Top 10 Crises of 2010: Part Two
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Top 10 Crises of 2010: Part Two

HP, Nestle, Facebook and FoxConn

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4. HP’s Leadership Transition  

Mark Hurd stepped down from his role as chief executive of Hewlett-Packard following an internal investigation of his relationship with a former contractor, Jodie Fisher. The investigation found no evidence that Hurd had violated the company's sexual-harassment policy, but uncovered other violations, including expense-report irregularities and came to the conclusion that he had not been honest with the board about his relationship with Fisher. In September, HP named Leo Apotheker, former CEO of German software giant SAP, as Hurd’s replacement.  

Analysis:

H-P's board earned both criticism and praise for its decision to dismiss Hurd. "There was paucity of information from H-P," Irv Schenkler, clinical associate professor of management communication at New York University's Stern School of Business, told The Wall Street Journal.  

“The aftermath of Hurd’s departure leaves HP with a bigger problem – a continued lack of trust in the company, its board and its leadership,” says MWW’s Winters. “Indeed, lack of trust was the reason cited for Hurd’s departure. Yet lack of confidence on the board’s judgment—fueled by a shareholder suit over Hurd’s severance package—has led to a shakeup of the Board and an almost constant defensive posture by HP.”

As a result, “HP has a new board with some heavy hitters; a new CEO, accompanied by lots of management changes throughout the organization.  HP needs to use communications to restore stakeholder trust and confidence by being visible, accessible and transparent; establishing (and delivering) on performance benchmarks over time, and creating a culture of integrity that begins at the top.”  

Lessons:

A prominent New York Times story suggested that HP public relations firm APCO played a significant role in the decision to dismiss Hurd (APCO denies that its role resembled the description offered by the Times) and suggested that “in ousting Mr. Hurd, the directors set off a media scrutiny they had hoped to avoid." It seems to me inconceivable that anyone at APCO--even the receptionist--would have counseled HP that if the company chose to dismiss Hurd it would "escape criticism" or avoid "media scrutiny." If you fire a CEO, particularly a high-profile CEO like Hurd, someone is going to notice and someone is going to question whether the decision was correct. In circumstances such as these, good public relations people have to balance the negative impact of firing a CEO (in this case, quite intense but likely short-term) with the negative impact of sticking with him (perhaps less intense, but enduring and distracting the company over a longer period of time).

They will also focus on the company's values, and recommend that the decision be based on fundamental principles that are important to HP, including "trust and respect for individuals" and "uncompromising integrity." In an explanation of its decision, the company said it was enforcing the same code of ethics it would apply to any employee. It's hard to imagine how HP could have done other than it did and maintained any credibility.  

5. Nestle and Palm Oil  

Nestle’s use of palm oil came in for sustained scrutiny when Greenpeace released a video that cleverly conflated the Swiss company’s Kit Kat chocolate brand with the fingers of an endangered orangutan. The video attracted considerable interest and Nestle stumbled badly in its response, first by trying to have it removed from YouTube, and then by reacting in an angry manner to protests on its Facebook page.  

Analysis:

“I think the problems with Nestle were poor understanding of risk, lack of appreciation for how little control brands can have if things go wrong in social media and insufficient processes or resources to cope with the crisis they faced,” says Porter Novelli corporate practice leader Neil Bayley.  

“They clearly made an error by being all ‘social media friendly’ up until the crisis broke and then flipping to corporate mode when the situation escalated, especially through the way they issued warnings about brand infringement,” adds Bayley. “This just served to add fuel to the fire.”  

Lessons:

Given the number of brands implicated by Greenpeace for their use of palm oil, there is plenty that other companies can learn from Nestle’s woes.  

Ultimately, Nestle caved in to the pressure, promising to re-examine its supplier relationships and cut ties with dubiously sourced palm oil. The crisis appears to have had a profound impact on the company, sparking - by all accounts - considerable internal effort to rethink engagement with NGOs and online stakeholders.  

“Since the incident, Nestle have gone to great efforts to ensure their corporate responsibility initiatives are well publicised through Facebook, but I would argue the audience is probably not so interested now the campaign has peaked,” explains Bayley.  

“It’s now much more important how they engage directly with Greenpeace, and some of the more rational voices in the palm oil debate, to talk about the changes they will make. Tangible action and a direct dialogue are probably the best ways to alleviate future pressure on this issue.”   

6. Facebook and The Social Network  

In recent years, several companies have had to deal with crises arising from either documentaries (McDonald’s and Super Size Me) or fictionalized accounts of real events (Brown & Williamson and The Insider) to the point that the movie-related crisis has almost become a sub-category for crisis communications experts. But no fictionalized account of business events has ever enjoyed the success of The Social Network, the Oscar-nominated movie about the origins of Facebook, which hit at around the same time that Facebook was dealing with allegations about

Analysis:

Says Leslie Gaines-Ross, chief reputation officer at Weber Shandwick: “The Social Network movie about the founding of Facebook by Mark Zuckerberg is a stark reminder to all companies and communications professionals that a whole new genre of movies/documentaries is in the making—the Anti-Business School of Film.   

“The number of films and video that mock companies and their leaders are being dramatically rendered and becoming blockbusters. Although some of these films provide useful criticism and force executive introspection, the high drama often overrides the hard facts. Companies, predominantly Fortune 500 ones, are increasingly shown as a menace to society and this perception contributes to an overall anti-business climate that needs to be repaired.”  

Adds Winters: “Facebook pointed out that any film takes a certain amount of creative license, but declined to get into a tit for tat of responding to every allegation or implication of the film.  Facebook has made it to the reputation big leagues, and handled themselves as well as they could under difficult circumstances.” 

Lessons:

According to Winters, “As crisis communicators, our first impulse in a crisis is to communicate, and ask ‘what can we say to make it better?’ But in some situations, the choices for communicating are all undesirable, and the right strategy is to say nothing, or very little—because what you can contribute will only expand, extend or otherwise exacerbate the crisis.”    

Gaines-Ross offers her advice on dealing with movie crises: “Train your spokespeople/CEO to narrate their side of the story before they are the story.”  

As for this specific crisis: “Facebook founder Mark Zuckerberg found his voice in 2010 as he was forced to confront  issues over privacy controls and perceptions about his ruthlessness as depicted in the movie.  Zuckerberg’s more recent public appearances, gift to Newark public schools and external interviews have demonstrated an understanding of the need for greater transparency, greater comfort with messaging and less indifference to what others think about social networking privacy.”  

7. Foxconn  

Uncomfortable questions were asked about Apple’s supply chain when reports emerged of working conditions at its Chinese contract manufacturer, Foxconn. 14 Foxconn employees committed suicide in 2010, sparking a report by 20 Chinese universities which described the company’s factories as labour camps, rife with worker abuse and illegal overtime.  

Analysis:

“Foxconn made several sequential errors, far more fundamental than simply ignoring the basics of crisis control,” says Wolf Group Asia CEO David Wolf. “First, it long laboured under the belief that business performance was a sufficient substitute for creating a brand. At the same time, it decided that communications was a marketing function, ignoring the need to create and sustain open channels with its range of stakeholders, starting with its own people.”  

“And nearly as bad, it forgot that it was obliged to protect the reputations of its customers, choosing instead to believe that the only brand that needed stewarding was its own.” It is tempting to see these missteps as being emblematic of China’s manufacturing sector as a whole, rather than a mindset that was unique to Foxconn. Given this state of affairs, Foxconn’s attempt to respond to the crisis was inevitably hamstrung.  

“When the crisis came, Foxconn then decided that corporate communications was spin, choosing to hone its messages than change its behaviour,” continues Wolf. “Finally, when it realised that it must act and not just talk, it chose to take only those actions designed to create the illusion of genuine change.”  

Lessons:

“It's a new era for companies operating in China,” explains Weber Shandwick Shanghai MD Darren Burns. “Whether they be local, MNC or Asian they are increasingly being put under the spotlight by all manner of parties - internal and external. Whereas several years ago companies may be able to use local connections to hush things up - now it's increasingly difficult to escape the wrath of a rampant social media and national government focused on stability.”  

Wolf is not wholly convinced that Foxconn itself has learned these lessons, pointing out while the company did eventually realise that fundamental changes in its behaviour were required, by then it had “paid a horrible price in brand equity and reputation.”  

In common with many Chinese manufacturing companies, PR has never been a priority at Foxconn. The company’s initial response to the news of the suicides was muted. Eventually, Foxconn promised to offer higher wages at its Shenzhen factories, as part of a more generous compensation structure. The company also called in Burson-Marsteller for crisis counsel.  

Yet the need to be more transparent will not sit easily with China’s manufacturing companies. “Painfully few companies - in China, in Asia, and elsewhere - have taken the lesson from Foxconn, choosing instead to believe that Foxconn's faults a strong business made corporate behaviour and communications,” says Wolf.  

“Most have grown at astonishing rates over the last decade but have yet to build up solid communications infrastructures to be able to sustain that growth,” adds Burns.  

The tragic events at Foxconn also demonstrate the growing importance of labour relations in China, one of the targets in the Government’s next five-year plan. Burns points out that he recently sat down with local newspaper chiefs on behalf of an MNC client. “They asked our MNC client how they were creating a basic environment that respects its employees and treats them fairly.  Another challenge for all companies in China - but an opportunity to build reputation.”  

“The main lesson here is simple: exemplary corporate behavior and great PR are intertwined, and they are not options,” concludes Wolf. “Indeed, they are the foundation of strong, enduring brands. No lesson will be harder learned in China.”

Part Three here

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