The Top 10 Crises Of 2011: Part 2
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The Top 10 Crises Of 2011: Part 2

From Netflix to Sony to HP to Qantas to the European Central Bank, five more high-profile crises and the lessons we learned.

Holmes Report

The Biggest Crises of 2011: Part 1

6. Netflix

The early reviews for changes at Netflix last summer were far from positive. Netflix customers and a host of industry observers were intensely critical of both the company’s decision (and later, its apparent indecision) and of the way in which it was communicated.

In July, Netflix sent an email to customers, announcing that it was unbundling its DVD and streaming video services and creating two separate pricing plans, presenting the decision as one that would give customers a choice of plans—when what it really did was increase prices, particularly for DVD customers.

In September, CEO Reed Hastings apologized for the way the original decision was announced: “I messed up. I owe everyone an explanation. Many members felt we lacked respect and humility…. That was certainly not our intent.” The price increases remained unchanged. But Hastings revealed that the company was going to rebrand its DVD service under the Qwikster name.

That triggered another storm of criticism. Typical was the reaction of technology blogger Ted Landau: “With its price increase announcement, Netflix precipitated a self-made public relations disaster. It then compounded the mess by announcing a company split that succeeds in making its services less convenient and less competitive. Not good.”

A month later, Qwikster had been canceled. The verdict of The Huffington Post’s Jason Gilbert sums up the conventional wisdom: “Qwikster was a dumb idea. Dumb, dumb, dumb. It should certainly be a first ballot entrant into the Bad Decision Hall of Fame…. In its month of existence, Qwikster did nothing but foster ill will toward Netflix.”

Certainly the whole series of announcements and apologies and reversals tarnished the Netflix brand and hurt its relationship with customers. The company’s share price plunged and Hastings gave up 50 percent of his stock option awards for the year.

“This is a stunning fall from grace,” says Professor Daniel Diermeier of Kellogg School of Management, and author of Reputation Rules, “but it illustrates a broader point. Brands are now largely about trust, but trust is fragile. When trust is violated—or perceived to be violated—trust quickly turns to betrayal, and passionate support to rage. Add to that the difficulty of operating in a (social) media environment with less and less control over the message customers receive, and this new brand fragility is not an exception, but a common risk that needs to be managed.”

But Richard Levick, president of Washington, DC, public affairs and crisis management specialist Levick Strategic Communications, argues that “recent woes notwithstanding, Reed Hastings’ decision provided a template for every company that is seeking to evolve with the digital revolution. This wasn’t a failure of leadership; it was a failure of execution.

“Hastings knows that it won’t be long before most people’s DVDs are in a box next to the eight-tracks in their storage rooms. He also knows what happened to Blockbuster, Borders, and other companies that resisted change, rather than embrace it…. With a recent 11 percent surge in Netflix’s share price and more than 20 billion worldwide subscribers having watched more than 2 billion hours of online streaming content, two things are clear: first, Reed Hastings’ understands where his marketplace is headed; and second, both consumers and investors are starting to come around to the wisdom of his approach.”—PH

7. Sony

Sony was just one of a number of companies—others ranged from investment bank Morgan Stanley to online marketing firm Epsilon—to come under attack from hackers intent on obtaining user data last year. But the Sony case was interesting for a number of reasons: the sheer scale of the data breach; the fact that the company had previously enjoyed a stellar reputation for its software security; and the criticism leveled at other Japanese companies (Toyota last year and Tepco this year) for their failure to grasp the fundamentals of crisis communications.

In April, Sony was forced to shut down its PlayStation Network for a week, disconnecting around 77 million user accounts around the world. There were concerns that credit card data had been stolen, and chief executive Howard Stringer issued an apology and offered free video games and music downloads to affected users as a form of compensation. The company also said it would appoint a chief information security officer, add new firewalls, encryption and monitoring services to its servers, and move customer information to a new and more secure data center.

So while Sony recognized its responsibility to communicate proactively around the crisis, it did not escape criticism. Crisis consultant Michael Nayor, founder and CEO of the Rhodell Group, identified two main concerns: a week-long delay before the company advised customers that their credit card information could have been compromised and Stringer’s “defensive and imperious” response to suggestions that the delay was excessive.

Says Nayor, “One of the basic tenets of crisis communication is to act quickly and have as much control of the dialogue as possible…. The first goal should have been to minimize the vulnerability of its customers through immediate notification. By delaying, Sony allowed speculation to build up and therefore it positioned itself defensively, instead of taking vigorous proactive steps.”

Karen Doyne, managing director and leader of the US crisis practice at Burson-Marsteller, says securing data is a major issue for many companies. ”Data breaches aren't necessarily crises, but an increasing proportion of crises are data breaches,” she says. “A company can still hope to protect its information, but hope is not a strategy. All institutions will be under increasing pressure to show they’re taking reasonable steps to protect data and to give victims peace of mind when security is compromised.”—PH

8. HP

HP is becoming a fixture on this list, having come in at number four on our list of the biggest PR crises of 2010 for its handling of the departure of chief executive Mark Hurd and the subsequent appointment of Leo Apotheker, former CEO of German software giant SAP, as his successor.

At the time, MWW Group crisis communications expert Carreen Winters pointed to the crisis of confidence in the HP board of directors, citing a “lack of confidence on the board’s judgment, fueled by a shareholder suit over Hurd’s severance package,” and criticzing “an almost constant defensive posture by HP.”

A year later, the same problems were evident when HP chose to dismiss Apotheker, less than a year after his appointment and its very public endorsement of his strategy for transforming HP. The new leadership transition compelled CNN Money to ask: “Is HP's board the worst ever?”

The case for the prosecution included the fact that board members leaked news of Apotheker dismissal before the formal announcement and the fact that he was rewarded for a dismal 12 months in the position with a $14 million severance package.

The result of this incompetence, says corporate governance specialist Richard Davis, a partner at RHR International, is "a lack of identity for the company and lost confidence in the leadership."

“If ever there was a case that demonstrates why corporate communications needs to be a board level function, HP is it,” says one financial communications expert, who asked not to be identified. “The board needs someone in there when decisions are made to ensure that the members understand the communications implications. And they need to understand that when they open their mouths to talk about companies, they are impacting its reputation—and if they get it wrong, they can wipe millions of dollars off the share price.”—PH

9. Qantas

Qantas came in for sustained criticism when it decided to ground its fleet during an escalating labour dispute, leaving passengers around the world stranded. The move may have made commercial sense, but it betrayed a fundamental misunderstanding of customer opinion.

“That response might have ticked all the communications boxes – CEO as flag-carrier; daily briefings; powerful ad campaigns in the aftermath – but the company made the serious error of putting IQ above EQ,” says Weber Shandwick Australia chairman Ian Rumsby. “And Australians felt let down.”

Famed for its iconic ‘Spirit of Australia’ marketing campaigns, the irony is that Qantas troubles stemmed in part from the trust that Australians had already invested in their national flag carrier. “The advantage Qantas had at the start of the crisis was a deep bank of goodwill with the Australian public,” says Sefiani Communications group MD Robyn Sefiani. “Time will tell whether the brand has suffered permanent, long-term damage but in any event the bank is now severely depleted, and the airline and CEO Alan Joyce is on notice with the public and Government.”

The airline’s woes were compounded by the launch soon after of remarkably ill-conceived Twitter competition, asking users to describe a “dream, luxury in-flight experience.” “The Twitter competition brought the issue to a head,” points out Rumsby. “In the context of market sentiment, and with very little sign of good old-fashioned authentic empathy being shown from the management team, consumers fired back.”

Twitter was soon awash with criticism of the airline. "Qantas Luxury means sipping champagne on your corporate jet while grounding the entire airline, country, customers & staff," was one tweet that summed up how the airline was being mocked and ridiculed.

“The Twitter fiasco – and that’s what it was – was a textbook example of how not to align marketing communications with corporate communications,” says Sefiani, noting that it suggested either “ineptitude or a serious breakdown in internal controls and communications.”

By promoting such a competition at a time when customers were still reeling from the grounding of the fleet, led to accusations that the airline’s management was out of touch with public opinion. “As a consequence, Qantas now has its work cut out to regain consumer trust,” points out Rumsby.—AS

10. The European Central Bank

The mishandling of the Eurozone crisis could end up as the most significant crisis on this list, given that by the end of 2011 it was by no means certain that the single European currency—or the European Union itself—would survive the crisis. There’s plenty of blame to go around: fingers can be pointed at the bankers whose behaviors instigated the crisis, and at national governments who have (quite understandably) allowed domestic political concerns to supersede worries about the long-term future of the European project.

But no institution has come in for more criticism—for its lack of action and its communications failures—than the European Central Bank.

New York Times columnist and winner of the Nobel Prize for Economics Paul Krugman, for example, has argued that “it was essential for the ECB to step in and buy the debt of troubled governments, to head off what looked very much like self-fulfilling panic.” At the very least, he argued, the ECB needed to announce that it would act as “lender of last resort,” forcing interest rates down (an approach that has been used to good effect in the US, UK and other markets).

Public relations experts are puzzled. Says one German financial communications expert, who asked not to be identified: “The failure to communicate is very curious. The ECB has the ability to ease concerns, but it has so far refused to do so, either because of political concerns—some of these moves would be unpopular in Germany and other places—or because it has its own ideological reasons for not acting.”—PH

The Biggest Crises of 2011: Part 1
 

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