I recently read in Financial Week that only about three percent of S&P 500 companies have stand-along risk committees as part of their boards of directors. Found this particularly interesting considering that risk has become a major issue these days. Of course some of the most well known recent corporate failures had board risk committees such as Bear Stearns and Northern Rock. Therefore, having risk awareness at the tippy top it is not a sure fire solution to avoiding crisis. It does say something, however, about a company’s commitment to reputational issues. All in all, it is a good thing.

Another piece of information that caught my attention recently was something from Barbara Reynolds of the U.S. CDC (Center for Disease Control). She was quoted as saying that a whopping 90 percent of a crisis response is communications. There is a lot of truth in that. The irony of her statement according to Robert Alvey, a Hurricane Katrina crisis communicator who wrote the article, is that “businesses and agencies allocate on average one percent of their overall budget to crisis and risk communication. If they do have a plan and exercise it, only nine percent of that drill tests communications.” Again, a frightening truth. In this age of “gotcha” media, more resources and crisis simulations are imperative. Sometimes I wonder what companies are thinking.

I was interviewed this week by Leo Hickman of The Guardian about a crisis at Primark, the successful fashion retailer in the UK. The BBC  Panorama show exposed child labor issues in Primark’s production among three suppliers in southern India. The CEO of the parent company, ABF, George Weston responded quickly and forcefully. I went to the Primark web site and liked what I saw. Their actions and statements are quite visible on the web site and there is no attempt to push the crisis deep into the web site. They mentioned how they had dealt with a different supplier in the past who had committed wrongdoing, reported their investigation into these suppliers over the past 18 months and their apparent deceit, and reinforced their ethical standards and code of conduct. Primark provides a good Q&A as well as videos on how their clothes are made and an interview with a key director who is visibly outraged at the suppliers for harming their reputation and misleading them.

As I was quoted in the Guardian article, this is a “smudge” on their reputation but their quick and forthcoming response helped keep their reputation capital steady. However, they are now in the spotlight and cannot afford any other ethical questions to be raised

Am finally getting back in the swing of things after a productive trip to Asia and a well-needed mini-vacation, as I noted earlier. I regularly save all sorts of articles and items I find in the hope that I will comment on them in my blog. So here’s one that I read about in The Wall Street Journal in the Boss Talk Column (June 5, 2008). The interview with the CEO of Home Depot, Frank Blake, focuses on how he is refurbishing the company since he took over 18 months ago. As you can imagine, the challenge is particularly difficult for Home Depot considering that the housing and mortgage crisis has basically collapsed.

Since I have recently been writing about and studying how companies restore their reputations after crisis strikes (also wrote a book on the topic), I found Blake’s answers to several questions particularly illuminating and spot on. Blake mentioned that he was lunching with Coca-Cola’s CEO who asked him “Where are you in the dark night of change?”  At first, Blake says he was unsure what the CEO meant. It became clear when Isdell drew a timeline of how you navigate through challenges: “…things get tougher rather than better, and so doubts start to grow.” The dark side of change in the recovery process hits all CEOs that are trying to undo reputation damage. There are many stumbles along the way that feel like someone yelled  “lights out.” CEOs might remember that recovery takes several years, not 12 months, and the only way to see the horizon is to make the long journey. Additionally, most CEOs who turn around their company reputations say that it was worth the trip since failure usually equates with opportunity.

Blake also mentioned in the interview that he began a survey asking stores to rate how well company HQ was doing. I thought that was a smart way to get feedback, tough as it might be to face the music. Blake honestly comments on their grade: “…unfortunately our scores are not very good. If a store got the same score, we would consider it underperforming and we would be flipping out.”

The interview provides three important lessons about the recovery process when reputations are in the danger zone. First, plow through the dark days. Second, try the hard things such as asking your employees to rate how you are doing. Three, overdose on rewards and recognition. Regarding the last lesson, Blake asks stores to send him examples of employees doing extraordinary things and he writes personal handwritten notes thanking them for their efforts.

The Institute for Crisis Management  (ICM) comes out every year with its list of crises. I always find it interesting to see how the year adds up. As our research shows, reputations tumble primarily because of executive and managerial misconduct. In 2007, ICM found that over half (52%) of major crises were caused by management. Employees accounted for 29% of crises in 2007 and outside forces contributed to the remaining 19%. ICM has been monitoring crisis types for many years going back to 1990. This year it found that three crisis types had risen – recalls, workplace violence and class action lawsuits. Undoubtedly, the horrific shootings at Virginia Tech accounted for the peak in workplace violence and the many toy, pet food and other product recalls contributed to the big 44% increase from the year earlier. The most crisis prone industries in 2007 were:

1. Software Makers
2. Pharmaceutical companies
3. Petroleum Reining
4. Natural Gas Companies
5. Security Brokers/Dealers
6. Banking
7. Telecommunications
8. Automotive Manufacturing
9. Airlines
10. Computer Manufacturers

Another fact caught my eye because it is one of the main tenants of my work on reputation protection and recovery. ICM found that over the past 10 years, most crises were caused by smoldering issues vs. sudden events (65% vs. 35%, respectively). I could not agree more. You can always point to a red flag way before a crisis erupts into public view. Then it’s time to hold up the white flag!