NICKEL DIMED AND FIGHTING BACK

Posted in Anticipating A Crisis, Bank of America, Banking Industry, Business Crises of our own making, Business Crisis Management, Crisis Management Consulting, Crisis Management Response, DECISIONS IN A VACUUM, Excessive consumer fees, negative publicity on November 6th, 2011 by mnayor

The first time I noticed the flagrant imposition of an additional fee for a business service was when ordering Broadway tickets on line. It was a six dollar “service fee” per ticket. I paid the fee but was puzzled. I was paying the company for a service which they were in business to provide. Strange. Do architects charge an extra fee for putting their plans on paper?

Since then of course things have gotten much worse for American consumers. Airlines seem to charge for everything except the air you breathe, and probably don’t, in order to avoid a debate on how inferior that air is. Everywhere you turn there are extra fees for services and “things” that were once free. Understandably businesses and industries are trying to maintain their financial positions. Many want to bring back the good times when they were flush. Because of the weak economy, and the higher cost of resources, they must extract more from the customers who keep them in business in the first place. Obviously, much analysis has gone into the “cost” (interpreted to mean loss of customers and bad press) of implementing new fees. It is clear that most businesses are willing to sacrifice a certain percentage of customers who will bolt in anger, if the economics work.

But it appears as if we are entering into a new phase of business/customer relations. Customers are fighting back, asserting essentially that business has to have skin in the game too. In bad times business cannot expect to maintain the same level of profits or to ride on the backs of consumers in order to do so. Case in point: Bank of America’s announcement in September that it was going to impose a $5.00/month fee for debit card use. A debit card fee is a charge for you to access your own money for commercial or other financial transactions. It is the same money you have deposited with a bank and the same money it needs to conduct its lending business.

Some analysis definitely went into the Bank’s decision. New regulations have reduced the payments merchants pay the Bank for processing debit card payments and BofA didn’t want to just absorb the loss of income. Fair to say that many other banks also entertained the idea of customer debit fees. Some have implemented them. But, after witnessing the backlash from BofA customers, many backed off. BofA itself announced at the end of October that it would allow customers to avoid the fee if they maintain a minimum balance, or arrange for direct deposit of paychecks or use BofA issued credit cards. But just a couple of days later, it fully capitulated to the pressure and scraped the plan in its entirety.

Unlike Netflix which lost 800,000 customers after announcing a 60% price increase a couple of months ago, BofA will likely weather the storm without a major loss. Why? First, it announced its new fee well in advance and wasn’t the only bank contemplating debit fees, so it didn’t look like the only bad guy. Secondly, many of its customers are locked in to BofA with automatic bill paying, multiple accounts and complicated relationships. Unraveling a bank relationship can be complicated. Finally, BofA certainly calculated the loss of customers it would have to endure if it implemented the plan and decided it was worth it. Now that it has jettisoned the fee, many fewer people will transfer their banking relationship. But unquestionably, some damage has been done. There is a strong movement currently underway in the country to pursuade the public to withdraw from national banks and transfer business to community and regional banks and local credit unions.

People are no longer rolling over. They are fighting back, and businesses should realize that weathering an economic storm (or a regulatory reversal) is something to which all segments of society are subject. One segment is not entitled to be made whole at the expense of another. Profits made in good times cannot always be sustained – especially if they can only be sustained on the backs of others who are suffering just as much. Businesses and industries should be rewarded for innovation and creativity, for new and better goods and services, not for figuring ways of squeezing the hand that feeds them. The moral of the story is quite simple: a business can create its own crisis by being too greedy. Before making a dramatic decision that could adversely effect one or more of your stakeholders analyze both the short-term and the long-term costs. Many of your investors may also be your customers. Aiming for profit maximization may not necessarilly please everyone, especially if bonus maximization is the underlyiong motivation and result.

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THE YAHOO LESSON: LINE UP YOUR DUCKS AND CONTROL THE DIALOGUE

Posted in Anticipation, Business Crises of our own making, poor succession planning creates concern, succession planning avoids a crisis, YAHOO fires its top exec on September 8th, 2011 by mnayor

On September 6TH Yahoo fired its CEO Carol Bartz after 2 ½ years of lackluster performance.

The firing was done abruptly over the phone and Bartz immediately controlled the dialogue by emailing the story to all Yahoo employees. Yahoo announced that its current CFO, Tim Morse, would be interim CEO.

What’s wrong with this picture? Plenty!

First, as a very visible public company, you try to do things with class.

Second, before you take significant action, you have a plan. In this case, either a solid succession plan with a new CEO waiting in the wings; or a takeover or a restructuring or other dramatic announcement. This current action feels like it is adrift in the middle of nowhere, adding to the perception that Yahoo is essentially rudderless and is floundering.

Third, if all else fails, at least control the dialogue. Make the announcement, explain the need for the company to get back in the ball game, relate what it is it wants to accomplish, thank the fired CEO for her efforts on behalf of the Company, express a long-term vision and state you are looking forward to the future.

Although Yahoo’s Board is probably congratulating itself on the stock surge that resulted from the firing, that little boost may be short-lived. The fact is that Yahoo is behind the times and needs to play catch-up. It has failed to cater to the new digital world of social networks, video creation, mobile apps and smart phone screens. Once investors realize that Yahoo has to do more than fire someone, its stock price will settle back down. To take over, or be taken over, or mount a monumental internal surge – that is the question. An executive looking for an extraordinarily interesting challenge should not be impossible to find.

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DODGING THE-ALL-THE-EGGS-IN-ONE-BASKET-SYNDROME

Posted in Anticipating A Crisis, Anticipation, Business Crises of our own making, Crisis Management Consulting, Crisis Management Planning, Diversification on January 13th, 2011 by mnayor

Secretary of Defense Robert Gates will most likely cancel the $14.4 billion program to develop a Marine landing craft designed to navigate water and storm beaches. Gates’ decision represents a change in fighting strategy. Now that ships and landing craft can be hit by missiles from a range of distances it is a signal that this type of warfare may be relegated to the ash heap.

What should companies take away from this development? Easy. Doing work for the Federal Government can, no doubt, be rewarding, (even though highly frustrating; red tape can turn crimson and frustrations can escalate) but a business must be ever vigilant and conscious of the winds in Washington. Certainly many high level decisions make a great deal of sense. But others can be politically motivated, or motivated by nothing more than the need to squeeze the national budget. Whatever the reason, it behooves any company that is a government contractor, to always have an ear to the ground.

The Marine vehicle in question is being built by General Dynamics. Although the cancelled $14.4 billion program was to have been spread out over a number of years cancellation will certainly still be a blow. At the end of 2009 GD had sales of $32 billion. The Combat Systems Division alone in 2009 generated 9.6 billion in sales and the company had an overall profit of $3.7 billion. So putting the project in this proper perspective, it was not just loose change.

GD has a diversified operation. With over 90,000 employees worldwide, it does not just rely on the government for business. It has thriving Aerospace, Marine Systems and Information Technology and Systems divisions, with many commercial customers. Its Gulfstream brand of business jets is known worldwide.

The moral of the story is clear. While GD may be diversified enough to withstand the travails of cancelled programs and losses of billions of dollars in sales, not all businesses are as prepared. Crisis management is not just for the “now” when the crisis has struck and everyone is scrambling. It includes crisis planning. A way for executives to focus on this is to consider it an offshoot of long range planning. Where does the company want to be in five years? In ten? What are the company’s vulnerabilities? How do we soften the exposure?

By treating crisis management not as a something to deal with as a rarified event, but, rather, as a necessary corollary to a normal function of long range planning, you will be able to mitigate the losses that come from the cancellation of your very own amphibious landing craft project.

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NICKEL DIMING YOUR REPUTATION TO DEATH

Posted in Airline Industry, Banking Industry, Business Crises of our own making, Business Crises We Create, Business Crisis Management, Crisis Management Consulting, Excessive consumer fees on December 1st, 2010 by mnayor

Whole industries have the ability to shoot themselves in the foot. Two that leap out at America daily are the airline industry and the banking industry. Single handedly, without help from anyone or anything else, they have made themselves the bad boys of American business. Could it be possible that no one in either of these industries has figured out that they were making themselves despised by the public? Could it be possible that no one in either industry can figure out how to be respected once again? The answer: so far, no.

There could not be one intelligent airline executive who believes that nickel-diming the public is a popular move – or even an acceptable move. But acceptability pales compared to the bottom line. If revenues are significantly enhanced, then the bottom line wins out. It’s certainly understandable that financial health is vital. Those who sit around the conference table and come up with the add-ons are most likely rewarded or at least singled out. But are they really doing what’s in the best interests of their companies?

Meals, pillows, blankets, luggage handling, preferred seating, bathroom use. You name it and it’s an additional charge. Who will be the corporate hero who says this is inane. Who will be the one who says we can gain a lot of goodwill by announcing the end of these charges? Who will be the one to say let’s add ten to twenty dollars to the cost of a ticket and be done with it. Let’s announce that we are back to being a full service airline. No food on short flights – OK. Smaller, simpler meals – OK. Not so many pillows and blankets to clutter the floor with – OK. Who will be the brave anti nickel-dimer?

But before you get to the airport for your aggravating trip, you first must go the bank for preliminary aggravation preparation. Use the ATM? Use your debit card and exceed your balance by 63 cents? Have a checking account you hardly use? A monthly service charge for the bank’s use of your money? Significant interest on your credit card balance? Not to worry. We’ve got you coming and going. The household name banks aren’t doing badly, thank you. Except that their success is on your back. Not quite the same as they’ve got your back.

Why rock the boat when revenues are flowing. Good enough question except it is perception and goodwill that suffer. Who is going to be the wunderkind of the banking world who steps up and says it’s time to stop? Let’s get back to being a bank. We’re supposed to lend money. We are supposed to be an important engine of the economy, not a parasite that just gorges on fees at the expense of our customers. Back to lending where we can make the same money by doing what (hopefully) we do best.

Being in an industry that, while competitive, still plays follow-the-leader often results in bad decisions that are followed blindly by the rest of the herd. Herd mentality can be dangerous. Oftentimes it takes advantage of the public. Oftentimes it undermines reputations as well. Alternatively, independent thinking can burnish images and can reap big rewards. Kudos to the big bank or the major airline that announces that it is separateing itself from the other guys.

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THE NEGATIVE PUBLICITY ENIGMA

Posted in Anticipating A Crisis, Business Crises of our own making, Business Crises We Create, Business Crisis Management, Corporate Crisis Management, Crisis Communication Strategy, Crisis Management, Crisis Mitigation, negative publicity on December 1st, 2010 by mnayor

Robert Walker wrote an article recently in the New York Times Magazine section entitled Good News, Bad News, about the negative publicity the GAP received over its attempt to change its iconic logo; and, in general, the fallout or lack thereof that can be expected from negative attacks.

He’s got a point. The old adage that any publicity, negative or positive, is good publicity is certainly not always true. But some forms of negative publicity don’t always do harm. Such is the case with the GAP logo fiasco.

What forms of negative publicity can hurt an organization? Clearly, reports of poor goods and/or services can be harmful. Reports of Johnson & Johnson’s tainted products over the last year have not helped its image. Reports of poor airline service have the effect of customers shopping for alternatives. A hotel devastated by a hurricane or earthquake or a terrorist incident has the same effect.

Stories about poor management will also turn customers off. Look at the banking and investment banking industry. All of these kinds of negative publicity have the effect of creating a crisis, and require skilled crisis management to counter the effects. The crisis management needed has to tackle two fronts: operationally to truly “fix” the problem and crisis communication to inform the public.

But there are other forms of negative publicity that don’t affect products, services or management, such as the GAP logo situation. True, some people were offended or reacted poorly to the proposed change, but what of it? It would take an extraordinarily sensitive GAP shopper or potential GAP shopper to boycott GAP because of this event.

A business crisis is one that effects a company’s reputation or bottom line. Did an unpopular proposed logo change genuinely affect GAP’s reputation? Did it affect the company’s bottom line? I think not. If it did, it was very short-lived and very ineffective. In fact, most stories about the incident stressed the many attributes about the business, its clothing products and its branding success. While GAP would most likely have opted for no publicity over its logo, no harm was done.

The moral of the story? Manage well. Provide excellent products and services. You may still be unable to avoid negative publicity or a crisis that is beyond your control but if your base is solid you will weather the storm.

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PREEMPTION: THE TWO EDGED SWORD IN CRISIS MANAGEMENT

Posted in Business Crises of our own making, Business Crises We Create, Crisis Communication Strategy, Crisis Litigation, Crisis Management, Crisis Mitigation, Liability Communications, Litigation Communications on November 3rd, 2010 by mnayor

 Crisis management and product liability are inextricably linked. Whenever a product fails and causes injury or damage to buyers, a crisis can erupt. The liability of manufacturers and vendors have tightened dramatically over the last hundred years, from the theory of caveat emptor or let the buyer beware, to today, in some cases, strict liability. State laws on matters of health (including the environment) and safety have provided consumers with greater and greater protections over the years.

Businesses of all kinds must be more diligent than ever. Even if negligence and/or misrepresentation are not at issue, a company can still find itself in a great deal of trouble. Accusations concerning causation, erroneous manufacturers’ claims, and customer-product incompatibility can raise the specter of liability and place a company at risk.

Not all products are 100% safe for all people at all times. Thus the concept of warning labels has taken on greater importance, especially in those situations where use may be abused, inappropriate or be accompanied by additional risks. We see this more and more in such industries as pharmaceuticals, foods, toys, automobiles and cosmetics. In today’s world some warnings may not be deemed sufficient because they are either not perceived as strong enough or not evident enough on packaging.

In recent years some companies and even whole industries have looked to preemption as a form of product liability protection from individual and class action suits. Federal preemption is the trumping of federal law over state law when that is the express or implied intention of Congress. Most product liability law is state law through a state’s police powers, and ultimately its state statutes, its common law and court decisions. Oftentimes, federal laws are not as tough as state laws and therefore afford more protection to business. Federal legislation, and even federal regulations, sometimes takes precedence. In fact several agencies of the federal government such as the U.S. Food and Drug Administration, The Federal Trade Commission and its Bureau of Consumer Protection, the Consumer Product Safety Commission, and the National Highway Traffic Safety Administration have declared that some of their specific regulations preempt state law and bar or limit consumer redress. 

Federal court decisions have been mixed. In one recent Supreme Court decision the Court ruled that a medical device manufacturer could not be sued by a consumer because the manufacturer had won FDA approval. But in another, the Court held that a patient was not barred from suing a pharmaceutical company for damages just because the product displayed an FDA-approved label.

Preemption may create a dilemma for a company. Certainly, successful preemption can provide the type of protection that can avoid financial calamity. On the other hand, combative and bellicose pursuit of a safe harbor can have an extremely negative effect on a company’s reputation. It is quite easy to appear as consumer-be-damned if preemption coverage is not handled discretely. Reputation management is equally as important, and a company must strike a balance between finding that safe harbor and doing the right thing, between securing financial escape and retaining and developing public support, respect and even admiration.

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FACING A BUSINESS CRISIS OR A COST OF DOING BUSINESS

Posted in Anticipating A Crisis, Business Crises of our own making, Business Crises We Create, Crisis Management Consulting on November 2nd, 2010 by mnayor

A Company admits that it erroneously charged millions of customers for services they never ordered or used. The Company plans to credit current customers and refund former customers to the tune of anywhere from $30 million to $90 million in total. Most companies would consider this a crisis, especially since the regulatory commission with jurisdiction over it says it hasn’t finished with these guys.

Well, not so fast. The Company had been notified at least two years ago that they were overcharging, and did nothing about it. After all, customer service is expensive. Why dig into this messy situation if by ignoring it, customers might give up and go away. The loss to an individual consumer may be a pittance, but the possible refunds may be huge, thereby justifying the gamble that the situation won’t come to light. Even if the Company is caught, things like this happen all the time. The adverse publicity, if there is any, will blow over, and this is a business risk the Company is willing to take.

The Company in this case is Verizon. The Federal Communications Commission continues its investigation and may start a formal proceeding. But Verizon may have already calculated this into the bottom line cost. More and more U.S. companies are consciously deciding to take on bigger and bigger risks. Stated another way, more and more companies are deciding to be dishonest, whether by design or by simply ignoring facts. Some start out to cheat – inferior raw materials, child labor, the list is endless. Others don’t set out to be dishonest but decide not to correct mistakes because of the expense. In today’s environment most companies feel they can weather the storm.

It was recently reported that GlaxoSmithKline, PLC (GSK) agreed to pay $750 million to settle charges that between 2001 and 2005 they distributed adulterated drugs made at its now-closed manufacturing facility in Cidra, Puerto Rico. Authorities said a corporate whistleblower had filed a lawsuit against GSK under provisions of the U.S. False Claims Act. A GSK spokesperson stated that “We regret that we operated the Cidra facility in a manner that was inconsistent with current Good Manufacturing Practice requirements and with GSK’s commitment to manufacturing quality.  GSK worked hard to resolve fully the manufacturing issues at the Cidra facility prior to its closure in 2009 and we are committed to continuous improvement in our manufacturing processes…”   The GSK Puerto Rico subsidiary, SB Pharmco Puerto Rico Inc., will plead guilty to a crime and pay a $150 million fine, including forfeiting assets of $10 million. Under a separate agreement, GSK will pay $600 million to settle federal government and related state claims under the False Claims Act. The guilty plea and sentence is not final until accepted by the U.S. District Court in Boston.

In other lawsuits pharma companies have been accused of paying money to doctors to prescribe their brand-name medications and, in some cases, telling physicians to push “off-label” uses of the drugs which is prohibited by federal law. In the last few years pharma companies have paid up to $7 billion in settlements, criminal and civil fines, and have pled guilty to misdemeanor and sometimes felony charges.

While making these admissions, many continue to assert that they use the highest ethical standards in conducting their businesses, or they are in full compliance with FDA requirements and regulations, or that they continue to operate in the best interest of the public.

It is difficult not to read or hear news almost daily about companies getting caught doing something indifferent to the public interest or unethical in one way or another. The stories no longer appear to be the exception but rather are beginning to constitute business as usual and most people really don’t care unless they are directly involved. Have we come to the point that American business is expected to be dishonest? Is bad behavior so common that a case like these don’t even get a second glance?  Are responsible decisions being replaced by risk analysis? And is crisis management being relied on to merely cover one’s tracks?

Is it possible to revert to the good old days when companies tried to do what was right most of the time, and crisis management was a tool relied on to protect and respond to the public interest, as well as enhance and protect reputations.

Portions of this article were published in Bernstein Crisis Management: http://www.bernsteincrisismanagement.com/nl/crisis-manager-101101.html

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WHAT REALLY CONSTITUTES A BUSINESS CRISIS

Posted in Business Crises of our own making, Business Crises We Create, Crisis Communication Failures, Crisis Communication Response, Crisis Communication Strategy, new customers at the expense of old customers, What is a Business Crisis on October 5th, 2010 by mnayor

 A business crisis can be anything that can negatively effect a company’s reputation or bottom line. Many events at first blush may not appear to be serious. HP’s firing of Mark Hurd and the subsequent entanglement with Oracle was not a big deal in the scheme of things, even though internally it must have been a shocker. However, the death or resignation of a key person in any organization could very well be serious for any company depending on just how key that person really was. Natural catastrophes, product recalls, labor disputes, computer data losses. The list is endless. Some are temporary. Some can cause the demise of a company. Most can be handled with honesty and the realization that it may be necessary to absorb losses over the short haul in order to achieve a long and healthy business life.

Two distinct categories of crisis need to be recognized. In one we lump all those events over which we have no control, such as product tampering by outside forces or natural disasters. Even in these situations there are always some actions we can take: tamper-proof packaging, liability insurance, proper protocols. But generally these events can blind-side us.

The second category contains all those events that might have been avoided had we chosen to take the actions necessary to protect ourselves and the public. Some are obvious. We look at the BP oil spill and see things that surely could have been done.  Other events are not so obvious and these are the ones that can be insidious. When a management believes it is doing the right thing but in fact is fueling a potential crisis we have the makings of a catastrophe. A couple of examples will make this abundantly clear.

Market share is usually very important to a company, oddly sometimes more important than the bottom line. There is always great competition for new customers. Many times the efforts and resources devoted to advertising, marketing and selling to new customers are at the expense of a company’s loyal  customer base. This can even be seen at the local level. Where I live heating oil companies consistently offer new customers a deal for the first year in order to lure them in. This, of course, is done at the expense of old, loyal customers who have to make up the slack. The result is that many savvy oil customers these days do a lot of shopping each year to find the best deal. Loyalty is a thing of the past. On a national level the problem has gotten even more serious. A recent financial story in The New Yorker last month observed that there is almost universal recognition that customer service in this country has deteriorated. Such service is considered a “cost”. Companies are looking for the customers they don’t have so they are willing to spend on marketing and advertising but are not as interested in adding to their costs of service. The article made it sound a little like cynical dating. Companies are interested in luring you in but then once they have you, they don’t quite value you as much as the next potential customer they want to corral.

Lack of service is not just a pain for helpless consumers. In this internet age they can do something about it. This is how a company can sow the seeds of its own destruction, and inexorably create its own crisis. Companies and their products and services are being rated on the internet and consumers don’t hold back. They tell it like it is. Granted, competitors may be planting some of these negative comments but for the most part product and service evaluations are being taken at face value. The moral of the story: be faithful to those who brought you to the dance, or the consequences could be severe.

Another form of self-inflicted crisis involves weathering the storm. Whether in politics, professional sports, or in business, “players” still believe that because of their importance they can ride out any issue or problem. They can’t. We can all easily tick off a dozen or so examples, but the latest is surprising. Johnson & Johnson has recently gone through a spate of recalls of tainted children’s Tylenol and Motrin. The Company has generally kept a low profile and even contracted with a third party to buy up Motrin off retail shelves rather than announce an actual recall. And for the last decade it has been settling with claimants for a variety of injuries and death allegedly due from Ortho Evra, a contraceptive patch made by its subsidiary, Ortho McNeil. It appears clear that the current management of J&J has not followed in the footsteps of the management that handled the Tylenol crisis of 1982 which is often cited as the quintessential example of crisis management in modern corporate history. Back then cyanide had been found in bottles of Tylenol in the Chicago area. J&J immediately issued public warnings, issued a product recall, created tamper-proof packaging, and before long was back in business. The Company was up-front and willing to bite the bullet in the best interests of the public. Unfortunately that does not appear to be the philosophy today. There is clearly a danger in believing one’s invincibility. The trust and respect of the public is at stake, and once lost, is very difficult to retrieve.

A crisis is not just the obvious explosion at a plant or a mine. Companies can and do create their own crises. Companies must evaluate their philosophy, their strategy and their honesty. They must take action to minimize their vulnerabilities but at the same time be prepared to take action in the best interests of the public if they value company longevity.

Originally published in the Management Help Library of  http://managementhelp.org/blogs/crisis-management/2010/10/13/what-really-constitutes-a-business-crisis/

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