Crisis Musings

There is great virtue in the American way, which expects CEOs to perform on a quarterly basis, presidents and Congresses to reinvent politics in 100 days, generals to wipe out opponents in 100 hours without taking significant casualties, doctors to save life and limb every time, search engines to yield a million results in less than a second, and so on. There is also great virtue in the belief that what is bad can be made good, and that what is good can be made great, and that what is fractionally less than great is downright awful.

But these virtues can spawn vices. One is impatience. Another is a culture of chronic complaint. A third is the belief that every problem has a solution, that trial is possible without error, that risks must always be zero, that every inconvenience is an outrage, every setback a disaster and every mishap a plausible basis for a lawsuit.

I am moved to comment on an op-ed I read in the October 11 issue of PR Week.  The piece, entitled, “Put public’s interest first in a crisis,” looked at the Tylenol product tampering incident and drew the following profound lesson:

In an ideal world organizations would know exactly how to respond to any given crisis on any given day. That isn’t realistic. But if its decision-making is rooted in sound, agreed upon principles that emphasize putting the public’s interests first, not only will making critical decisions under the pressure of a crisis happen more efficiently, the company’s interests will ultimately be served.

To be sure, J&J DOES deserve credit for the manner it which it handled this crisis.

But the application of such banalities as “putting the public’s interest first” really does little to help today’s executives to better manage crises.  Although such statements do serve to remind us why crisis communications counselors are not held to the same level of esteem as rocket scientists and brain surgeons.

Not only does the author not distinguish the difference between the dynamics that caused the underlying crisis and the way in which a company handles a crisis, but he also fails to recognize that crisis situations are complex — far more complex than they might appear solely from news coverage.

With the greatest of respect to J&J, the Tylenol product tampering incident was a simple crisis challenge compared to some of those we have seen in more recent years.  The current controversy involving children’s cold medicine – in which J&J is centrally involved – is a more relevant case study of the challenges of crisis management.

“The public interest” is not always so clear.  And who’s role is it to define “the public interest?”

Historically, acting in the public’s interest meant abiding by the law, and providing the goods and services the public wanted, at a price the public was willing to pay.

Not any more.

Now we have NGOs, media pundits and bloggers attempting to define “acceptable” corporate behavior.  But who granted them such authority?  How are they accountable?

Let’s take a look at some of the higher profile crises over the past several years, and see if we can apply the “public’s interest” test to them:

1.       Merck/Vioxx (withdrawal of prescription drug) — Well, they did act in the public’s interest. They withdrew the product voluntarily, and did not violate any laws.  But look at the outcome.  While they are prevailing in most of the lawsuits, their reputation is tarnished, shareholders lost a bundle, management was turned over, and the entire regulatory model for the sector is suspect.

2.       Dubai Port World (contract to own/operate ports) – One could argue that the efficient operation of the nation’s ports IS in the public interest.  And there was no evidence that DPW could do anything other than operate the ports efficiently.  But look at the outcome.  While selfish and self-destructive political interests might have been served, there’s a real question as to whether the public’s interest was.

3.       JetBlue (operations meltdown during winter storm) – The airline won points for the manner in which it communicated following the crisis, but let’s keep in mind here that their crisis was really self-inflicted:  a combination of growing too fast and on the cheap, and some very bad operating decisions at the front end of a winter storm.

4.       HP (pretexting scandal)  – Did the public even have an “interest” here??

5.       Guidant (recall of implantable cardiac defibrillator ICD) — While Guidant’s behavior in this crisis will never find its way into a best practices textbook, it may be the media itself that was acting contrary to the public’s interest.  In a December 6, 2006 report in the Wall Street Journal, “Slowdown in Heart-Device Market May Harm Patients, Doctors Fear ,” Dr. Eric Prystowsky of St Vincent Hospital in Indianapolis, commented on the media coverage in the wake of the Guidant recall:  “Undoubtedly there are people who have died as a consequence of this climate of fear.”  The Journal reported that Dr. Prystowsky knew of at least two people who died suddenly after choosing not to have ICDs implanted in their hearts.

6.       Bausch & Lomb (withdrawal of contact lens solution) — The bottom line here was that the company had to withdraw a product because its users were unwilling to use the product properly.  But still the company bore the brunt of the criticism.

7.       Spiking Energy Prices – A case could be made that everyone (politicians, oil companies, environmental activists, etc.) are acting in their own interests, and that the “public’s interest” is simply the outcome of this messy political pitched battle.  But based on the old rule, described above, the oil companies ARE acting in the public’s interest by following the law and attempting to provide a product that the public demands, at a price the public is willing to pay.  It’s the behavior of politicians and NGOs that should really be brought into question.

8.       TJX (criminal theft of credit and debit card information from company computers) — FBI and Secret Service encouraged the company NOT to disclose the criminal breach because it would compromise the investigation, therefore creating greater risk for cardholders.  But because information was leaked to the media it was TJX that took the brunt of criticism supposedly for acting contrary to the public’s interest, even the company made every reasonable effort to communicate to and help consumers.

These are just a small handful of the many crises that have dominated the headlines in recent years.  But you can see just from these that “putting the public’s interest first” simply doesn’t cut it here.

If only crisis management were so easy. 

For you loyal and few out there, I bet you were wondering if had abandoned my blog.  No, I haven’t.  Just been busy taking care of clients.  Oh, and learning the hard way that when one writes a blog on corporate crisis matters, one has to be careful not to unintentionally give reason for agita to clients or those of my colleagues who support them. 

What am I talking about?

Well, my most recent blog entry (never posted) looked at the question of media bias.  I focused specifically on one newspaper’s coverage of a Fortune 500 company that has had its share of nasty headlines over the past few years.  Turns out the company is a client of the firm (though I haven’t done any work for them), and my colleagues had a legitimate concern that the blog posting could be seen as sanctioned by the client, and might complicate matters for them.  Nobody thought that made sense, so I put the entry on the shelf.  Maybe I’ll revive it one day, but in the meantime, if you’re interested, drop me a note.  But let me give you a hint — The New York Times does have an anti-business bias, and I have quantitative data to support this view.

Now, on to the subject at hand.

A friend recently passed along to me the following link – http://knowledge@wharton.upenn.edu/article.cfm?articleid=1807 – which is an essay published by the Wharton School of Business entitled, “Can’t Run, Can’t Hide:  New Rules of Engagement for Crisis Management.”

The piece isn’t all that illuminating, and little of it is new.  And while there is some decent stuff in here, I simply cannot allow some of it to go unchallenged, for it suggests a certain ignorance of the real world as opposed to the world of lectures and textbooks.

I took specific exception to the following passage:

“The linchpin of any reputation recovery process is a believable apology.  According to Wharton marketing professor Lisa Bolton, three components ensure that an apology will work:  the CEO must deliver the message, a solution to a problem must be outlined, and some remuneration should be in place.” 

Now I am all for expressions of empathy and regret, and I do believe that a CEO must be front and center in managing a crisis, but to suggest that an apology — which is tantamount to accepting responsibility — is a requisite step to crisis recovery is simplistic and misguided. 

First of all, the term “apology” is used too broadly here.  Is the suggestion that “I am sorry” should imply “it’s my responsibility?”  It would seem so if money is offered as part of the equation.

I think the authors here are looking at a too-narrow definition of crisis.  In today’s world, crises come in all shapes and sizes.  Perhaps an apology is in order for a toy recall, or an airline schedule SNAFU.  But for every Mattel or JetBlue I can cite a crisis situation where the responsibility isn’t all that clear, and where an apology might not contribute to a solution.

Now, with respect to the question of remuneration, that idea has so many problems I don’t even know where to begin.

Yes, in a recall situation a company should offer an exchange or reimbursement, and perhaps even a coupon as a goodwill gesture.  But compensation?

On the one hand, the lawyers will be all over that idea.  Will a jury see that as an admission of responsibility?  Will it be seen as an attempt to buy the silence of potential claimants or plaintiffs?

And I can see the CFO and CEO trying to struggle with the concept.  How much will this cost us?  How do we decide who gets the remuneration, and who does not?  How to we manage against fraud or mismanagement of the process?

But beyond these practical questions, there are the larger philosophical questions — How much is “enough?”  How does one put a price on “trust?”

Unfortunately, it is quite likely that any attempt like this will be met with criticism from one or more directions.  Remember the old adage, “no good deed goes unpunished“??

The notion of remuneration is just a manifestation of the “compensation culture” that we live in.  When a crisis occurs, no longer is the question, “What went wrong?” or “What is the fix?”  Instead, it is “Who is going to pay?” and “How much.”

As if stakeholder confidence can be bought, rather than earned.

In my view, apologies and coupons don’t cut it.  Those are communications tactics, and dubious ones at that.  The most impactful way a company can rebuild the bond of trust with customers and other audiences is through performance.  JetBlue will be judged by its ability to weather the storm.  Mattel will be judged by the quality of its toys.  No amount of apologies, coupons or bills of rights will overcome a failure of performance.

• According to Reuters (August 8), “The most intensely scrutinized preparations for any Games in Olympic history has brought forth a barrage of criticism for China this week on issues such as human rights, press freedom, pollution, food safety and Tibet.”

• “Pollution in China has reached such epidemic proportions that it threatens the ability of multinational corporations to do business as usual,” says Elizabeth Economy and Kenneth Lieberthal in the Harvard Business Review (June 2007)

• Time Magazine referred to China as “Toxic Toyland“ (July 2, 2007)

• Writes Richard McGregor in the Financial Times (August 5, 2007), “With most stadiums almost finished and detailed logistics preparations under way, China is turning to one aspect of the Olympics it cannot control – the global lobby groups that see the event as a rare chance to put genuine political pressure on Beijing.  The Save Darfur coalition has already run large advertisements in the global media, branding the Beijing Olympics the “genocide games” because of what they say is China’s support for the Sudanese regime….Over more than a decade Beijing has gradually defused pressure over its human rights record. Through remorseless diplomacy and skilful use of its growing economic clout, it has sidelined western complaints about human rights and marginalised the non-governmental lobbies that seek to promote them.  The Olympics, however, are offering China’s critics a moment in the sun, and they have grabbed it eagerly.”

• In an op-ed in the August 8 Wall Street Journal, Sophie Richardson of Human Rights Watch observes, “At once a coming-out party for China and a source of great national pride, the games have also raised hopes that Beijing might honor its promises to allow unfettered press freedom and even permit greater freedom of speech for the Chinese people. But as we enter the home stretch before the games, the prospects for media and free expression reform are not good… This spring, the State Administration of Radio, Film and Television’s Propaganda Administration Department announced a ban on, among other topics, discussing whether the media should be free. Franz Kafka would have smiled at this stunning act of auto-censorship, which means that Chinese citizens now can’t even publicly argue in favor of a controlled press.“

Earlier this summer, RC2, the maker of Thomas trains, recalled 1.5 million trains and accessories because a Chinese supplier had coated them in lead paint. At that time, consumer safety experts and toy industry analysts said that Mattel was unlikely to face such a problem.

It is with no shortage of irony that my first entry in this blog on crisis issues and trends is about…. blogs.  But the current hullabaloo about John Mackey’s ongoing web postings about his company (Whole Foods) under the pseudonym “Rahodeb” points to a few lessons for people who, like me, make a living in the crisis management realm.

Albeit not a blog, Mr. Mackey’s postings raise issues that corporate bloggers ought to consider.

First is the central question, “why?”  Why have a blog?  And if you’re a CEO of a company, that question is REALLY important.

In the past, if people wanted to have a conversation about a topic, they would have a conversation.  A private conversation.  Or if they wanted to put their thoughts to pen, they’d keep a diary.

Now they have a blog.  But at the risk of offending my colleagues who offer counsel on smart digital strategies, just because a CEO can have a blog, it doesn’t me he/she should.

If the purpose is for vanity (“all the other CEO’s have one, so I need one“), self-aggrandizement, or simply to use as an outlet or release from the very restricted life of a CEO, well that is not a sufficient reason.

Like very smart communications strategy or tactic, there must be a purpose, and there must be an ability to measure progress against that purpose.

In the Whole Foods case, it is not clear what the purpose was, and so why assume the risk without any real benefit?

(Sorry, Mr. Mackey, when you’re a CEO in today’s world there is little distinction between your private life and your CEO life, particularly when you are talking about your company.)

I have always thought that there was an inevitability that a CEO or corporate blog would lead to trouble (aka. crisis), and such an incident would cause CEOs and corporate communications managers to rethink their “hip” blog strategy.

Well, here it is.

Which brings us to the second lesson.

I am sure that the Whole Foods CEO never imagined he was breaking any rules by his behavior.  And it is quite conceivable that the SEC, in its investigation, will draw the same conclusion.

But even if it is ultimately concluded that no laws were broken, the damage has been done.  Both Mr. Mackey and the company will have paid a price.

The point here is that companies and executives often find themselves in trouble, and sometimes “indicted and convicted” in the court of public opinion, even though they did not cross the legal line.

The reason is that in today’s world, people and organizations are judged on two dimensions.  The first is the clear one – the law (“acceptable behavior“).  The second is far more opaque – “expected behavior“.

Unfortunately, there is no clear definition of “expected behavior“, other than it is a level of behavior that exceeds that which is required by the law.  In other words, behavior that conforms to a set of values, not laws.

But who says what is right?  Often the media make such a judgment by simply calling attention to an executive’s or a company’s actions, even when there is no allegation of a violation of the law.  This is the case we see with Whole Foods.  We also see this with recent media coverage of the marketing practices of pharmaceutical and medical device companies.  What they are doing may not violate the law, but it does cross some sort of line that defines whether a behavior is acceptable.

But who draws that line?  Media?  NGOs?  Certainly not lawmakers.

The reality is that companies receive no rewards for simply adhering to “acceptable behavior,” and they don’t necessarily receive any awards for following “expected behavior” (however that is defined), but they can certainly be punished if they fail to do so.

Which brings us back to the Whole Foods experience.  What was the purpose of Mr. Mackey’s web alter-ego?  Did he achieve his desired purpose?  Did Mr. Mackey ever consider the potential risks?  Is there a real value for CEO-sponsored blogs; a value that exceeds the potential risks?  How does one mitigate those risks?

Thoughts?