The Top 12 Crises Of 2012: Part 2
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The Top 12 Crises Of 2012: Part 2

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

Holmes Report

Part one of our 2012 Crisis Review features Barclays, Komen, the BBC, Costa Concordia, Huawei and Goldman Sachs.

7. Lance Armstrong

After numerous years of denials, star cyclist Lance Armstrong was stripped of seven Tour de France titles and labelled a drug cheat by the US Anti-Doping Agency (Usada) in 2012.

Usada also gave Armstrong a life ban for what it called “the most sophisticated, professionalised and successful doping programme that sport has ever seen”, releasing a 1,000 page report that included sworn testimony from 26 people.

The report came after Armstrong said that he would no longer fight Usada’s charges, a statement that was seen by many as an effective admission of guilt. In a televised interview with Oprah Winfrey at the start of this year, Armstrong finally confessed to doping, but attracted considerable criticism for the manner in which he finally came clean.

The Armstrong crisis was not limited to the cyclist alone. He was forced to resign from his highly successful Livestrong Foundation cancer charity, and also embroiled his sponsors, notably Nike, Trek and Anheuser-Busch, all of which dropped him.

According to Havas PR North America CEO Marian Salzman, Armstrong’s eventual apology was far too little, much too late. “With his stoic demeanour, he didn’t seem to have hit people where they needed to be hit—in the heart rather than the mind.”

Instead, Salzman believes that Armstrong should have been advised that actions speak louder than words, particularly given the scepticism that greeted the cyclist’s apology. “His first action should have been

to accept responsibility much sooner. And then when he did publicly talk about the scandal and admit his role, he should have let more of the ‘real Lance’ show through (if such a thing exists).”

“In terms of real actions, perhaps Lance should have volunteered to teach junior high phys ed in an inner-city school—instead of just offering to testify against cycling officials who knew about and possibly facilitated his doping, in hopes of being allowed to compete again in triathlons and running events.”

There are, says Salzman, multiple lessons that can be drawn from the affair. “Never let your story become such a fable that the fall is so steep. Make your most profound apologies privately—and first—and don’t assume they’ll be accepted when you make the public mea culpa. Have a clear plan for personal rehabilitation, and live it. Don’t just show up, admit your blunders, and assume all will be right with the world. Reboot. Explain what’s next in a way that’s all about reparations.”—AS

8. Starbucks

Starbucks was just one of several US companies—Internet retailer Amazon and search engine Google were among the others—that came under fire in 2012 for its failure to pay the appropriate amount of UK taxes. Senior executives from all three companies were called to testify before British Members of Parliament to explain their failure to pay their “fair share,” but Starbucks, because of its high-profile high street presence, was subject to the most visible consumer boycott as a result.

The crisis demonstrated the need for corporate social responsibility—to which Starbucks has a deep commitment—to be truly authentic—and not just a “program” run by the CSR or PR department. It also showed that the decision about how much a company pays in taxes has implications for both reputation and relationships.

“That means such decisions need to be made with careful consideration of the organization’s value, in a way that is consistent with the way those values are communicated to the outside world,” we blogged at the time. “And that means either (a) the company’s accounting, finance and legal staff need to have a clear understanding of those values and the authority to make sure they are accurately reflected in the decisions they make or (b) someone responsible for reputation and relationships needs to be consulted by accounting, finance, and legal staff when major decisions are made.”

It’s a lesson other companies would do well to learn.

“Activism against tax avoidance is on the rise across Europe,” wrote the Financial Times, in its own analysis of the crisis. “Protest groups, such as UK Uncut are drawing attention to corporate tax avoidance. In France and Finland, campaigners are seeking to block companies that use tax havens from public procurement projects. Even in Greece, where the public has traditionally taken a relaxed approach to tax obligations, there are signs of rising anger.

“Starbucks’ highly visible stores—almost 800 in the UK—and vaunted do-gooding have made it an obvious lightning rod for public resentment…. The list of multinationals that employ legions of lawyers and accountants to ensure their bills are kept as light as the rules of the countries in which they operate is a long one.

Finally, prominent UK public relations blogger Neville Hobson, responded to the company’s eventual decision to make a “voluntary” tax payment to the UK government with an important point about the distinction between what’s legal and what’s right.

“It seems clear to me that Starbucks has done the SWOT analysis on its reputation and come out of that exercise recognizing that morality wins over purely being legal. So this then largely becomes a public relations matter and one of an issue to manage.”—PH

9. Siemens China

Much has been made of the ways in which Sina Weibo is transforming corporate communication in China, giving a voice to disgruntled consumers and rapidly altering the PR demands of companies that have been happy to exist behind a veil of opacity.

Siemens found all of this out the hard way, in a tale that serves as a cautionary one for MNCs in China.

The affair began when Siemens’ $13bn BSH joint venture became the target of several complaints by prominent Sina Weibo user Luo Yonghao because of a defective Siemens fridge.

“In the early stages, this crisis could probably have been avoided,” says MSL China chairman Johan Bjorksten. “But instead of immediately engaging in dialogue with Luo and the other affected consumers, Siemens simply published an ‘official announcement’ saying that ‘any consumer encountering a problem should contact Siemens’ 24-hour customer service number’. In particular, the company did not admit to any quality problem with its products.”

“Several weeks into the issue, Siemens still considered Luo as the main problem, but in fact, an analysis of the online sentiment shows that ordinary consumers were more upset with Siemens’ cold attitude and lack of responsibility,” adds Bjorksten. “Online commentators increasingly felt that Siemens was trying to hide a major quality problem from consumers.”

Luo eventually organised a group of consumers to smash their fridges outside the company’s Beijing headquarters.

BSH China initially did not respond to the protest, before apologising and reiterating that the problems were not of the company’s making. Luo smashed more refrigerators later that year, sparking higher levels of media attention, including a Youku video that has attracted more than 250k views.

“In social media crisis management, we need to take a more humble attitude than ever: whether we are dealing with a bona fide mistake by the company or a malicious rumor, we must involve online communities in real two-way discussion, allowing them to discuss, question and challenge our solutions and remedies,” points out Bjorksten. “If Siemens had taken a more humble attitude and engaged consumers in real dialogue from the outset, the worst effects of the crisis could probably have been avoided.”

The crisis drew in BSH’s PR firm BlueFocus, whose efforts to conciliate backfired spectacularly when Luo uploaded a telephone recording of his conversation with the agency. PR firms - both local and international - are known to pressure media through a variety of means to remove negative stories, but the explosion in Weibo usage has provided Chinese netizens with a new outlet to pressure companies, putting many on a crisis footing.

“The fundamental problem is that many companies, even MNC's, still believe they can use old-fashioned methods that were common in the 80's and 90's - personal relations or bribery - to ‘control’ media,” says Bjorksten. “It is debatable whether this works anymore even in traditional print media relations in China, but it most certainly does not work in handling social media.”

BSH China president Roland Gerke eventually released a video message apologising to customers and pledging to repair all of the defective appliances. After terminating its contract with BlueFocus, BSH is understood to have called in Ogilvy PR.

“My team has proved time and time again that a more ethical way will almost always generate more and better coverage, but amazingly, still many corporate marketing managers and PR managers believe that ‘this is China - so ethics is a luxury’, and go on to try to solve problems by covering them up or trying to cheat consumers,” notes Bjorksten. “Top managers often claim that their companies adhere to some code of conduct, but in fact they do not know what goes on in their own marketing departments or how their PR agencies work.”

“The lesson is these things cannot be put out by the traditional way of personal relationships,” added an agency source. “It changes the ground rules. At some point money can’t buy everything.”—AS

10. Chick-fil-a

US restaurant chain Chick-fil-A found itself at the center of a political maelstrom during last year’s presidential election, after president and COO Dan Cathy told the Baptist Press that “we are very much supportive of the family—the biblical definition of the family unit. We are a family-owned business, a family-led business” has given rise to an interesting crisis communications case study, and to some even more interesting questions about the wisdom and appropriateness of various forms of consumer action.

Cathy’s remarks—coupled with the company’s own policies and history of donations to anti-gay causes—triggered a boycott by gay-friendly consumers, a day of support by anti-gay bigots and (bending over backwards to be fair) free speech advocates, and threats from various government officials to make life difficult for the restaurant chain to open additional outlets in their towns

According to Kellogg’s Diermeier: ““What made this case particularly interesting was the support of Chick-fil-A by conservative advocacy groups and politicians, including then candidate for the Republican presidential nomination Rick Santorum and former presidential candidate Mike Huckabee. Conservatives asked supporters to increase their visits, effectively organizing a ‘buy-cott.’”

The crisis was also one of several to demonstrate how social media have changed the rules of crisis management.

Says Chris Gidez, executive vice president and global crisis and risk practice leader at Hill+Knowlton Strategies: “Perhaps the one take-away that can be derived from most if not all of these events is the absolute establishment of social media as both a catalyst for crisis and a critical tool for crisis response; though the former is far more advanced than the latter. We saw a number of incidents in which information—or misinformation—moved so rapidly and broadly across social media as to catch affected organizations off-guard.

“We are rapidly approaching the point at which traditional media and digital/social media trade places in the roles of ‘tail’ and ‘dog.’ Some may argue this has already occurred.  But it seems to me that digital and social media are more frequently wagging traditional media; rather than vice versa.  Again, organizations must understand the implications of this, and adjust.”

The company’s initial attempts to appease protestors involved either permitting or encouraging individual franchisees to distribute a statement distancing themselves from the corporate position. Several franchisees released what was obviously a corporate form letter, so clearly pro forma that it was transparently phony.

But ultimately, the company has stuck to its guns, and welcomed the customer “appreciation day” organized by its supporters—a reminder that public relations is about sticking to your values rather than trying to make everybody happy.

“The sales impact on Chick-fil-A seems to have been limited, raising the intriguing and somewhat worrisome specter of consumer preferences being significantly correlated with political ideologies… But before embracing another new marketing fad companies should be careful with (unintentionally?) defining themselves as a ‘Republican” or “Democractic’ brand. Otherwise, they will be in for some interesting times.”—PH

11. Kingfisher Airlines

Billionaire Indian tycoon Vijay Mallya likes to live large, so the protracted decline of his Kingfisher Airlines has attracted plenty of attention in the country. Financial difficulties at the airline became evident in 2010, but took a huge turn for the worse last year, when the fleet was grounded amid reports that employees had been unpaid for months.

While Mallya’s son partied around the world and Mallya himself made no effort to cut back on a lavish lifestyle, Kingfisher remained mired in $1.4bn  of debt, after making annual losses for five consecutive years. Pilots went on strike and bank accounts were frozen as Kingfisher teetered on the brink of collapse, losing its flying permit at the start of this year.

Through it all, says The PRactice CEO Nandita Lakshmanan, Kingfisher has demonstrated a shocking “lack of accountability,” best exemplified by its ‘good times’ brand tagline.

“The saga has revealed utmost naivete or callous dismissal of early fault lines that were evident over the last several years,” says Lakshmanan. “Kingfisher has failed to demonstrate reciprocity of trust laid upon it by its stakeholders, however misplaced (in some cases) it may have been.”

A major problem for Kingfisher, explains Integral PR CEO Sharif Rangnekar, has been the airline’s close ties to Mallya. “As a result, every move of Mallya in his life ‘outside’ of the airline was always under scrutiny during the ‘good times’ and continued to be amplified during the slide of the airline. The glaring disconnect between the state of the airline and its employees and his lifestyle was seen time and again. His unavailability to respond on many occasions to employees and the media was seen as elusive and even arrogant.”

Instead, says Rangnekar, Mallya continued to live as flamboyantly as he liked, while employees remained unpaid. Kingfisher’s brand has, of course, suffered, but so too has Mallya’s.

“He was seen giving up his role at a crucial time and later losing face – something that he could have avoided had there been timely response, engagement, concern, sensitivity and availability, followed by resolve and sufficient on-ground action,” says Rangnekar. “Mallya seemed to have eroded his own image, trust and adoration leading to a negative sentiment that rippled to important businesses of his own.”

A more considered crisis management approach would have seen Mallya remain the face of the organization, engaging directly with employees, swiftly and without obfuscation. Lakshmanan, notes that the lack of any kind of cohesive public relations strategy is a sign of “bad management, in excess.”

In these circumstances, even the basics would have been welcome. “Understanding who your publics are, how quickly one needs to respond and why it is important to keep the channel of communication open and responsive,” as Rangnekar puts it.

Perhaps the critical lesson for any organization is that the reputation of a brand and its leader can no longer be neatly separated. Mallya appeared unperturbed by the plight of his employees and this, more than anything, only served to deepen criticism and action against the airline.—AS

12. Pink Slime

“Something is seriously out of kilter in our communications environment when safe food products and proven technologies can be torpedoed by sensationalist, misleading, yet entertaining social media campaigns,” David Schmidt, president and CEO of the International Food Information Council, told the Chicago Tribune after stories describing the use of “pink slime” in meat products—triggered by a YouTube video from celebrity chef Jamie Oliver.

The ensuing publicity led to the closure of three plants belonging to manufacturer Beef Products, Inc.

“A picture is worth a thousand words, and has more staying power,” says MWW’s Winters. “While the furor over pink slime may have died down for the moment, it left an indelible impression on the minds of millions, who think twice before they order that burger. Watch for the re-birth of pink slime imagery whenever there are issues about quality and safety in beef.”

The images lingered even longer because “the largest producer of ‘lean, finely textured beef’ remained silent for two weeks while the media implied plenty simply by calling their product ‘pink slime,’ killing consumers’ appetite for ground beef,” says Paynter.

“Clearly, the company was not prepared to defend its own product. It’s the old cliché: No one wants to know how sausage is made, but if you’re in that business, you have to be prepared to respond quickly and transparently. That means having a crisis communication plan with strong, clear messages and a spokesperson who is trained to respond in a calm, credible manner rather than blaming the media for doing its job, as BPI tried to do.”

Adds Fleishman-Hillard’s Nelson: “BPI hit the crisis trifecta: a unappetizing practice we didn't know about, safety questions, and "pink slime," a negative phrase far more catchy than the product name. Pink slime gave a brand name to consumers' visceral emotional response and rational safety concerns.” But “the company viewed that story as a ‘one off" that didn't pose substantial risk to the business.”

There was some sensible analysis of the industry’s initial response from risk management expert Peter Sandman: Sandman says: “The meat industry has always had a choice. It could rub people’s noses in the ickiness—take school kids on slaughterhouse tours, for example. Or it could collude with the public in pretending that meat is pristine…. In the US, at least, the meat industry has always chosen to collude in the pretense. An inevitable side-effect of that choice is that occasionally an especially vivid example of ickiness gets through people’s defenses, and we overreact.”

The conclusion: “It's hard to imagine the company could have built a public understanding of lean finely textured beef that would have inoculated it against the ABC coverage, but seasoned crisis counselors could have imagined how the saga would play out after reading that story,” says Nelson. “The outcome of BPI's defamation lawsuit against ABC will provide the final chapter, but a recovery of the business is unlikely unless the company can show the consumer public a substantial and proven health and safety benefit from the product.”—PH

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