The Top 12 Crises Of 2015: Part 2
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The Top 12 Crises Of 2015: Part 2

Mecca crane collapse, Starbucks, Theranos, Sports Direct, Nestle India and the Tianjin explosion feature in part two of our annual Crisis Review.

Holmes Report

The Top 12 Crises Of 2015: Part 2

Part one of our annual crisis PR review, featuring Volkswagen, FIFA, Chipotle, HSBC, cybersecurity and Petrobras, is here.

7. Mecca crane collapse

The worst hajj pilgrimage accident in a decade saw the collapse of a construction crane in Mecca, killing at least 107 people and injuring more than 400 during a severe thunderstorm. The immediate aftermath posed a considerable crisis response challenge for Saudi authorities, which needed to assist victims and also investigate the incident in a rapid manner.

Initial communication efforts, says Ketchum Raad MD Ashraf Shakah, were “swift and effective”, notably the use of the Saudi Civil Defense Twitter account. “We saw timely updates across social media, and transparency on critical matters including the number of causalities and the progress of the rescue operations.”

Shakah also commends the short-term follow-up, which included funds for victims and the suspension of the Saudi Binladin Group construction company, pending an investigation. However, Shakah believes the long-term response has been less impressive, raising questions about accountability, corruption and the exact events that transpired.

These issues, he noted, have been accentuated by the “gap between the level of discussion that Saudis had on Twitter and mainstream media reporting.”

“The issues of corruption and transparency were discussed openly and extensively by individuals, something that is encouraged by the new blood at the ruling establishment in the Kingdom,” says Shakah. “Mainstream media on the other hand seemed to limit coverage in a way that reflected  poor editorial polices that belong to the days of when one state run TV station was dominating the information flow.”

Matters were complicated further by a Haj stampede less than two weeks after the crane collapse. Questions focused on why such accidents keep happening despite the apparent heavy investment in infrastructure and safety.

“One lesson can be learned from the crane tragedy and the following Mina Valley Haj stampede; we do have the tools and channels to enable transparency and flow of timely information, and our people are calling for it, yet our mainstream media organizations still need to transform out of the old government and corporate sponsored mindset,” says Shakah. — Arun Sudhaman (AS)

8. Starbucks

To understand why Starbucks elected to wade into the discussions around race that followed police shootings in Ferguson and elsewhere, and how the company went so quickly from media hero to villain to victim, a little context is helpful. CEO Howard Schultz’s decision to address the ultra-sensitive political issues of race did not happen in isolation. It was a natural extension of Starbucks’ commitment to getting involved in the issues that affect the lives of its employees, customers and communities.

According to CCO Corey DuBrowa, “Over the last few years, we've been asking what we think is an important question: What is the role and responsibility of a public company in today’s society? We are building a different kind of company—performance-driven through the lens of humanity…. We also believe that the world needs leadership, not only from government, but from businesses and citizens.”

That approach led to the coffee company taking positions on the government shutdown and the debt “crisis,” gay marriage, jobs for veterans, open carry gun laws, education, and other issues—many of them driven by the concerns of employees.

According to DuBrowa, this is not corporate social responsibility or cause-related marketing, “it’s culture. It’s authentically who Starbucks is. Our mission is to inspire and nurture the human spirit one person, one cup and one neighborhood at a time. That means we cannot be bystanders when our country is in turmoil over race relations…. We don’t have all the answers, but staying silent is not who we are.”

Research from New York-based public affairs firm Global Strategy Group, for example, found that 
almost three-quarters (72 percent) of Americans agree that it is important for businesses to take action on important social issues.

“Today’s consumers are more savvy and social conscious than ever before,” says David Johnson of Georgia-based public relations firm Strategic Vision. “When they select a brand they sending a signal that the brand reflects not only what they want in terms of quality and service but the brand shares the consumers’ values. People expect a brand to tell a story and reflect the person’s values and beliefs.”

And in the case of Starbucks, the overall impact of its social initiatives has been good for the business, and the issue of race appeared to fit the paradigm of previous efforts. More than 40 percent of Starbucks’ baristas are minorities and they clearly cared passionately about the issues raised by Ferguson and similar incidents.

But given how divisive racial issues are, the eventual backlash against Starbucks is perhaps less surprising than the fact that its efforts to start a dialogue were greeted so positively by employees. The social media reaction was both swift and harsh. DuBrowa received so many hostile tweets that he temporarily shut down his Twitter account—a move that probably sent the wrong signal from a company that was trying to start a dialogue, and one he acknowledges as a mistake.

Even those who were supportive of the company’s aims expressed concern that Starbucks had not “earned permission” through actions of its own to lead the discussion; that coffee shops were not an appropriate venue for a debate about such a sensitive topic; that young baristas were being put in an untenable position.

Tai Tran, who teaches a social media marketing course at UC Berkeley, offered up 
a thoughtful blogpost in which she suggested that “Starbucks as a brand has never been associated with racial diversity; instead, it has been known for premium pricing and even gentrification in some cities,” and claimed that a “lack of authenticity caused many customers to feel that Starbucks was misinformed while attempting to cash in on a recent trend.”

Nick Gourevitch, managing director and head of the research division at GSG (which produced the study confirming that Americans want companies to be more involved in political issues), says that while the “research we conducted last year showed that while Americans are increasingly comfortable with companies taking stances on political issues, it can be dangerous when the issue in question isn't directly related to that company's industry or business. Much of the criticism against Starbucks reinforces this sentiment, questioning whether a morning coffee line is the place to start a conversation on race.”--PH

9. Theranos

The Wall Street Journal
piece appeared in October 2015, instigating a downward turn for the billion-dollar darling Theranos. The startup claimed to be able to run hundreds of blood tests with a finger prick, rather than drawing vials of blood — a claim that brought in more than $400m in investment and a $9bn valuation. But this came under suspicion when the Wall Street Journal piece raised questions about the reliability of Theranos’ technology, resulting in regulatory investigations and a number of partners (Walgreens, Capital BlueCross) distancing themselves from the company.

Matt Bennett, SVP at Racepoint, says Theranos mishandling of the Wall Street Journal article ultimately caused the company’s ongoing crisis.

“When the story broke, the company hid behind trade secrets and tried to discredit the allegations,” he said, adding the company failed to answer the questions “that were coming in rapid fire succession... To their credit, they didn’t stop engaging publicly – [CEO Elizabeth Holmes] made high profile appearances at events like the Forbes Healthcare Summit and gave interviews to many major news outlets – but they didn’t share new information or perspective. They stuck to their talking points while the world spun out of control around them.”

In a crisis, companies sometimes get so focused on the talking points, they neglect to respond the conversation that’s happening — and instead — participate in the conversation they wish they were having, he added

“At one point in the fall, they gave an i
nterview to the New York Times, which noted that Ms. Holmes was accompanied to the interview by ‘recently hired media relations professionals,’” he said. “Even their response strategy was being covered as part of the story.”

Kwittken CEO Aaron Kwittken says this crisis needn’t destroy the once-promising company — if Holmes takes some necessary steps.

“The problems that Theranos had this year are not uncommon for a fast growing startup shaking up a highly regulated market,” said Kwittken.
Theranos deals directly with people’s health though, so the stakes are much higher for them than companies like Airbnb or Uber, who are in similar situations.”

It’s critical the company soften its combative tone and be more responsive to inspections from the Center of Medicare & Medicaid Services, Kwittken advises. “If they want to regain trust with their stakeholders, especially partners like Walgreens, it will be critical for Theranos to be fully transparent and overly forthcoming about their labs and the testing processes.”

10. Nestle India

Most crises responses, even on this list, demonstrate a rudimentary understanding of the basics of issues management. Which makes Nestle’s behaviour all the more curious, after a batch of its popular Maggi noodles were recalled in the Indian state of Uttar Pradesh last year, because of unsafe lead levels.

Nestle rejected the notion that the noodles were unsafe and took to its social media accounts to deny that food inspectors had ordered a recall. On Nestle’s website, the following statement appeared: “The quality and safety of our products are the top priorities for our Company. We have in place strict food safety and quality controls at out Maggi factories… We do not add MSG to Maggi Noodles, and glutamate, if present, may come from naturally occurring sources. We are surprised with the content supposedly found in the sample as we monitor the lead content regularly as a part of the regulatory requirements.”

Nestle continued to deny the charges, stating that extensive testing had revealed no excess lead in its Maggi noodles. The company launched an FAQ page on its website and communicated actively on social media.

All of these efforts, though, only made Nestle’s eventual u-turn all the more galling. On 4 June the company backtracked and recalled all Maggi noodles produced in India. Nestle CEO Paul Bulcke admitted it was “working with authorities to clarify the situation”, which ultimately saw $50m worth of Maggi Noodles deemed unsafe by regulators.

Accordingly, Avian Media CEO Nitin Mantri believes Nestle “has only itself to blame” for being caught out, particularly as the recall appeared to catch the company unawares.

“The company initially ignored the media and went into a state of denial, which is a big no-no in today’s world,” says Mantri. “In this age of social media, especially Twitter, things spread like wildfire and even a few hours of wait can cost a company dearly. In Maggi’s case, the wait stretched to a few weeks and that is nothing short of a blunder.”

Mantri also criticises Nestle’s social media response as “robotic and lacking sincerity.”

“It was evident they were not interested in engaging with their fans,” he continues. “And, if you don’t participate in a conversation with your consumers in times of crisis, then you have are missing the bus. There was no human face to the crisis.” — AS

11. Sports Direct

UK retailer Sports Direct hit the headlines last year when a Guardian investigation revealed that thousands of the chain’s workers were receiving hourly rates of pay effectively below the minimum wage. Undercover reporters also found that workers were subjected to searches and surveillance, with the ensuing crisis wiping £600m off the value of the company and attracting criticism from MPs and business leaders.

Former shadow business minister, Chuka Umunna, branded the retailer as “a bad advert for British business” and said it had “a culture of fear in the workplace that we would not wish to see repeated elsewhere”. The Institute of Directors, meanwhile, described Sports Direct as a “scar on British business”, despite the company’s efforts to defuse the issue with a detailed rebuttal.

Burson-Marsteller UK CEO Amanda Pierce notes that the “overriding lesson” from the Sports Direct crisis concerns preparedness. “Companies need to spot an issue that has the potential to develop into a business damaging, reputational crisis so that they can act to head it off,” she points out. “Is what they are doing passing the sniff test?”

In this case Sports Direct must have been aware of the potential for crisis, given that rumours about the company’s working practice had been “bubbling for a while.”

“But we all know that sometimes the best communications team in the world can’t convince their leadership to place the right focus on potential flash points,” says Pierce. “In some companies the benefit of building an excellent reputation, based on an authentic corporate purpose, is only recognised when being found guilty in the court of public opinion impacts on shareholder confidence and shareholder value.”

Pierce also believes the situation demonstrates the need for joined-up thinking, given that it revolved around the issue of minimum wages. “Public affairs experts would long have been flagging issues around pay given the priority this policy area has been given by the Chancellor with the imminent introduction of the National Living Wage,” she explains.

“Crisis management and media relations professionals draw on experience and knowledge to judge and advise as to what needs to be said and when in order to mitigate or end a media frenzy,” concludes Pierce. “Get this wrong and you just prolong your time in the spotlight – which happened to Sports Direct when their detailed rebuttal didn’t close the story down.” — AS

12. Tianjin explosion

In August 2015, a huge fireball appeared at a container storage station at the Port of Tianjin, the first sign of a series of explosions that ultimately killed more than 100 people and injured hundreds more.

"This crisis — a chemical explosion that killed over 100 people and injured many more —  included loosely regulated policies, corrupt officials, censored media and misinformation to form one of the worst handled crises of 2015," explains Ogilvy PR Asia-Pacific CEO Scott Kronick. "The result: death and destruction, hazardous pollutants affecting the surrounding population, and a response by the local government representatives reminiscent of times passed in China."

Despite heavy coverage of the crisis on social media, and rare criticism from state-run media, public information was scarce, which Allison+Partners China practice MD David Wolf puts down to two reasons. “The first was practical: the scale of the disaster escalated beyond what local officials were prepared to address,” said Wolf. “That is a planning problem, a failure of imagination hampered by a lack of information about what the site contained and what might happen.”

The second reason, though, Wolf describes as “political”. “The implication of the disaster, given the connections of the site owner, the scale of the damage, and the sheer number of people affected, nobody was certain what could be said or when, and the entire effort was laced with obfuscation and local officials’ fear of retribution.”

That crisis communications approach has much in common with previous incidents that have been poorly handled by Chinese authorities, including the 2003 SARS health crisis and the 2011 high-speed train collision. "A post-SARS China served as a milestone whereby officials learned that all news did not need to be positive," says Kronick. "Ongoing crises could be averted by being more transparent, communicating frequently and addressing what was going to be done instead of focusing on the why."   

That this didn't happen in the case of Tianjin, continues Kronick, "sets the country back with behaviour that was secretive, irresponsible and clouded."

For Wolf, the situation highlights a continued reluctance to fully embrace modern communication techniques. “Generally, at nearly every level of government in China, the technical response to crisis – incident command, management, personnel, resource response – has improved markedly,” he says. “The one aspect of incident response that continues to fail is communications, because communications is fundamentally political, not technical.”

 In particular, attempts to control the flow of information while keeping the public informed have proved difficult for the central government to pull off, with little in the way of formal public information policies to guide them.

“This means that apparatchiks operate in an environment of fear, afraid to say anything without approval from higher up, and sometimes even afraid to ask for approval,” explains Wolf. “This puts the entire public information effort into deep freeze, with predictably severe consequences.” — AS

Part one of our annual crisis PR review, featuring Volkswagen, FIFA, Chipotle, HSBC, cybersecurity and Petrobras, is here.
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