Posted on April 13, 2017
If you’re the CEO of a public company, you already know that your company’s reputation accounts for more than $1 in every $5 of shareholder value. You know that a company’s reputation is seen as the cornerstone of its corporate value. And, you’re probably familiar with Warren Buffet’s famous mantra: ‘we can afford to lose money ‘ even a lot of money. But we can’t afford to lose reputation ‘ even a shred of reputation.’
Your company’s reputation (and your personal reputation) should be managed like a priceless asset and protected as a matter of life or death. One survey found that 53 per cent of companies that experienced a crisis still hadn’t returned to their pre-crisis share prices a year after the incident. How a company responds to a crisis can make or break its reputation.
To help you prepare for the unthinkable, I’ve compiled this list of different high-profile crises. This list is in no particular order and isn’t intended to offer any definitive lessons. Rather, it’s to get you thinking. Things can go wrong (or right) in unexpected ways — is your team prepared?
PR Crises To Help You Prepare
1. Aggressive Media Relations
Uber provides a lesson in how not to handle media: In 2014 Uber executive, Emil Michael, suggested that Uber should consider hiring a team of opposition researchers to use the company’s customer data to dig up dirt and spread personal details about a journalist who had criticized the company. This was a serious threat — the app contains personal details like ride data, home addresses, work addresses, daily routines, and credit card information.
Michael thought he was commenting off-the-record. He would release a statement expressing regret for his comments and underscoring that they did not reflect the company’s views. It was unfortunate timing for Uber, as the comments came at a time when the company was trying to improve its media relations and its management team’s image.
2. Angry Consumers
In July 2011, Netflix emailed customers with news that it would unbundle its video streaming and DVD service to create two separate packages. The changes would increase the price for DVD customers. Under intense pressure, and in reaction to venomous consumer feedback, that separate DVD service, Qwikster, was cancelled within a month of its launch.
The company’s share price plunged and Hastings gave up 50 per cent of his stock option awards for the year. Netflix had to go on an apology tour. CEO Reed Hasting said, ‘I messed up. I owe everyone an explanation. Many members felt we lacked respect and humilityﾅ.That was certainly not our intent.’ Some reporters likened this mistake to New Coke. Ouch.
3. Angry shareholders
Aviva became the first blue chip company to receive a ‘No’ vote from it shareholders on matters of compensation after the credit crunch. Management at the insurance giant had their tails stuck between their legs after their multi-million dollar bonuses were rejected by investors at their annual general meeting.
In 2009, the company’s chairman, Lord Sharman, was also roasted by one shareholder for failing to fire chief executive Andrew Moss after an office affair was revealed. The AGM was seen as a turning point — shareholders were finally taking concrete measures to protest bad management.
4. Vendor failures
California-based Conal Footwear found itself in a tough spot after a Reddit thread erupted. A user shared an image of tread marks from the company’s new pair of boots. The problem? The soles left swastika imprints. This appeared to be an honest mistake made by one of the company’s manufacturers, but the pic went viral, with 116,000 votes and 5,100 comments appearing on the Reddit thread alone. Within days, the photo had more than four million views.
Things took a turn for the worse when neo-Nazi groups began endorsing the product. It didn’t help that the boot shared a name — Polar Fox — with a WWII military operation. The company responded as best it could, recalling the boots within 48 hours and issuing a statement on the homepage of its website rather than bury it in the media room.
5. Disgruntled employees
In March 2012, Goldman Sachs executive Greg Smith penned a damning resignation letter, which The New York Times published. In the letter he excoriates the firm’s culture: ‘When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.’
The problem, Smith added, was that the firm cared more about making money and less about taking care of its clients. ‘I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.’
The letter trended on Twitter the morning it was published and spawned at least one clever parody: ‘Why I’m Leaving the Empire, by Darth Vader.’ It was a bad day for the much-maligned firm. On top of Smith’s letter, stakeholders and investors chastised Goldman Sach’s response in the press for being ‘Too little, too late.’
6. Executive succession
The most skilled PR practitioners nip a crisis in the bud before it becomes one.
Normally, the unexpected death of a charismatic and successful CEO would send share prices reeling. Total, a French oil company, avoided the drop by announcing a new CEO the next day.
CEO Christophe de Margerie was killed when a drunk driver drove a snowplough into de Margerie’s corporate jet at Moscow’s Vnukovo airport. The plane was engulfed in flames and all four people onboard died. The new CEO, Patrick Pouyanne, had long been exposed to media and investors and was a respected entity. The transition was smooth, and the share price unaffected.
7. False accusations
In March 2005, a Wendy’s customer in San Jose claimed to have found a finger in her chili. One month later, a San Jose Police Department investigation revealed Wendy’s was not at fault and the district attorney charged the customer with attempted larceny.
Despite this result, Wendy’s was left with the unenviable task of rebuilding trust with its consumers, without reminding them of the finger. To compound matters, the finger itself stayed in the news: yes, the accuser would face criminal charges for trying to defraud Wendy’s, but the source of the finger she placed in the chili was never revealed.
8. Natural disasters
In March 2011, a magnitude 9.0 earthquake hit Japan’s northeastern shore. It’s the most powerful recorded earthquake to ever hit Japan. The subsequent tsunamis wreaked additional devastation across three coastal prefectures, wiped two towns off the map, claimed thousands of lives and displaced more than half a million people.
The Cosmo oil refinery in Ichihara city was one of many business hit by the quake. Throughout the 10 days the refinery was engulfed in flames the company provided regular updates, expressing ‘the sincerest apologies for the problems and unease caused to the nearby residents and to all those concerned.’ They ensured residents that ‘every action will continue to be taken to resume normal operations as soon as possible.’
In 1998, Henry Silverman, a private equity investor at Hospitality Franchise Systems, led his company into a disastrous merger. The $14 billion deal with CUC International formed Cendant Corporation, but the honeymoon was short-lived. Shortly after the merger, Cendant uncovered a massive, decade-long accounting fraud at CUC International. CUC’s top executives had been preparing false business statements. The total estimated cost to investors was over $19 billion, making it one of the largest financial scandals of the 1990s.
10. Government investigation
In 1998, Bridgestone began receiving complaints about its Firestone tire treads’ tendency to separate, often resulting in horrible accidents. For two years, the company refused to admit there was a real problem. Instead, Bridgestone attempted to blame customers and pointed the finger at Ford. Motor Co. (which used many of the tires). The U.S. National Highway Traffic Safety Administration (NHTSA) launched a large-scale investigation, and finally, on August 9, 2000, the company issued a recall.
Bridgestone issued a recall for 6.5 million tires — the second largest in U.S. history at the time. The NHTSA eventually announced that the faulty tires resulted in nearly 200 deaths and more than 700 injuries.
In 2014, Sony Pictures was the victim of a cyber attack that leaked emails and forced the electronic release of upcoming films. The government of North Korea spearheaded the hack in response to Sony’s upcoming movie, The Interview, which included the assassination of North Korea’s leader. Apparently dictators don’t like being made fun of. In any case, as the leaks continued, and the gravity of the breach became apparent — largely through leaked emails in which senior executives insulted Hollywood stars — the company remained mostly quiet. It took Sony more than a week to issue substantive comments on the matter. The breach was humiliating, exposing, pay disparities and personal feuds.
Sony followed-up by firing its senior communications executive and threatened reporters against using the information from the hack with legal action. The studio drew President Obama’s ire for cancelling the release of The Interview: “We cannot have a society in which some dictators some place can start imposing censorship here in the United States,” Obama said. “Because if somebody is able to intimidate us out of releasing a satirical movie, imagine what they start doing once they see a documentary that they don’t like or news reports that they don’t like. That’s not who we are. That’s not what America is about.” Sony insisted that ‘we have not caved, we have not given in, we have persevered, we will not back down,’ before releasing the movie on various digital platforms.
12. Product tampering
In 2010, a couple from Suffolk County, NY, decided they did not want to pay $1.40 for a pack of Jell-O. The couple developed a scheme in which they bought the pudding, replaced the Jell-O powder with a mixture of sand and salt, and then returned the package to the grocery store for a refund. They managed to hit up four stores with 50 fraudulent packages of pudding before getting caught. A customer who bought one of the fraudulent packages complained to the grocery story and surveillance video led police to the criminals. While the story received national attention, the issue was mostly seen as an isolated incident and Jell-O managed to avoid becoming the story.
13. Proxy contests
Billionaire investor Nelson Peltz launched a high-profile proxy campaign against DuPont in 2015, painting the chemical company as an underachiever (even though DuPont had a total shareholder return of 266 per cent over the previous six-year period). Within three months of his campaign launch, Peltz’ narrative appeared to be gaining traction. DuPont’s share price rose five per cent after the Institutional Shareholder Services advised DuPont shareholders to vote for Peltz to join the board, leading to speculation that Peltz’ presence would boost the company’s value.
In the end, Peltz lost, which came as a surprise to most observers and analysts. Despite his winning record as an activist shareholder, Peltz failed to secure the backing of a sufficient number of institutional investors and retail investors. Investors came to the conclusion that DuPont’s CEO was already making the type of pro-shareholder moves that activists try once they get on the board.
In 1993, Pepsi had to deal with a scary rumour: a syringe was found in a can of Diet Pepsi in Washington State. Within one week, there were more than 50 reports of tampered Diet Pepsi cans across the country.
Both Pepsi the FDA were confident the reports were outright lies (they were). The company came out hard, staunchly defending itself to kill the rumour. This approach only works when you know the facts are completely in your favour. Pepsi produced four videos throughout the crisis, including a detailed review of its canning process, and eventually, security footage of a Colorado woman putting a syringe into a can of Diet Pepsi behind the store clerk’s back.
CEO Craig Weatherup took that evidence to the airways, appearing on news stations — with the explicit support of the FDA — to assure the public that Diet Pepsi was safe for consumption. Within two weeks, the rumours fizzled out and the FDA made multiple arrests for false reports. While sales dipped two per cent during the crisis, Pepsi recovered within one month.
15. Sexual harassment
David Davidar left Penguin in 2010. The company announced that Davidar was leaving to pursue ‘his successful writing career and other projects.’ The real reason for his exit remained a mystery for a couple days until new facts came out: a recently-dismissed Penguin employee had filed a $423,000 lawsuit against the company, and a separate $100,000 suit against Davidar. The employee alleged that she was fired after complaining of sexual harassment from her boss. She claimed damages from Penguin for wrongful dismissal and the ‘harsh, vindictive and malicious’ way the company treated her after she complained about Davidar. Penguin said the employee resigned from her position after ‘having declined to pursue other career opportunities within the organization.’ The lawsuits were settled quickly thereafter.
16. Special interest groups
In early 2010, Greenpeace launched a campaign criticizing Nestl’s palm oil sourcing practices. It rolled out a ‘Take a Break’ ad campaign that went viral. It featured an office worker gnawing on an Orangutan’s finger instead of a Kit Kat Bar. The tagline? Kit Kat Killer. The response? After its Facebook page was overrun with comments about its palm oil sourcing practices, the company posted the following message:
‘To repeat: we welcome your comments, but don’t post using an altered version of any of our logos as your profile pic—they will be deleted.’
According to Greenpeace, Neslt’ also successfully had YouTube remove the ad campaign from its platform, citing copyright concerns. Nestl’ denied the claim, but said ‘we notified YouTube about the campaign video’s infringement of the visual identity of our Kit Kat brand. The video is now back up and we will not submit the form again,” a Nestl’ spokesperson told CNN.
Within 10 weeks, Nestl’ announced it would stop sourcing unsustainable palm oil.
17. Trademark infringement
In 1999, the Washington Redskins lost their trademark protection because the U.S. Patent and Trademark Office ruled the name was disparaging to Native Americans. While the football club was under no obligation to change its name, it lost the ability to prevent counterfeit Redskins merchandise from being sold in the country. The team has since spent the better part of two decades appealing various court decisions on related matters. In October 2016, the Supreme Court declined to hear the Team’s legal challenge.
18. Unethical behavior
Once the poster-child of the post-financial crisis banking world, Wells Fargo’s relied on its ability to cross-sell more profitable products to its customer base. This would prove to be bit of a mistake. Executives sought to drive growth by putting undue pressure on its employees to hit sales quotas. Many employees took to the challenge by fraudulently opening customer accounts. Most of these accounts were closed before customers noticed, but in other cases consumers were hit with associated fees or took hits to their credit ratings.
Wells Fargo fired about 5,300 employees who engaged in illegal tactics, and was forced to return $2.6 million in ill-gotten fees, and pay $186 million in fines. But the biggest hit Wells Fargo will take is to its reputation, as the media and government officials spent much of the year slamming the bank for its fraud. CEO John Strumpf stepped down—with a $130 million payout.
In 2013, a whistleblower exposed a practice whereby Princess Cruises would discharge gallons of polluted bilge waste along the British coast. The cruise company used a device known as a ‘magic pipe’ to bypass on-ship water treatment systems and unloaded wastewater directly into the ocean. The company was fined $40 million dollars—the largest of its kind. Investigators also discovered that employees covered-up these illegal practices before investigators could get on board.
The cruise line published a written statement, as well as a YouTube video from its president. The company said it was ‘extremely disappointed’ that employees had violated company policy and federal law regarding discharge of pollutants. The cruise line added that it cooperated with investigators after the magic pipe was unveiled in 2013 and had taken numerous steps to fix the problem.
‘Although we had policies and procedures in place it became apparent they were not fully effective,’ the statement said. ‘We are very sorry that this happened and have taken additional steps to ensure we meet or exceed all environmental requirements.’
20. Organizational misdeeds
We can look to the Wounded Warrior Project for this example. This big U.S. charity fired its top executives after an investigation into accusations of lavish spending on parties, travel, and hotels, as well as exorbitant salaries. Over the course of a four-year period, CEO Steven Nardizzi and COO Al Giordano spent more than $800 million in donations on these lavish expenses. As one former employee (and veteran) put it ‘Going to a nice fancy restaurant is not team building. Staying at a lavish hotel at the beach here in Jacksonville, and requiring staff that lives in the area to stay at the hotel is not team building.’
WWP would subsequently close nine offices, fire half of its executive team and redirect millions in spending to mental health care programs and partnerships as part of an organizational overhaul.
21. Corporate misbehaviour
Tesco has a bad habit of getting into corporate misdeeds. In 2014, it was mired in an accounting scandal which coincided with food safety scares and chronic financial underperformance. It has become the poster-child of corporate misbehaviour, dealing with high executive turnover. In 2016, the company faced legal action by a group of investors seeking ﾣ150m for losses related to the 2014 accounting scandal. This, in the same year the Serious Fraud Office charged three former Tesco executives over the same accounting scandal. And that was before the FCA investigation ever concluded.
22. Management Deception
Companies face a crisis of management misconduct and deception when management indulges in deliberate acts of illegality, concealing or misrepresenting information about itself and its products. The Satyam scandal—’India’s Enron’— serves as a poignant example. In 2009, the company’s chairman resigned, confessing that he had manipulated account’s to the tune of $1.47 billion. In the immediate aftermath, investors lost as much as $2.2 billion as the company’s shares tanked. Six years later, the former chairman was convicted with 10 others. The Indian arm of PwC was fined $6 million by the SEC for not following auditing standards in their duties related to the accounts at Satyam.
One of the more famous cases dates back to the mid-1990s. Six of Texaco’s African-American employees sued the oil company for racial discrimination after damning conversations between executives revealed a propensity to belittle minority employees in racist terms. As the news broke, Reverend Jesse Jackson became Texaco’s most vocal opponent, calling for a boycott. CEO Peter Biljur issued a public apology, deploring the insensitivity of the taped remarks and placed the company’s equal-opportunity programs under review. He also commissioned an investigation by an outside lawyer. The executives in question were suspended pending the result of the investigation. He and his team then went on tour, visiting all branches and company offices to apologize to employees. The company then hired Uniworld Group to run an ad campaign to douse the flames. Jesse Jackson would soften his view in light of the company’s proactive handling of the crisis. Texaco settled the suit, agreeing to pay $176 million and Biljur implemented additional discrimination checks for executives and managers.
2001 was not a good year for Pacific Gas & Electric Co. With soaring wholesale power costs outpacing retails prices (the result of California’s 1996 deregulation law preventing higher costs from being passed on to consumers), and a drought that reduced the amount of hydroelectric power combined with delays in new power plant approvals, the company filed for chapter 11 bankruptcy. The crisis cost the company $40-$45 billion. It would emerge from bankruptcy three years later after paying $10.2 billion to its creditors. As part of the restructuring, the company’s customers had to begin paying above-market prices for several years, to pay off the debt.
25. Workplace violence
In 1986, Patrick Henry Sherrill, a 44-year-old mail carrier from Edmond, Oklahoma who was known as a troublesome employee showed up to the post office in his uniform with three pistols and a bag of ammunition. For 15 minutes, he went on a murderous rampage, killing 14 coworkers. In the two decades since Sherill’s rampage, the U.S. Postal Service has tried to prevent worker violence, but there have been other attacks. Nearly 50 people have died in post office violence since the 1980s.
26. Environmental disaster
This list wouldn’t be complete without mention of the Exxon Valdez tanker spill of 1989. The ship ran aground, spilling 11 million gallons of crude oil into Alaska’s Prince William Sound. The oil damaged more than 1,300 miles of some of the most remote and pristine shoreline in the U.S.
The company was very slow to contain the spill, refusing to communicate openly about the incident. Exxon Chairman Lawrence Rawl was immensely suspicious of the media, and reacted accordingly. Media coverage escalated while Exxon dodged the media. The Chairman refused TV interviews, saying he had no time for ‘that kind of thing’. A company spokesperson misrepresented the extent of the spill and clean-up efforts. More than a week later, the company eventually held a press conference. Small pieces of good news claimed by the company were immediately contradicted by the eyewitness accounts of the present journalists and fishermen. Rawl gave a live interview and when asked about the plans for the cleanup, said it was not his job to read such reports, placing blame for the crisis at the feet of the world’s media.
Nearly three decades later, the sound’s coastal ecosystem is permanently damaged—thousands of gallons of oil still pollute the beaches.
27. Product Safety
In 1996, Odwalla juice experienced an e-coli outbreak. One child died and more than 60 people in the Western U.S. and Canada became sick after drinking the contaminated juice. Sales plummeted 90% and Odwalla’s stock price fell 24%. Customers filed more than 20 personal-injury lawsuits, and it looked as though the company would never recover. But Odwalla provides a case study on how companies can rebound if they handle the crisis effectively.
CEO Stephen Williamson ordered a complete recall of all (potentially) contaminated products from 4,600 retail outlets, forming internal task forces to execute the recall within 48 hours, and at a cost of $6.5 million.
In all his media interviews, Williamson expressed sympathy and regret for all those affected, immediately promising to pay medical bills. He conducted daily company-wide conference calls to give employees the chance to ask questions and get the latest information. Within 24 hours, the company launched a website (remember, this is 1996), which received 20,000 hits within 48 hours. The company spoke openly and frequently with media to provide updates. These proactive communications efforts, in conjunction with the swift recall went a long way to building goodwill.
28. Mysterious circumstances
In March 2014, Malaysia Airlines flight MH370 disappeared, carrying 239 passengers onboard. Given the nature of the crisis, the airline struggled to effectively manage the crisis. It took the airline 16 days to send a text message to relatives of the passengers on board. The message was received as inappropriate, impersonal and detached. However, to the airlines credit, it established daily media briefings, published daily statements, and provided a focal point for the public to get the latest information.
From October 2014 through January 2017, a comprehensive survey of 120,000 km2 (46,000 sq mi) of sea floor about 1,800 km (1,100 mi) south-west of Perth, Western Australia, yielded no evidence of the aircraft.
29. Terrorist attacks
Months later, Malaysia Airlines flight MH17 was shot down over Ukrainian territory, killing all 283 passengers and 15 crew onboard. The plane was brought down in an area controlled by pro-Russian separatists. The attack received enormous media attention due to the nature of the previous crisis, the geo-political issues between Ukraine and Russia, and the violent nature of the crisis.
Within one hour of the crash, Malaysia Airlines tweeted confirmation that the flight had lost contact over Ukrainian airspace. The response was speedy, and included a statement with greater detail on the exact waypoint when Ukrainian air traffic control lost contact with the Boeing-777. It also hired a PR agency to handle crisis communications, taking care to communicate its financial assistance for each victim’s next-of-kin, offering to fly relatives to ‘Amsterdam or wherever appropriate to be able to continue the grieving process.’ Learning from the MH370 experience, the airline stayed in daily contact with relatives and provided 100 caregivers to help with support and counseling. It’s just too bad the company followed this up with an ill-advised ‘Bucket List‘ campaign.
30. Offensive Commentary
Air China’s editorial team published an article in its inflight magazine that warned passengers about visiting certain areas of London. ‘Precautions are needed when entering areas mainly populated by Indians, Pakistanis and black people.’ The editorial naturally prompted derision and outcry among London MPs and residents.
‘I am shocked and appalled that even today some people would see it as acceptable to write such blatantly untrue and racist statements,’ said Mr Sharma, the Labour MP for Ealing Southall. She invited Air China reps to visit her constituency ‘to see that a very multicultural area is safe, and would be of great value for those visiting London to see.’
It took Air China a couple of days to apologize after social media quickly turned the offensive comment into a global news story.