easily find in a quick search. Board attention to reputation is long overdue. Reputation is a form of wealth, a type of equity that you get to dip into when your company is in trouble or facing issues. You need a good stockpile to weather the everyday assaults most companies are facing day in and day out.  It is heartening to see reputation recognized for the worth it is. Here are a few quotes I pulled from the WSJ article that give me hope.

“He [Schiro] said the board clarified the duties of its governance committee to manage Goldman’s relationships with the outside, guard its reputation and review philanthropic and educational initiatives.”

“We continue to be very focused on the reputation of the firm,” Mr. Schiro said in his letter. A “public responsibilities” subcommittee of the board’s governance committee was formed to focus on reputation, chaired by William George, he said.”

I was eager to read JPMorgan Chase CEO Jamie Dimon’s Letter to Shareholders this year. Considering the London Whale episode of the past year, I thought his Letter would be revealing. He clearly did not skirt the issue. I cut and paste some quotes below which are direct, apologetic and conciliatory. Also, I used the picture from the Letter to Shareholders here because it was surprising in that it almost looked like a man running for office but mostly because it is something that we advise clients which is to make better use of photos of their CEOs and execs with people (preferably employees) and not alone in some corner office isolated and solitary. You can’t know what is going on in your company by spending too much time in the office. It derails CEOs all the time.

What I like was how he presented his lessons learned for his reputation recovery plan. They are bulleted below as follows and include a favorite piece of advice of mine — problems don’t age well:

• Fight Complaceny
• Overcome conflict avoidance
• Risk Management 101: Controls must match risk
• Trust and verify
• Problems don’t age well
• Continue to share what you know when you know it
• Mistakes have consequences
• Never lose sight of the main mission: serving clients

On Responsibility: “I also  want our shareholders to know that I take  personal responsibility for what happened. I deeply apologize to you, our shareholders, and to others, including our regulators, who were affected by this mistake.”

On Complacency: “Complacency sets in when you start assuming that tomorrow will look more or less like today – and when you stop looking at yourself and your colleagues with a tough, honest, critical eye. Avoiding complacency means inviting others to question your logic and decisions in a disciplined way. Even when – and especially when – things have been going well for a long time, rigorous reviews must always take place.”

On the Aftermath: “There are a few things, however, that occurred this past year that we are not proud of. The “London Whale” episode not only cost us money — it was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing.”

On Reputation Committees: “That’s why we have a risk committee framework within the firm with extremely detailed reporting and many other checks and balances (like reputation committees, underwriting committees and others) to make sure we have a disciplined process in place to question our own thinking so we can spot mistakes before they do real damage.”

I could tell that it must have been the one year anniversary of the Costa Concordia because I started hearing about the shipliner crash in the past few days.  Reputations keep rolling along throughout the year but especially hit home one year later. Whereas they might be fleeting memories at first, they all come together on the year one anniversary to make us take notice. Today I started hearing more about the memorial service for survivors and families of those who lost their 32 dear ones in Giglio, Italy and it started to stick more than two days ago. There were 846,000 mentions on Google when I searched for Costa Concordia anniversary today.

For reputation, one year anniversaries are part of the reputation process.  It is almost like it fits into the five stages of grief. The one year anniversay is a day of reflection and return to the reputation demise that caused the loss in the first place. All the pictures of the cruise ship on its side off the shores of the little Tuscan city are back in view. Debates over raising the ship and removing it are back in the news. Anniversaries are important because they remind us that reputations should not restored overnight. The bigger the loss (especially when lives are lost),  the longer reputation takes to repair. That should be law.

I especially remember the Costa Concordia because we were launching our survey on how corporate and brand reputations have become nearly indivisible. The parent company of the cruise liner pushed media requests over to the Costa Concordia CEO — the brand leader — in an effort to disentangle the corporate reputation from the brand reputation. Due to the ease of information flow and the Internet’s reach, much of the media coverage mentioned the parent company in the coverage which only proved that corporate and brand reputations have definitely converged. Because the entire incident happened just as we launched the survey, it is forever lodged in my mind.

Talking about reputation, tomorrow’s Oprah Winfrey interview with cyclist Lance Armstrong will be another one for the record books.  I am not sure how Lance’s confession that he used drugs to help him win the Tour de France several times will go over. My sense is that an apology might not curb his rapid reputation decline and Lance’s reputation might not just keep rolling along but might face a hard stop for awhile. No telling where it will be, however, in three or four years.  I will be interested to tune in and watch.

It is that time of the year. Last day of 2012 and the start of a new 2013. I posted an article to Huffington Post on what I see ahead by looking backward at reputation trends bubbling up and trends on the vast horizon.  Here is the post if you want to settle into the new year with a clear lenses on reputation possibilities.

Wishing you a happy new year!

What spooks markets the most? If you closely follow crises, you probably think about how many different types of crises there are. For example, how do the markets react to a crisis that is due to the questionable behavior of the company or employees? What about product recalls? Or litigation? What about loss of customer data? All good questions to ask about reputational damage. International law firm Freshfields Bruckhaus Deringer decided to investigate how the markets react to different crises and how long the crisis lingers. This chart below is from their study:

Behavioral crises (company or employees acting questionably or illegally) have the greatest short-term impact on shares and the only type where the companies have the possibility of regaining their market share after six months. However, they spook the markets the most and can cause shares to crash by 50% or more on  the day they become public, according to the researchers. Investors, however, forgive these types of crises more quickly than others.

Operational crises (when the company’s functioning is halted due to a major product recall or environmental disaster) have a modest impact in the first two days of the crisis breaking but the greatest long-term effect on share price…down almost 15% after six months. One quarter are still down one year later. These type of crises strike fear in companies and reputations are hit for the longest period of time.

Corporate crises (companies where the financial wellbeing is affected such as liquidity issues or material litigation) made up more than one quarter of companies experiencing a share drop on day one. Most often, these companies recovered quickly.

Informational crises (when companies IT such as system failures or hacking) were of moderate concern to the markets. They did not fall more than 3% on day one. According to the research, none saw shares fall more than 30% within a year of when the crisis struck. Possibly, investors figure these can be resolved and its everywhere today, not necessarily at the core of the company’s business.

As the research states, “Our research shows that directors typically benefit from a window of 24 to 48 hours, during which financial market reaction to news of a major reputational crisis will be relatively constrained.”  In the public relations world, we often refer to the first hour after a crisis breaks as the “golden hour.” According to Freshfields, it sounds like there is an even longer” golden window.”

The natural question to raise is why does operational crises do the worst? Freshfields answers appropriately, “Crises that strike at a business’ core have a greater long-term impact on share price as markets are more likely to lose faith in a management team that cannot resolve a crisis that is intrinsic to its operations.” As Oxford Metrica’s research in 2012 for AON showed, management response is showcased for all to see when crisis strikes. The kind of  CEO or executive response can make or break reputations and create reputation loss of great magnitude if done poorly. To prevent such reputation loss, prepare!

Just caught up with my November HBR. There is an excellent article by the CEO of Siemens, Peter Loscher, on how to use a scandal to activate change in an organization. There is a section in the article on Loscher’s first 100 days, a favorite topic of mine.  He says that he was the first chief executive at Siemens who came from the outside and mentions how it actually worked to his benefit because he brought an outside perspective to his early start.

In the article, he mentions that one of the things he wanted to do in year one (post 100 days) was to get the organization more focused on customers. And then he proceeded to explain how he did it. I thought it was such a cool idea that I wanted to share it. Here is what he said:

“In my first year, I tried to find other ways to emphasize to the entire organization that customers should be our primary focus. Once a year, our top 600 or 700 managers gather for a leadership conference in Berlin. Before my first one, in 2008, I collected the Outlook calendars for the previous year from all my division CEOs and board members. Then I mapped how much time they had spent with customers and I ranked them. There was a big debate in my inner circle over whether I should use names. Some felt we would embarrass people, but I decided to put the names on the screen anyway.

The rankings were a classic bell curve, with most people in the middle. I was number one, having spent 50% of my time with customers. I said to the people at the leadership conference, “Is this a good sign or a bad sign? In my opinion it’s very bad. The people who are running the businesses should rank higher on this measure than the CEO.”

I put the rankings up again in 2009, in 2010, and in 2011. And now things have changed. The curve has shifted. Some people have passed me, and most are near me at the top of the distribution—because everybody knows this matters and that names will be up there at the next leadership meeting. With this simple approach we have achieved a much, much stronger emphasis on customers in the top management echelons.”

What a smart way to get management  focused on being customer-driven. As he concludes, “But if you want to change a big, complex organization like Siemens, you have to make your agenda known, and you have to communicate in simple terms.” I’d say taking stock of everyone’s calendars and tallying up the time spent on customer activities, sent the right message, clear as a bell.