HOW TO TREAT CEO’S: THE WAY THINGS OUGHT TO BE

Posted in ACTIVIST BOARD, Corporate Crisis Management, Crisis Management Response, DIAMOND FOODS, Doing the right thing, don't white wash the crisis, ETHICS FROM THE TOP DOWN, FIRING THE CEO, HOW TO SHOW THE CEO THE DOOR, MICHAEL MENDES, REPLACING THE CEO on November 28th, 2012 by mnayor

Last week I read that Michael Mendes formally resigned from Diamond Foods Inc. Mendes worked for Diamond most of his working life, serving as President and CEO  from 1997 and adding the title of Chairman in 2010. Then at the beginning of 2012 he was placed on administrative leave after an accounting impropriety was discovered involving payments to walnut growers, which artificially inflated financial results of the company.

 

The shift in payments must have been whoppers because they necessitated the restatement of 2010 and 2011 profits. As a result it appears that Diamond has lost its deal to purchase the Pringles brand from P&G, which was to have been an all stock transaction

 

It is not uncommon for companies to manipulate numbers to look good. It is also not a surprise to find that those at the top may not have been in the know. As a result of such an “event” a CEO will clean house, heads will roll and internal accounting measures tightened. But here it look like the perpetrators may have been those at the very top, including Steven Neil, the former CFO, who was also placed on leave. Why else would Mendes and Neil have been placed on administrative leave? Why else would Mendes repay $2.7 million in bonuses he received for 2010 and 2011, and return shares awarded to him in 2010. He leaves with a net retirement balance after repayment of bonuses, and will not be granted any severance.

 

In his wake, Diamond Foods is stuck with a share price that has plummeted 60%, a lot of angry shareholders who are ratcheting up class action suits against the company, and ongoing Department of Justice and SEC investigations. That’s quite a trail to leave behind.

 

The Board should be commended. In the face of a serious crisis it took decisive action. There was no attempt to white-wash the situation or cover for Mendes. Crisis management oftentimes means nothing more than biting the bullet and facing problems head-on. In this case the Board has taken steps to tighten its internal controls and has cleaned house. But in my view it has done more than that. Too often the guy who screws up, especially if he is at the top, gets a golden parachute and a pat on the backside to ensure that the door doesn’t hit him on the way out. The wheels are greased and everyone thinks the right thing is being done. But this Board obviously saw no need to reward people who created the crisis in the first place. Hopefully this Board will set a precedent for the many situations which will undoubtedly follow in the business world.

 

CEO’s should pay a price when they do something illegal, or in violation of a company’s  ethical standards. All companies should take a page from this playbook. Don’t deplete the assets of your company even more after a crisis by rewarding bad behavior. It adds insult to injury to your shareholders and other stakeholders. CEO’s and others in top management need to receive what they deserve. If they earn a walk out the door, they are not entitled to a fat paycheck. It’s one thing if the chemistry isn’t right or the results are disappointing. It’s another thing if a person has left his company high and dry, bleeding from bad decisions and actions that have done harm. It’s time to change the ugly unwritten understanding between boards and their managements that says that the upper echelon is a fraternity whose members are entitled to hop from company to company accumulating prizes while their reputations remain unscathed, regardless of their perfidy or incompetence.

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THE CASCADING DECLINE AT THE BBC

Posted in BBC, Corporate Crisis Management, Covering for the organization, Crisis Management, Crisis Management Response, Crisis Mitigation, fix the problem, Protecting the organization at any cost?, the effect of ignoring a problem on November 14th, 2012 by mnayor

Covering for the organization rarely works. Neither does the belief that an organization is so strong and respected that it exits on a level all its own.PennStateofficials found that out recently and now the BBC is suffering from the same ill-advised mentality. Whistle-blowing is a separate but related topic but the concerted effort of many in positions of power at an organization to hide something or sweep it under the rug deserves special attention.

 

For many years a popular, long-time host at BBC, Jimmy Savile, was suspected of sexually abusing young people, sometimes even at the premises of the BBC. The Company recently came under blistering attack when it was learned that an investigation of Savile had been cancelled by the editor of BBC’s Newsnight program last year. Newsnight is an important current affairs program of the BBC. Mark Thompson, the BBC’s Director General until last month (and who is destined to join the New York Times shortly) claims to have had no knowledge of the accusations against Savile although there were many opportunities to delve into the matter if he chose to do so.

 

Within the last week and in a matter of weeks since Thompson’s departure, his successor, George Entwistle, resigned because of another flap, again involving Newsnight, which wrongly implicated a Conservative Party politician in a pedophile scandal inWales. And just yesterday the BBC’s Director of News, Helen Boaden and her deputy, Stephen Mitchell announced that they have “stepped aside”.

 

The upshot is that there is turmoil at the BBC. There is a lack of control and the Chairman of the BBC Trust has acknowledged that the organization is in a ghastly mess and in need of a thorough overhaul.

 

How does any organization get itself into this type of crisis and what types of crisis management are called for? First, hubris plays a significant role. When an organization attains a stratospheric reputation such as that of the BBC, those who personify it not only begin to believe in its infallibility but also in their own. Heightened reputations beget dizzying overconfidence. Secondly, there is a tendency of employees, whether they be worker bees or top management to put their employer above all else. Not many people want to be held responsible for the decline or unraveling of an organization. Most want to be team players, no matter what they know and no matter what they really think about their place of work.

 

Crisis management calls for continual checks and balances. An organization cannot continue to coast, as many do, on old and outdated reputations. It is incumbent on top management, and lower levels in turn, to clarify lines of responsibility and authority, to define the values of the organization, to impose clear lines of accountability and to review regularly issues that arise. Often, top management wishes to be insulated from bad decisions already made, and hard decisions that need to be made, even with the knowledge that, more often than not, the buck stops with them and they may be the sacrificial lambs regardless.

Crisis management does not just mean planning to avoid a crisis if possible. Nor does it just mean managing a crisis once it hits. It also means taking steps to mitigate a crisis in the works. A CEO and his/her lieutenants are charged with monitoring the ship as a captain of a vessel or plane would. Rectifying what is wrong is a vital part of the job. Time does not absorb and dissolve a bad decision. It only heightens the culpability of the parties who either made no attempt to rectify it or tried to white-wash it. This is a hard lesson for people such as the former President of Penn State and the late Joe Paterno. It is a hard lesson for the former and current management of the BBC.

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HURRICANE SANDY AND THE MARATHON

Posted in Crisis Communication Failures, Crisis Management Strategy, Crisis Management Success Stories, dealing with a natural disaster, DECISIONS IN A VACUUM, Doing the right thing, Hurricane Sandy, negative publicity, New York City Marathon, Poor crisis management on November 12th, 2012 by mnayor

One of the most evident communications failures in the aftermath of Hurricane Sandy involved the ING New York City Marathon. Unquestionably the success of the Marathon paled in comparison to the misery heaped on New York (and New Jersey and Connecticut) residents who should of course have received and should continue to receive immediate and effective relief.

 

However, I cannot understand why the Marathon could not have been transformed into a major vehicle for focusing attention on and creating relief efforts for the residents of Staten Island, and The Rockaways, the areas ofNew Yorkthe most severely damaged.  I believe that the event could have been salvaged and made into something extraordinarily constructive instead of seemingly distractive and frivolous.

 

During the week of the storm Mayor Bloomberg kept announcing that theMarathonwould go on. He justified the decision by saying it would be good for New Yorkers. It  would bring the City together and lift everyone’s spirits. He also stated that no resources would be diverted from the relief effort. This comment, although true, was weak in light of the dozens of generators seen being transported toCentral Park  for the traditional pasta dinner, and the numerous port-a-potties being installed near the starting line. Granted these resources were private but it all seemed so selfish. This was crisis management and crisis communication at its worst.

 

What might have happened if the following had occurred? Mayor Bloomberg and Mary Wittenberg, president and CEO of the New York Road Runners (NYRR) jointly announced that theMarathonwas being renamed the Sandy Relief Marathon. The prize money was being donated immediately to the relief effort. The pasta dinner was cancelled and all generators and other private resources were being transferred to stricken areas. All port-a-potties were available immediately to the public. A telethon was being established for call-in donations during the race. All runners were being encouraged to donate their time in the coming days to support efforts. And so on.

 

The perception and the reality of theMarathonwould have been transformed into a humanitarian effort. That’s the way it should have been, instead of being billed as a cheer-leading, feel-good effort. Good crisis management in the Mayor’s Office and the NYRR was lacking. They had the time to make it happen but not the imagination or creativity. The resulting cancellation on the Friday before the event was a fiasco. An embarrassment for both the Mayor and the NYRR. The financial loss to the City is in the untold millions. The damage to the reputation to the event and the Road Runners organization remains to be seen. Certainly the thousands who travelled from abroad to participate now have a bitter taste in their mouths. The most common reaction was – We understand cancelling the event but why wait until Friday. If you had cancelled earlier in the week we could have saved the trip and our airfare.

 

We can only hope that nothing befalls the tri-state area again likeSandy, but if it does more intelligent and creative minds should grapple with a situation like theMarathonand utilize the notoriety of such an event to good and productive use. Obviously it is easier in hindsight to come up with ideas, but doing what’s right, sacrificing certain elements of an event and willingly taking two steps back in order to take one step forward would have burnished the image of the Marathon instead of tarnishing it. Trying to salvage an event in its entirety was and is perceived as putting yourself first. Placing the needs of those devastated bySandyfirst, and sacrificing some of theMarathon’s bells and whistles might have just garnered a lot more respect and kept a version of the race intact. Now NYRR has to renegotiate with product sponsors, ESPN and local affiliate WABC, and the participants themselves. It difficult to envision it coming out a true winner.

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