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The Top 12 Crises Of 2012: Part 1

Arun Sudhaman & Paul Holmes  03 Feb 2013

Part two of our 2012 Crisis Review features  Lance Armstrong, Siemens, Kingfisher Airlines, Chick-fil-a, Starbucks and 'pink slime'.

1. Barclays

Recent years have not been particularly happy ones for our friends in the banking sector, grappling with a collapse in public trust because of their role in the global financial crisis.

Last year, though, Barclays managed to take things to a whole new level, when it emerged that the bank had taken part in fixing lending rates to its own advantage. Forced onto the defensive, Barclays never really recovered the initiative, with the scandal dominating financial coverage in the UK for many months while a high-profile probe winds its way through the High Court.

The scandal rocked Barclays like few corporate crises in recent times, resulting in the resignations of CEO Bob Diamond and chairman Marcus Agius. Diamond bore the brunt of the backlash, castigated by MPs for being “highly selective” with the evidence he presented before the Treasury Select Committee, and condemned by the media for avoiding responsibility.

It took a full three weeks for Barclays to issue an apology, thanks in part to the bank’s reliance on the British Bankers Association to defend the industry. This faith proved misjudged, as did a clear inability to acknowledge the depth of public anger.

“Public anger was perhaps all the more pronounced given initial misgivings in 2011 when Diamond, the ‘unacceptable face’ of investment banking, had succeeded John Varley as the bank’s CEO. Barclays’ first response to the scandal breaking was to waive its chief executives’ bonuses, but this failed to get to the root of the matter,” explains Cubitt Consulting managing partner Simon Brocklebank-Fowler. “There is also a continuing sense throughout Barclays’ handling of the crisis that the reputation of the bank and its leaders was its primary concern, Diamond’s 2011 statement that ‘the time for remorse is over’ coming back to haunt him.”

A defiant attitude and unwillingness to come clean with the facts only exacerbated matters. Various Select Committee appearances by Barclays senior executives generated numerous contradictions in evidence, particularly when compared to the statements of the Bank of England’s Paul Tucker. Brocklebank-Fowler notes that “Barclays missed an opportunity during these hearings to issue a cohesive and sincere apology.”

Meanwhile, the bank’s messaging remained conflicted, with Barclays ‘insiders’ suggesting to the FT that the Bank of England was complicit in Libor fixing, and that Diamond would say as much to MPs. Instead, as Brocklebank-Fowler points out, Diamond used “tortured language to deliver an opaque message, and was subsequently contradicted by [Barclays COO] Jerry del Missier days later.”

There is some truth to the assertion that Barclays suffered from a first-mover disadvantage. By settling first, it suffered more brand and financial damage, losing its CEO and chairman, while evidence suggests that its sins were less wicked than some of its rivals. Yet it also received a much lower fine (£290m) than UBS (£930m) and RBS, and by settling first it also ensured that it could look to the future with new leadership ahead of its rivals.

Regardless, Barclays’ response cannot really be read as anything other than a succession of public relations missteps that, sadly, will elicit little surprise in financial industry observers. It failed to engage clearly with the media, and its CEO was accused of demonstrating a “cavalier attitude” towards the facts after a dispiriting performance on live TV.

“No apology, then a weak apology, followed by a late apology; throughout the Libor debacle, Barclays never once grasped the need to communicate sincere contrition and fast,” concludes Brocklebank-Fowler. “Worst of all, Barclays failed to learn vital communication lessons from its earlier misdemeanours, such as the PPI and the interest-rate swap miss-selling scandals. No wonder that Antony Jenkins’ first priority as new CEO has been to communicate his determination to change the culture at Barclays, and transform the bank.”—AS

2. Susan G. Komen for the Cure

Two things account for Susan G Komen’s ranking so close to the top of our list of last year’s major crises. The first is that it was so totally unnecessary—an entirely self-inflicted crisis triggered by an action that quite clearly contradicted the organization’s stated mission and values; the second was that as a result it threatened the organization’s very existence.

In January of 2012, the largest breast cancer advocacy organization in the US, announced plans to cut off its financial support to Planned Parenthood’s women’s health initiatives. That decision triggered a firestorm of criticism, first in social media and then in the mainstream press as the group found itself caught between pro-choice and anti-abortion groups.

The group’s initial communications efforts were weak. Daniel Diermeier, a professor at the Kellogg School who publishes his own annual crisis review, says the organization issued “unconvincing, overly bureaucratic justifications” before eventually reversing its position.

Ultimately, CEO Nancy Brinker and president Elizabeth Thompson both announced plans to step down from their posts, which seemed to buy the organization some time at least—although recent reports suggest that participation in the organization’s signature Race for the Cure event is down about 20 percent.

“The Komen Foundation’s fall from grace isn’t the result of a communications problem; It is the direct result of a policy and strategy problem, exacerbated by a fundamental misjudgment of the priorities of its constituents,” says Carreen Winters, executive vice president at MWW. “The moral of the story:  no amount of communications can fix a policy or strategy problem.”

According to Barbara Paynter, a partner at Cleveland-based crisis management specialist Hennes Paynter Communications: “Susan G. Komen created this crisis by not asking a fundamental question before it went public with its decision to stop funding Planned Parenthood: does our explanation pass the “smell” test?

“Founder Nancy Brinker made things worse by trying to ‘spin’ her way out of the controversy, claiming the decision had nothing to do with politics or abortion. No one believed her and she eventually stepped down. She learned the hard way that you cannot ‘spin’ your way out of a crisis. Had Nancy Brinker simply told the truth, she might still be at the helm today.”

The crisis was one of several that hit the nonprofit sector in 2012.

“Nonprofits may believe that they have a reservoir of goodwill, a trust bank account that can be drawn upon when times get tough,” says Daniel Diermeier, a professor at the Kellogg School who publishes his own annual crisis review. “This view is largely misguided. Trust does not work like a bank account; it resembles a currency. The same message coming from a trusted source will have more credibility. But if trust is not maintained, this multiplier effect can vanish quickly.

“Once the Komen foundation had been associated with the vitriolic abortion debate, any decision was criticized by somebody, a common feature of highly polarized issues.”—PH

3. The BBC

The BBC is no stranger to a good crisis, and recent years have seen the corporation grapple with a variety of 

issues. Many have proved trivial, turned into much bigger scandals by rivals resentful of the BBC’s subsidised media dominance, and by politicians eager to make populist capital of a soft target.

2012, however, brought the BBC to a crippling standstill, thanks to the worst crisis that the public service broadcaster has suffered in its 90-year history. The scandal revolved around Jimmy Savile, a star BBC presenter who died in 2011.

Later that year, BBC programme Newsnight shelved a six-week investigation into claims that Savile abused youngsters. Tribute programmes to Savile were unaffacted, and the issue remained dormant until October 2012, when an ITV show documented systemic sexual abuse by Savile, leading to a slew of allegations in the UK media.

“The Savile case is a classic example of communications only dealing with a crisis when it becomes a crisis,” says PRCA director-general Francis Ingham. “If we forget for a moment the 50 years of abuse that Savile perpetrated on BBC premises which continued unchecked by the Beeb despite rumours, then they still had months to prepare for the ITV expose and the inevitable questions over why they ditched the Newsnight report and instead went ahead with a Christmas tribute.”

The scandal struck the very heart of the BBC, leading to serious questions as to whether a cover-up had been in place. The BBC began two internal reviews, while Newsnight editor Peter Rippon “stepped aside”.

Meanwhile, a Newsnight programme in November 2012 mistakenly implicated Conservative politician Lord McAlpine in child abuse, leading to an unreserved apology from the BBC, and the prospect of legal action by the peer.

The crisis escalated when BBC director-general George Entwhistle made an ineffectual appearance on the Today programme, after performing poorly in front of MPs the previous month. Entwhistle soon resigned, after just weeks in the job, as the BBC struggled to effectively manage a debilitating series of events. BBC Trust chairman Lord Patten urged a thorough overhaul of the organisation, as more senior executives stepped down, culminating in disciplinary action.

“It’s a classic case of management hiding its head in the sand while communications people dare not challenge their superiors – or are left in the dark as they are excluded from the ‘grown ups’ conversations,” says Ingham. “I understand that senior comms people were removed from the BBC’s management board when George Entwistle took charge in September - gives a clear indication of how seriously Entwistle took communications, doesn’t it?”

A widespead police investigation into Savile has uncovered more than 500 sexual abuse claims to date and ensnared other presenters. The Pollard Review, released in late 2012, criticised BBC management for “chaos and confusion”, a damning indictment of an organisation that once made much of the importance of public trust as a core value. 

The review also revealed that the BBC employed almost 150 people in its communications department. Yet, in public relations terms, the scandal represents the failings of a culture that prized bureaucracy over effective engagement. 

“The main teaching from all this is that there needs to be a shift in thinking so that communications directors are fully conversant in the wider operational and cultural matters of their organisation – it’s  the only way they’ll ever be effective in a crisis,” explains Ingham.       

4. Costa Concordia

On the night of January 13, the cruise ship Costa Concordia, operated by Italian company Costa Crociere and owned by Carnival Cruises, hit a reef off of the Italian coast. More than 4,000 passengers had to be evacuated and images of the stricken vessel dominated the front pages of newspapers and led news broadcasts around the world.

Ultimately, more than 30 people were confirmed dead, and investigations into the accident uncovered several damaging facts: Captain Francesco Schettino had deviated from the ship’s computer-programmed route to treat people on Isola del Giglio to the spectacle of a the ship, and it became apparent that the Concordia’s operators had a patchy safety record even before this high-profile incident.

“According to Karl Marx, history repeats as tragedy and ends as farce,” says Diermeier. “But as the Costa Concordia crisis showed, sometimes the move from tragedy to farce requires no repetition…. Captain Schettino was later charged—among other things—with abandoning incapacitated passengers. To refute the allegations, Captain Schettino had claimed that he had fallen into a lifeboat by accident.

“In addition to these operatic details, the crisis raised serious issues over safety practices at the ship’s operating company, a forceful reminder that, once a company finds itself in the spotlight, all its previous actions will be scrutinized as well.”

Several aspects of the company’s crisis management efforts raised eyebrows.

“Companies in crisis often create narratives around their employees: they paint them either as brave heroes or unlucky victims of what has happened,” says Jessica Frost, associate director at Regester Larkin. “It is therefore particularly striking when a company chooses to vilify one of its own, as seen in the way Costa Crociere treated Captain Francesco Schettino when the Costa Concordia sank off the coast of Italy.

“The strategy of deflecting responsibility for a crisis is a risky one. It is particularly risky when one considers that employees are, at least in part, the product of the companies that employ them, train them, and give them responsibilities. This point is not lost on stakeholders, who understand the important influence that company culture has on the actions of its employees. And it has not been lost on the families of those killed in the disaster, many of whom are currently pursuing compensation from Costa in the courts.”

The crisis also served as a reminder that sometimes, an organization’s leader needs to step up.

“There is much debate in our industry about when to use a CEO as the communicator in chief,” says Winters. “A simple rule of thumb:  when you put a giant piece of metal somewhere it doesn’t belong, and when people have lost their lives, only your CEO can demonstrate the company’s understanding of the significance and seriousness of that event.”—PH

5. Huawei

Chinese telecoms manufacturer Huawei has big global ambitions, but has long-faced aggressive international scrutiny because of suspicions regarding its ownership and links to the Chinese Army. In the US, these concerns came to a head last year, in the shape of an explosive Congressional report that advised US telcos to avoid doing business with Huawei because the company poses a potential security threat.

Predictably, Huawei denounced the report but - after operating opaquely for so many years - its response rang hollow. Whilst its adoption of PR and public affairs tools was unprecedented for a Chinese enterprise, Allison & Partners China practice head David Wolf believes Huawei “failed to convincingly distance itself from the Chinese government in the eyes of US audiences.”

Several mistakes, says Wolf, led to that failure. First, Huawei communicated via its PR team, rather than senior executives such as secretive CEO and founder Ren Zhengfei. “This fed the impression that Huawei had something to hide.”

Neither did Huawei address the elephant in the room - the perception that former army officer Ren reports to his former employer and that the comapny is government-owned. Says Wolf: “Until Huawei’s (and Ren’s) story is told in full, the company will remain an extension of the Chinese government in the eyes of observers.”

Finally, continues Wolf, the company ignored the court of public opinion. “Coming clean through the media with its CEO, full access to the company, and full details of its story would have painted Congress as needlessly xenophobic.”

Huawei’s PR woes were serious but, as is often the case with large Chinese companies, appeared relatively simple to address. “Had China put Ren and his deputies in front of the media, gone public with the company story, come clean on its relationship with the government and the PLA, and thus demonstrated that they are not ‘just another Chinese company’ but an international company with Chinese origins, the report may not have changed, but its impact would have been considerably lessened,” explains Wolf.

The lesson for PR practitioners is clear. “First in deed and then in word, companies, especially those from foreign cultures,  must demonstrate that they operate in accordance with the expectations of their publics as part of the price of doing business,” concludes Wolf.—AS

6. Goldman Sachs

Goldman Sachs was number three on our list of the top 10 crises of 2010, when the company was in the headlines for its role in the financial crash. We wrote at the time that “the company’s hardball tactics, lack of contrition, and swift return to profitability—and the culture of excess that fuels public mistrust of big business—made it the most tempting target for Wall Street’s critics.”

Many of the same criticisms resurfaced in 2012, when Goldman executive Greg Smith marked his resignation from the firm with a New York Times op-ed that appeared to confirm many of the worst suspicions of the company’s critics.

“When Greg Smith's resignation op-ed hit the New York Times on March 14, it appeared to confirm everything the public—and perhaps some clients—suspected about the culture at Goldman Sachs since the height of the American financial crisis,” says Chris Nelson, senior vice president at Fleishman-Hillard. “It's one thing to read allegations in an exposé in Rolling Stone, but it's quite another to have it confirmed by an insider who seems to gain nothing by the disclosure.

“The op-ed likely affected the behavior of employees, potential recruits, and possibly some clients, especially less sophisticated clients who already had a nagging suspicion the bank wasn't focused primarily on their interests.”

The op-ed was a stark reminder that a company’s employees are powerful brand ambassadors—and can also turn into compelling witnesses for the prosecution.

“Reputation begins at home,” says Winters. “With every policy, every employee, you either build your reputation, or you don’t. An MWW study showed that three out of four business leaders believe that culture has a significant impact on reputation. Unfortunately, it seems that the stewards of culture at Goldman Sachs learned this lesson that hard way.”

But the company’s response to the op-ed scored high marks from many crisis experts.

“The leaked internal response email from Lloyd Blankfein carried a leadership tone, demonstrating professionalism in contrast to the op-ed,” says Nelson. “And, it effectively used internal and external employee survey statistics to aid its credibility so that the firm wasn't seen as solely protecting its profitable status quo. The memo's leak sent the message to clients as well as staff. The subsequent release of documents suggesting Smith had an axe to grind because he wasn't promoted added to the alternative narrative that Goldman offered.”—PH

Part two of our 2012 Crisis Review features  Lance Armstrong, Siemens, Kingfisher Airlines, Chick-fil-a, Starbucks and 'pink slime'.

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