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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NETFLIX: A GOOD BUSINESS DECISION ON PAPER

Posted in Business Crises We Create, CONSIDER YOUR STAKEHOLDERS, Crisis Communication Failures, Crisis Management Consulting, DECISIONS IN A VACUUM, NETFLIX on September 21st, 2011 by mnayor

You sit around the conference table and throw out ideas. You think outside the box. You think inside and around it. You crunch numbers. The numbers point in a logical direction. You come up with a winning profit strategy that makes sense. You implement the strategy and blow yourself out of the water. Hello Netflix, which recently announced a restructuring that would divide its business into two segments – providing entertainment by mail and by download – at a hefty increase in customer fees.

Business decisions aren’t made in an isolation booth. Stakeholders, stakeholders, stakeholders. Why do businesses always forget some of their stakeholders? The word has become trite; it’s been used so often. Nevertheless the concept just doesn’t seem to sink in for many business executives. Granted, you can’t please all stakeholders all of the time, and certain stakeholder interests may conflict with those of other groups – but the least you can do is be awake.

Stakeholders are any group or even individual(s) whose interests are important to your company and must be served. If a stakeholder interest is not served, it should at least not be harmed especially if harming the stakeholder will harm you. Here are the most common of them: shareholders and/or investors, customers, suppliers, governmental regulatory agencies, employees, the public at large for health and safety issues and finally, even the media. It’s quite a list and of course not everyone can be happy all of the time.

However, management must always try to forecast the effects of its decisions on its stakeholders. What may be an excellent decision on paper may have disastrous results. Enter Netflix. It is difficult to believe that executives of that company gave any heed to the reaction of its customers. And if they did, they wrongly concluded that there would be some grumbling but they could just hunker down and it would blow over.

Blow over? Netflix is facing an angry customer base. Will it face mass defections? Perhaps. Maybe Netflix concluded that it should take the backlash at all once. Perhaps it feels that its new higher prices and a smaller, better quality customer base better suits its model. The risk, however, is that its base will shrink too much and the company’s revenues will decrease dramatically.

What does a company do after it does its homework and knows that a good corporate decision will have adverse consequences for one or more stakeholder groups? It can be a difficult and agonizing decision. One course of dealing, and the one that makes the most sense when considering an elective course of action, is to implement changes in steps. MODERATION is the key. The first benefit is that you can get a handle on reaction. Similar to a test market, you can assess the effects of your action, make adjustments, refine, modify, go to plan B, etc. Secondly, by going slow, you don’t shock the stakeholders who are affected. It’s the difference between giving a stakeholder a rash versus a blow to the solar plexus.

Don’t make decisions with your head in the clouds. Know the effects of your decisions on others, anticipate what the reactions will be and the effects those reactions could have on your company.

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CHRISTIAN DIOR – MEET CHARLIE SHEEN

Posted in Charlie Sheen, Christian Dior, Crisis Management, Crisis Management Consulting, managing your reputation in good times as well as bad, negative publicity, problem employees, reputation management, THE RHODELL GROUP on May 11th, 2011 by mnayor

Ah, to be blessed with an employee as talented as John Galliano. The problem is the more creative and (in)famous an employee is, the larger his head becomes and the more difficult it is for a company to reign in the beast.

What to do with an uncontrollable employee who is as much or more in the limelight as the company itself. The first rule of thumb is that the COMPANY is more important in the scheme of things than the employee (unless they are one and the same. See Martha Stewart). Certainly a Company can turn a blind eye to little things if those things do not really reflect poorly on the Company. After all you can’t go around canning every employee who gets a speeding ticket.

Nevertheless, there are very visible employees who act out in public and when such actions reflect poorly on the Company, emphatic, decisive action must be taken. The public for the most part applauded the actions of Christian Dior. John Galliano, its head designer, was canned on February 28th for making racist and anti-Semitic remarks caught on video. But prior to that, on February 25th, he had been suspended (pending the results of an inquiry into the matter) for assaulting a couple in a Paris bar, using similar anti-Semitic and racial slurs.

Now, here’s the rub. Did it take a venomous and outrageous video to get Dior to take its final action or was Dior at that point already. Perhaps the Company had already chosen the guillotine for Galliano. And if so, good for them. But the small time lapse brings up the real issue which should count as a lesson for most companies.

Most corporate executives when faced with a crisis like the Galliano affair want to accomplish two things: 1. Look like they are doing the right thing and 2. Salvage the talent in order not to harm the company. It’s the old slap on the wrist routine with fingers crossed that no one is really watching. In the case of Dior only a few days elapsed from the time of the first reported incident to the announcement of his firing. Assuming Dior had no prior information that executives chose to ignore, let’s give the nod to Dior, for realizing that there are thousands of talented designers out in the world waiting to be discovered and for decisive action that reflected very positively on this venerable house.

Contrast this with the affaire Charlie Sheen. On March 7th it was announced by CBS and Warner Bros. Television that Sheen had been fired from the hit TV show Two and a Half Men. It is not necessary to catalog the antics of Sheen over the last months to the present. Suffice it to say that the drunken rampages, coked up babble and other extraordinary behavior reflects a troubled, delusional mind and reflects poorly on both CBS and Warner. But what reflects even more poorly on them is their handling of the crisis. Inaction and vacillation seemed to have guided them until they were backed against a wall. The most telling comment to be made on behalf of the companies was that he was a good employee, was never late, knew his lines etc.

Having your cake and eating it too, is not always possible. A more respectable and man-up approach would have been to at least put Sheen on indefinite suspension from the onset until he got the help he needs. This would have shown more concern for the actor as an individual and would have shown that doing the right thing was more important than squeezing out as many episodes as possible before the implosion. Look where it got CBS and Warner. Egg on its face as well as a suit.

But that’s human nature. No one wants to self immolate. Companies almost always want to salvage what they can. But the moral of the story is that when you do take the right course of action, you almost always live to see another day. Perhaps bruised but with more dignity and respect. Just make sure your employment contracts allow you to make subjective judgments about the injury to your reputation that an employee is creating. An employee’s job description should always contain the obligation not to undermine, and even to bring honor to, your institution. Christian Dior – what would you have done?

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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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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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