Holmes Report 14 Feb 2014 // 8:14AM GMT
Part one of our 2013 Crisis Review features JP Morgan, Obamacare, the horsemeat scandal, GSK in China, Chevron and the NSA.
7. Walmart and McDonalds offer unwanted advice
Throughout 2013, the focus on inequality in the US became more and more intense, with the rich feeling the benefits of a nascent economic recovery and the middle class largely failing to see any improvement in its economic condition. Against this backdrop, it perhaps was not particularly smart for companies like McDonald’s and Walmart to draw attention to the low wages their employees receive by offering unsolicited charity and unwanted advice.
First Walmart—recently named America’s worst-paying company—attracted attention by holding a Thanksgiving charity drive to collect canned foods for its own employees. The McDonald’s hit the headlines for using its employee resource website McResourceLine to offer budget advice to its own struggling workers.
“We’ve reached a decadent new low when corporations that employ nearly 4 million Americans between them, companies that are widely known and aspersed for the parsimonious wages they pay, can openly flaunt that reality and appeal to the charitable impulse of their non-destitute employees and advise employees who aren’t being paid enough to go out and buy their loved ones decent Christmas gifts how to stay out of debt,” wrote Michael Tomasky at The Daily Beast.
“The Walmart case is like Ebenezer Scrooge—the pre-apparitional-troika Scrooge, the mean one—taking up a collection so that the Cratchits could get a turkey. The McDonald’s example is like Scrooge warning Cratchit that he’d be wise not to spend too much on Tiny Tim’s new crutch.”
Adds crisis management expert Jonathan Bernstein: “So, you set out to create a website, accessible to the public, aimed at helping your employees budget. You have hopes of helping them out, but let’s be real here, you’re also looking to grab you some good PR in the process. Once you get started, however, you realize that there is no way a typical employee at your organization makes enough to live on, even with a second job, and leaving out minor expenses like food, water, and clothing…because those are luxury items, right?”
Both companies undoubtedly meant well, but the message that came across was that senior leaders—and their communications advisors—are oblivious to the real problems facing their low-paid employees and insensitive to the realities they face.
Whether there will be reputational damage remains to be seen. Says Winters: “Walmart is the Teflon Don of corporate reputation. They're the retailer we love to hate, and then we shop there anyway.”—PH
8. Rana Plaza
In April 2013, an eight-storey commercial building called Rana Plaza collapsed in the Bangladeshi capital of Dhaka, ultimately killing 1,129 people. The deadliest disaster in garment factory history, the incident soon ensnared the numerous Western brands that had contracted with suppliers inside the building.
Retailers who have admitted to using the Rana Plaza factory include Benetton, Bonmarché, Mango, Matalan, Primark and Walmart. The tragedy shone an unwelcome light on the West’s desire for fast, cheap fashion, says Ketchum UK corporate and public affairs MD Jo-Ann Robertson.
“This pressure is not an excuse for abusing human rights laws or cutting corners when it comes to supply chain audits, or indeed to turning a blind eye to bad behaviour or practice from partners and suppliers,” adds Robertson. “Global brands can't hide behind their supply chain.”
In the wake of the tragedy, NGOs have pushed for a five-year legally binding safety accord, which many retailers have signed up to. However, most North American brands have opted for a voluntary worker initiative, which has drawn criticism for a less stringent approach.
“If businesses value their reputation they need to invest in processes and procedures that allow them to have a comprehensive knowledge of the supply chain, that hold partners to the same standards expected in their own business,” says Robertson. “These processes need to have some teeth and need to be aggressively enforced.”
Almost one year after the accident, the Rana Plaza disaster remains on the media and NGO agenda, indicating that, as Robertson puts it, “there is no room for more mistakes.”—AS
9. Chick-fil-A and Barilla
A little over a decade ago, two companies—Benetton and Sears—faced the same crisis, after the Italian clothing company ran a controversial ad campaign featuring the stories of criminals on death row and Sears, which carried Benetton clothing, suffered a little collateral damage.
The two companies responded quite differently—Benetton stuck to its guns, while Sears pulled the clothing from its shelves—but both were probably correct, in the context of their brand values. Benetton’s appeal was built on its edgy embrace of difficult topics; Sears was more mainstream.
When Chick-fil-A chief executive Dan Cathy talked on his belief in traditional family values—“We know that it might not be popular with everyone, but thank the Lord, we live in a country where we can share our values and operate on biblical principles”—he found that his remarks generated plenty of support from politicians and customers who shared his values.
When Barilla chief executive Guido Barilla made similar remarks—"I would never make a spot with a homosexual family… [My idea of] family is a classic family where the woman has a fundamental role…. If they like our pasta and our communication, they can eat them. Otherwise, they can eat another pasta."—in September of last year, there was no similar outpouring of support and Barilla quickly issued a video apology.
That might have been that—two companies responding differently based on different core values and different customer bases—except that in 2013, Chick-fil-A began to backtrack.
"Companies can certainly have opinions about gay marriage or any other subject, but they should try to stick to their guns and remain true to their beliefs," says Dartmouth communications professor Paul Argenti. "Instead, Dan Cathy, who clearly supports the most traditional definition of marriage, decided to put the entire controversy back on the front burner by befriending Shane Windmeyer, executive director of Campus Pride. This only served to remind us of Chick-fil-A’s false Facebook accounts, its lies about the termination of the relationship with Jim Henson Co., and the entire Twitter controversy. It also called into question the veracity of Cathy’s beliefs."
MWW corporate practice chief Carreen Winters is not alone in suspecting that cynical calculation overtook a principled stance. “Reporters are always eager to point out that sales haven't declined in response to their opposition of LGBT civil rights, largely because customers in the Southeast and Midwest have more regularly patronized the restaurant in support,” she says. “Here's the problem: those folks can only eat so many fried chicken sandwiches in a given day. As a standard bearer for anti-gay movement, Chick-fil-A is going to find hate isn't a family value in markets like New York City, Los Angeles, and the Bay Area where they have stated plans to grow in the next 12 to 24 months.”
In other words, if you are going to make a stand based on core principles, you need to make sure those principles really are unwavering—or risk appearing unauthentic.—PH
10. Apple’s China climbdown
State broadcaster CCTV’s ‘Consumer Rights Gala’ has grown to become an annual exercise in discomfort for international brands operating in the country. Each year, the channel targets one or two companies for their consumer trust transgressions. Last year, for example, McDonald’s found its food quality attacked, leading to a drop in the company’s share price.
This year was Apple’s turn, with the iconic US tech brand heavily criticised for the shorter warranty it was offering to consumers in China, compared to other countries. “This gave state broadcaster CCTV all it needed to go after Apple, using the differing policies and apocryphal evidence to portray the Cupertino-based company of deliberately treating Chinese customers as second-class,” says David Wolf, MD of Allison+Partners’ global China practice.
Initially, however, Apple appeared to have rode out the storm, with many fanboys taking to social media to denounce the criticism as an orchestrated, unjustified attack. However, the state media took its cue from CCTV and continued to ramp up attacks on Apple, eventually leading to a remarkable apology from CEO Tim Cook.
The whole incident, says Wolf, serves as a reminder that the Chinese government is an “implacable foe,” even for a company as beloved as Apple.
“You will lose a staring contest, so don't bother getting into one,” he adds. “Dip your head, take your medicine, and move on as quickly as possible. It is usually more about face than either law or principle.”
The crisis may have ensnared only Apple, but other foreign companies would do well to heed the lessons. That starts with taking a close look at service standards in China and either ensuring uniformity with other countries, or being prepared to explain to an angry mob why that is not the case.
And, adds Wolf, they must be ready for the government to use Consumer Rights Day for its own purposes.
“That means that in the lead-up to the day, corporate PR and public affairs teams need to work together to plan out what might go wrong, and prepare for it,” says Wolf. “My approach: brainstorming possible scenarios, then preparing a mini-plan to respond to each. And the more outlandish and unlikely, the more you need to prepare for it.”—AS
11. Lululemon’s controversial founder
It’s been a tough few years for Lululemon Athletica. Still reeling from a horrific in-store murder in 2011, the upscale yogawear company found itself thrust in the front of an unflattering spotlight again in 2013.
First, Lululemon faced complaints about the quality of its expensive yogawear, so reasonably, last summer its then-CEO Christine Day announced she was stepping down. It’s what happened next that turned a product defect into a full-on crisis. Lululemon’s founder Chip Wilson - now infamously - blamed women whose thighs rub together for pilling fabric in the company’s yoga pants.
“Frankly some women’s bodies just actually don’t work for [wearing Lululemon pants]… it’s really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it,” Wilson said on Bloomberg TV in November. And then it got worse.
Since then, Wilson has resigned as chairman (although he remains on the board) and the company has named Laurent Potdevin - former president of Toms Shoes - as CEO. But, even so, Wilson’s words have already damaged the brand. During a recent earnings call, CFO John Currie admitted Lululemon’s PR stumbles have have taken their toll.
It’s not surprising that any brand that blames its customers for its shortcomings will face blowback -- the question is now, will customers return? That remains to be seen, especially with so many beloved brands — like Nike and Calvin Klein — moving into the lucrative yogawear market.
“Lululemon needs to tighten up the operations, focus genuinely on improving the customer experience, produce the type of peopleware that customers want and deeply absorb the customer is always right moniker as a way to rebuild trust,” says Wise Counsel co-founder Gerard Corbett “ It will take time, care and real customer engagement.”
Sam Singer, founder of Singer Associates, echoes this, adding that Lululemon should lean on its strong brand awareness, devoted client base and relatively popular products to overcome Wilson’s mistakes.
“They can bounce back from this incident as they’ve done with other problems in the past year,” Singer says. “The key will be in how thoughtfully the company positions its current leadership and how respectfully it communicates with its customer base.”—AaS
12. Asiana Airlines
“Crises tend to be most jarring when they reveal risks we weren't aware of or assumed had passed,” says FleishmanHillard crisis management expert Chris Nelson. The Asiana crash in San Francisco last July brought to end a stretch of more than four years without a major airline fatality in the United States and “served as a stark reminder that when things go wrong, they can go horribly wrong.”
Says Nelson: “Any plane crash is the worst nightmare for an airline, but this crash happened half a world from Asiana's corporate headquarters and hours before sunrise on a Sunday morning in Korea. It couldn't have happened at a worse time in the day or the week. As a result it took the Korean company hours to issue a basic statement that did little more than confirm the numbers of passengers and crew aboard the aircraft.”
That might not have been so terrible five or 10 years ago, but social media has changed the rules of crisis response. David Eun, a Samsung executive who was on board the flight, tweeted and started sending pictures of the aircraft as soon as he escaped the fuselage. His first tweet—"I just crashed landed at SFO. Tail ripped off. Most everyone seems fine. I'm ok. Surreal…"—included a picture of the smoking plane as passengers escaped.
Eun's tweet went viral immediately, and it drove initial news coverage of the crash. “The images and raw commentary from someone who'd been aboard were incredibly powerful,” says Nelson. “It forced people into the passengers' shoes. It forced us to imagine what it must have been like.”
John Bailey, managing director of Ketchum ICON in Singapore, says the crisis “emphasized all over again the challenge which airlines—and other companies—face in dealing with the flood of information provided by participants and eyewitnesses through social media channels in any crisis situation.
“There were more than 52,000 tweets about Asiana before the airline itself issued its first statement on Twitter. From that point onwards, Asiana was constantly on the back foot…. The Asiana case demonstrated just how badly prepared the industry still is in dealing with the challenge of social media in times of crisis—and you could extrapolate that to cover just about any other sector which comes to mind.”—PH
Part one of our 2013 Crisis Review features JP Morgan, Obamacare, the horsemeat scandal, GSK in China, Chevron and the NSA.