FAILURE TO ANTICIPATE: THE WALMART EXAMPLE

Posted in Anticipating A Crisis, Anticipation, Business Crisis Management, corporate integrity, Crisis Communication Strategy, Crisis Management, Crisis Management Planning, Doing the right thing, Ethics and Crisis Management, Honesty and directness in dealing with a crisis, Wal-Mart on May 3rd, 2012 by mnayor

On April 22nd, 2012 The New York Times broke a huge story on Wal-Mart’s Walmex subsidiary. The subsidiary is alleged to have systematically engaged in bribery in order to grease the wheels of  its store expansion program in Mexico. Two of its most senior executives have been directly implicated in the scheme and the subsequent cover-up. The fallout has been dramatic including upcoming Congressional and Justice Department investigations and investigations within Mexico, a precipitous drop in Wal-Mart’s stock price, and perhaps worst of all, a huge black eye to WalMart’s reputation for integrity.

 This is a story that will not go away soon, even with the short collective memory for which the U.S.public is noted, and even with the perception we have, mistaken or not, about how business is done inMexico. The investigations and potential lawsuits will wend their way forward but Wal-Mart has an immediate problem: how to revive its reputation which was essentially snuffed out by one newspaper story. Unless there are very clear explanations that go beyond mere flim-flam, cut your losses Wal-Mart. Cooperate with investigations to ensure that they are completed rapidly. Develop your best explanations. Negotiate your fines for violating the Federal Corrupt Practices Act. Make restitution wherever it is required. Terminate those who were complicit. Get your house in order as quickly as you can.

 But this article is not about what to do now. It is about what should have been done. Wal-Mart’s story is as old as the hills. It is the same story as Richard Nixon and Watergate, Bill Clinton and Monica Lewinsky, Enron, Goldman-Sachs. And on and on and on. It is the story of hubris. It is the story of deceit. It is the story of the ostrich.

 Faced with a calamitous issue, a powerful person, a powerful company, a powerful country is most likely still to believe that there is a good chance of getting away with something. Lie low and time will make the issue recede into history. Put a band aid on and no one will dare to pierce your impenetrable shell. What would have happened if Wal-Mart had entertained a genuine independent internal investigation when it had the opportunity, and made those findings known to the Justice Department and toMexico? There would have been a much smaller story. Wal-Mart would at least have been accused of being honorable. Its reputation for integrity would have been burnished. It would have paid a price but perhaps not as steep a price as it will now pay.

 Why don’t people get it? Because there is a gambler in all of us, even when the odds are poor. Is there a chance we can get away with something? Let’s give it a try. What do we have to lose? Ask Richard Nixon. Ask Bill Clinton. Ask all those who have tried to wheedle their way out of messes only to get caught. Ah but then again there is always that other guy, the guy who got away with it. We should follow him. He’s a smart guy. He knew the angles. If he could do it, we can too.  Right now things are calm. Let’s not rock the boat. But in the long run the straight-shooter almost always wins.

Crisis management is not only activated when a cris occurs. It begins prior to a crisis in order to avoid a crisis or lessen its severity. Preparation and right-thinking separate those companies and organizations from those that merely kick the can or determine to ignore or purposefully hide a potentially serious issue.

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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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SONY’S RESPONSIBILITY FOR CYBER ATTACKS

Posted in Anticipating A Crisis, Crises Communication, Crisis Communication Implementation, Crisis Communication Response, Cyber Attacks, negative publicity, Responsibility for date losses, Sony on May 22nd, 2011 by mnayor

Sony has been raked over the coals these last few weeks. Has there been just cause? And has Sony exercised good crisis management and crisis communication skills?

Between April 17 and April 19th the Sony PlayStation Network and the Company’s Qriocity service which streams video to Sony televisions and Blu-ray devices were hacked and knocked offline. Besides knocking out service, unauthorized persons obtained access to personal information including credit card numbers. An estimated 77 million PlayStation users and 12 million of their credit cards were affected, plus 24 million Sony Online Entertainment customers and over 10,000 of their cards. The services have just recently come back on line (Japan itself is an exception because the government is not yet sure they is secure) as of approximately May 14th.

There are two main issues that have gotten the public very agitated. First, did the Company handle its communications well? It took almost a week to publicly acknowledge the attacks and advise its customers that credit card information could have been compromised. This length of delay surely provided hackers with a large window of opportunity to utilize the information it had mined to the obvious detriment of millions of customers.

One of the basic tenants of crisis communication is to act quickly and have as much control of the dialogue as possible. The basic problem was evident, even if a great deal of operational research had to be done to identify the extent of the damage. The first goal should have been to minimize the vulnerability of its customers through immediate notification. By delaying, Sony allowed speculation to build up and therefore it positioned itself defensively, instead of taking vigorous proactive steps.

The other communications gaff came directly from Sony’s CEO, Howard Stringer. In a discussion with reporters on May 17th, he defended the actions of Sony when asked why it took almost a week to notify customers. He observed that the Company reported quickly, noted that many companies don’t report these breaches at all or only after a month, and then said “you’re telling me my week wasn’t fast enough”. This sounds a bit defensive and imperious for a CEO. Most customers would probably disagree with him, especially those whose credit cards could have used by the hackers, or those whose personal information may now be used for identity theft purposes.

The second main issue is operational. Sony must quickly tighten its security and provide safe and secure networks for its customers. The U.S. Congress and the New York Attorney general almost immediately jumped on the bandwagon to “investigate” this technological lapse, but hopefully these actions will not drain efforts away from identifying vulnerabilities and making data protection paramount. Customers need to be confident of Sony’s ability to protect them. Otherwise, it will lose out big time to Microsoft and Nintendo. That should be motivation enough to make Sony create one of the most secure networks available out there in cyberspace.

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THE SKINNY ON WEIGHT LOSS PROGRAMS

Posted in Anticipating A Crisis, Crisis Communication Failures, Crisis Management, Jenny Craig ranked first, poor reaction to bad press, Slim Fast ranked high, THE RHODELL GROUP, weight loss programs, Weight Watchers reaction to Consumer Reports on May 11th, 2011 by mnayor

Whoa! The news is in. According to Consumer Reports, Jenny Craig is the winner. Based on factors such as weight loss and drop-out rates, Jenny left its competitors in the dust. Slim Fast came in second and Weight Watchers third.

Talk about being blind-sided and needing a crisis plan. This is certainly a classic case in point.

Crisis planning is sometimes looked upon by companies as seriously as a fire drill – and by employees as akin to root canal work. We don’t have the time! I could be doing something that affects the bottom line, not this stuff! The excuses go on and on. But brainstorming potential crises is the starting point and competitive reviews ranks high on the list.

So it was surprising to read the reaction of Weight Watchers. There is rarely room for sour grapes in responses to less-than-favorable news. Word-smithing is the ability to get your messages and facts across clearly without sounding like you are whining. Weight Watchers failed.

Instead of exclaiming that it was disappointed that Consumer Reports left certain key points of the JAMA (Journal of the American Medical Association) study “were left unsaid” the Company’s statement should have begun with what it believes its program does well: WW advocates and teaches how to live in the real world – people learn to make smart choices etc. It should then have stressed how proud it is of its long history, its success in changing the lives of countless individuals. It should have stated that everyone should recognize that most people cannot afford the luxury of having food prepared for them daily and its program is a much more realistic approach to weight loss. Finally it should have underscored that clinical data on its new PointsPlus Program will be published shortly, that it looks forward to the conclusions of the data and are confident that this study, along with over 60 other WW studies will once again show the extraordinary effectiveness and success of the Weight Watchers program for millions of people.

The Consumers Report story was an opportunity for WW to blow its horn. The media wanted to hear what it had to say. Instead they just blew it. Slim-Fast, which actually came in second with its snack bars and shakes, capitalized on the story. It was “thrilled to once again be ranked among the top U.S. weight loss plans evaluated by Consumer Reports”. It then went on to describe its 3-2-1 Plan and invited people to check them out on Facebook and website. Slim-Fast believes in itself.

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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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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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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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ANTICIPATION

Posted in Anticipating A Crisis, Crisis Communication Planning, Crisis Communication Response, Crisis Communication Training, Crisis Management Planning on September 3rd, 2010 by mnayor

This post is about crises that require that you and/or your organization be in the public eye. In a previous post the observation was made that you should try to control the dialogue, as long as you don’t overly rush and sacrifice accuracy. All that is true but in many cases you may have to open yourselves up to questions, and the questions may be hard ones. So not only is it important to craft your message honestly and pick your messanger carefully, but it is also important to ANTICIPATE.

That seems easy enough and many organizations do that but the method is usually very haphazard. A bunch of people get in a room and the leader says “what do you think They’ll ask?” And then the brainstorming begins and people feel obligated to spout something out. After an uncomfortable length of time when the perticipants have spent their energy, someone says “Ok, I think that does it” and that does do it.

Not good! First you should list your stakeholders and one by one list those issues in which each is primarily interested. Investors – the bottom line; employees - job security; customers – continuity of supply; suppliers – change orders and continued ability to pay. There are those in the organization who know the stakeholders best. Pull them into the room to tell you. Role-play. List the issues and develop the answers. Finally, brainstorm to develop everything and anything that might go wrong. Anticipate the worst. The crisis gets worse, competitors ponce, the news media tries to hang you out to dry. Make the list and try to develop the reaction. You won’t be able to anticipate every scenerio or have an answer for everything BUT the process will prepare you and get you close enough to most issues so you won’t be caught in the headlights.

Finally, the chief operating officer should certainly be your front-(wo)man. Nevertheless we all realize, and it is not expected, that the CEO is all-knowing. Mayor Bloomberg has a brilliant strategy of talking to reporters about key situations, giving the broad-brush information or account and then handing over the microphone to his deputy – the police commissioner, his financial chief, his environmental guru or whoever is the person with the handle on the situation. This has a dual-fold impact: the matter has the attention of the very top, and the organization has the expertise and knowledge to provide the public with detailed information. Oftentimes it may be necessary even for the deputy to surround himself with additional experts and rely on them to feed information or come forward and provide the additional information directly. That is why it is very good training to have your employees particpate in meetings and have some experience in speaking in front of a group. You never know when they will be needed.

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QUICK RESPONSE VERSUS INTELLIGENT RESPONSE

Posted in Anticipating A Crisis, Crisis Communication Strategy, Crisis Management, Crisis Management Planning, Crisis Management Response on July 27th, 2010 by admin

A maxim in crisis management is that you should control the dialogue. It is better to leap out in front rather than be reactive to questions and probing which often leads to the deer caught in headilghts phenomenon.

What is not said quite so often is that a quick response must be an intelligent response that is backed up by facts and knowledge. Which brings us to the Obama Administration. Early in his term President Obama held a press conference and was asked why it took him a couple of days before he made a statement on AIG bonuses. He gave the CNN reporter an icy stare and stated that he liked to know what he was talking about before he made public statements. Bravo I thought.

Read more »

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BP’s TROUBLES

Posted in Anticipating A Crisis, Corporate Crisis Management, Crisis Communication Failures, Crisis Communication Implementation, Crisis Management, Crisis Management Planning on May 18th, 2010 by admin

When it rains, it pours. So many crises involving nature. Volcanic ash. Bubbling oil. I have very strong hopes that the earth doesn’t crack open. Disasters of this nature make one feel that protecting a corporate reputation is not all that important in the total scheme of things. But protecting a reputation is very important – as long as the entity being protected is worthy of the effort.

BP in general has manned-up. It has acknowledged its responsibility (at least in part). It has gone before the public almost daily it seems in order to give status reports. It is trying many different schemes to cap the oil gushing into the Gulf. Yet, it is the butt of jokes and is not coming off as a responsible corporate citizen. Something is lacking. Read more »

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