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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J&J: IT’S ABOUT TIME OR MORE OF THE SAME

Posted in a ggod reputation guarantees long term profits, Business Crises We Create, cheating the public, Corporate Crisis Management, corporate integrity, Crisis Management, Crisis Management Response, Doing the right thing, Ethics and Crisis Management, Hurting customers, J&J, Johnson & Johnson, Respect your customers, Taking Responsibility for actions of an organization or its employees, when the bottom line is more important than your customers, William Weldon on February 22nd, 2012 by mnayor

 In October of 2010 I highlighted many of the difficulties Johnson & Johnson had been going through since the early part of the decade, from tens of millions of dollars to settle claims against its product Ortho Evra, to product recalls including children’s Tylenol and contact lenses. Other telling issues involved a wrongful termination suit by a whistle blower and a resignation by a senior executive whose conscience would not allow him to remain at J&J knowing what he knew about Ortho Evra.

My conclusion was simply that J&J’s management had veered way off course and had sullied the reputation of one ofAmerica’s greatest corporations, one that was known and respected for its integrity and honesty. I ended with an expression of hope that the lessons learned would set management on the right course once again.

 This was not to be. Just this past week the press reported that J&J took a year to recall a version of its artificial hip after the FDA refused in 2009 to approve it because of its high rate of failures. The device was recalled in 2010, and J&J maintained until that time that the device was safe and its own studies refuted the allegations of professionals. J&J continued to market the hip in Europe and other overseas countries until the recall and sold another version of its hip that didn’t need safety approval in theU.S., even though the hip socket cup, which the FDA found to be flawed, was the same in both products.

 It is interesting to track the timeline of most of J&J’s recent woes to the timeline of William C. Weldon’s tenure as chief executive. Whether directly attributable to Weldon’s misfeasance or malfeasance is not the issue. The torrent of missteps, mistakes,  dishonesty, deception and manipulation has occurred on his watch. The least that can be said without pointing a finger directly at him is that he failed miserably to instill a sense of integrity within the company, a sense of integrity that transcends the needs of the short-term bottom line. So many executives foolishly sit at their desks with blinders on. Weldon and his followers allowed a culture to fester within their walls that calls for the good of the company to transcend the good of the public.

 No executive worth his title would allow the disintegration that has taken place at J&J. Thankfully, William Weldon will step down in April of this year although he will remain as chairman. Alex Gorsky will be the new CEO. Has the Board done the Company, its shareholders and the public a major disservice? Gorsky is cut from the same cloth as Weldon. They both cut their teeth in sales and both are sensitive to the bottom line and enhancing it above all else.  Hopefully Gorsky will recognize the need to build trust, and instill honor from which J&J can once again earn the widespread respect of the public. Build it and they will come. With that will come the financial success that Weldon’s crew tried to obtain on the cheap. If Gorsky has not learned from past mistakes, expect more of the same from J&J. We will all be witness to the transformation of a great American company into just another self-serving medical conglomerate that feeds off the public.

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COSTA CONCORDIA: A CRISIS WAITING TO HAPPEN

Posted in cruise industry, sinking ship on January 18th, 2012 by mnayor

“The public has a short memory. We might have some concerns for a few weeks. But so far, we have had no fallout.” So says Neil Gorfain CEO of the Cruise Outlet a booking agent, commenting to the New York Times about the reaction to the partial sinking of the cruise liner, Costa Concordia, off the coast ofItalylast week.

How is the world ever going to become a better place, how are companies going to become more responsible, how are the lives of individuals going to improve if this observation is true? Have we become so immune to tragedy that, after the initial shock waves, we all just go back to our normal routines and in time we forget? The short answer is yes, we do forget. The BP explosion in the Gulf of Mexico, the tsunami inJapanare already only vague recollections. Are there people now diligently working on better drilling safety? On better nuclear plant safety? Let’s hope so. After all, people died.

 Carnival Lines, parent of the Costa Lines, has felt the backlash. Its shares dropped significantly in theU.S.on the first day of trading after the partial sinking. Crisis management on the part of Costa Lines has been weak, amounting basically to shrill accusations of negligence against the ship’s captain, Francesco Schettino, in guiding the ship too close to shore. While the blame game does take some of the heat off of the company, it underscores the weakness of management control and loose cruise industry regulations. A more intelligent and responsible reaction would have been for Carnival and Costa to both hammer home the need to thoroughly investigate every aspect of the tragic accident, including human error, in order to identify every possible cause; and to pledge to take whatever steps necessary to ensure that nothing like this is ever repeated. Expressions of deep regret, which are not automatically interpreted as admissions of guilt, are in order as well.

 As an immediate step, the public needs to know that a company recognizes itself as the major player, willing to undertake that role for the public good. Expensive? Perhaps. Worth it? Most often a resounding yes, in terms of public perception and goodwill. As a responsible corporate citizen, act sensitively, investigate and devote whatever resources available to help fix the problem and keep the public informed regularly along the way.

 Preserving reputation and directing efforts to problem-solving are the first order of business. Assessing blame comes later and is best left to third parties. No one ever looks good saying it is someone else’s fault. An insurance investigation, a public hearing, a regulatory investigation, a private investigation that is made public are just some of the opportunities you have to provide input to show the root causes of a crisis. Let a neutral source absolve you of blame. In the end it carries far more weight, and is more persuasive and acceptable.

 Could Carnival and Costa avoid tragedies like this? Could the industry do something about it? Yes, on both counts. With sophisticated GPS navigational systems available, every cruise line can and should monitor its ships on the water as closely as planes are monitored in the sky. 

The cruise industry has over 12 million passengers a year and deals with many issues such as health and environment matters, safety, security, and employee conduct. The industry has far to go to achieve a high level of public acceptance and respect.

 Recent public concerns reached a point that The Cruise Vessel Security & Safety Act of 2010 (sponsored by Representative Doris Matsui D-CA and Senator John Kerry D-MA) was passed and signed into law by president Obama. The legislation primarily covered passenger safety from assaults. Cruise Lines International Association (CLIA) the industry’s trade association, devoted significant resources to unsuccessfully counter the legislation, and believes the industry can better handle matters by voluntary compliance. Yet the public has seen only attempts to stone-wall needed improvements. Because of Costa Concordia there is renewed call for stricter regulation. CLIA, dedicated to promoting and growing the cruise industry, will certainly be very active in countering future regulatory and policy developments.

 As responsible corporate citizens companies themselves need to do more to enhance their own reputations. They must become more proactive to sustain and augment their “brands” and corporate reputations. The public perception is that cruise lines are not transparent. Even after a crisis event has passed, a company is more apt to stay mum than to discuss its actions, thereby fomenting the idea that secrecy is the order of the day.

 Major efforts by the industry and individual companies to ensure all aspects of passenger safety, are vital to instill public confidence and customer loyalty, and to grow. Unquestionably, proactive management needs to implement continual training, accountability and monitoring.  Otherwise the call for renewed government regulation will rightly escalate.

 

 

 

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GO FOR THE LOW MAN ON THE TOTEM POLE

Posted in Doing the right thing, Ethics and Crisis Management, Honesty and directness in dealing with a crisis, Penn State, Protecting the organization at any cost?, Sacrifice the Little Guy, Throw an employee under the bus, Uncategorized on November 19th, 2011 by mnayor

(Or What I learned from Abu Ghraib)

Watching TV commentary and reading newspaper and internet accounts of the awful Penn State story, I am puzzled. Yes, there has been some effort to uncover what occurred, but very little in the way of reporting why the sexual abuse lasted so long, with so many people in authority knowing about it. And yes, Joe Paterno was fired and two other officials at the University indicted for perjury. But very little has been made of the responsibilities these people had, except for one person.

I’m not anti Joe Paterno. He’s probably a great guy and obviously a great coach. However, I have seen comments in defense of Joe that he had done what he was legally required to do. Not a very high bar for sure. What I am against is shining a spotlight on the low man on the totem pole. Throw him or her under the bus. The reputations of the organization itself and its various chiefs are much more important to preserve than that of the little guy who nobody ever heard of. Among reputable high-minded individuals, it puzzles me indeed that reputation preservation always trumps honesty – especially when honesty would do more to preserve reputations than buck passing.

So, who is that one person who is getting all the attention? Mike McQueary, who witnessed Jerry Sandusky in the showers with a boy, was a 28 years old graduate assistant at the University. Granted he wasn’t a youngster but he certainly wasn’t a seasoned member of the staff. There were certainly older and more entrenched members of the Penn State coaching staff. In fact, everyone else must have been an authority figure to him. Not easy to tell someone older and more powerful than you to cease and desist. In a perfect world yes Mike McQuaery might have stopped the actions of Sandusky and called the police. In a more realistic world Mike McQueary was brave enough to report the incident to Joe Paterno. A lesser human being might have forgotten what he had seen. Instead we read headlines like McQueary Action Drags Penn State to Shame. Every accusation that has been leveled at McQueary can be leveled at Joe and everyone else on up the line. What we have is clearly an attempt to scapegoat a very important matter instead of confronting and dealing with it head on.

You can hear on the sidelines of any Penn State game coaches yelling frantically to players to MAN UP. Penn State, heed your own advice.

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PENN STATE AND OLYMPUS CORP.: WHAT THEY HAVE IN COMMON

Posted in Crisis Communication Response, Doing the right thing, Ethics and Crisis Management, Olympus Corp., Penn State, reputation management, Sacrifice the Little Guy, Taking Responsibility for actions of an organization or its employees on November 19th, 2011 by mnayor

Two scandals this week couldn’t seem more different. One involves allegations of pedophilia sex at a university, Penn State and the other financial shenanigans at a large Japanese corporation, Olympus Corp. Most in the public relations field would exclaim that both matters require “crisis management”, but there is a closer commonality than that. We have to look at the underlying cause of these scandals to see what they share in common.

In many crisis situations the crisis comes about by an outside force or a factor beyond an organization’s control or ability to anticipate. There are, of course, natural disasters. There can be strikes, new legislation, unexpected competition, employee dishonesty, product contamination and the list goes on. Most organizations are “forgiven” or the matter is soon forgotten if the issue is dealt with promptly. Even the BP Gulf oil spill has receded from our memories because the company dealt with the calamity, no matter how ineptly.

But certain “crises” are either created or exacerbated by an organization itself. There are many participants, willing or scared or just amoral who put the organization first. These types of issues should not be looked upon as crises but as severe ethical failures. Oftentimes the principal players either feel they have no choice, or stick their collective heads in the sand or worst of all, feel they won’t be caught and therefore have no compunction about doing what they see as best for the organization. This is what Penn State and Olympus have in common –people have done something unconscionable and others who know about it do nothing or as little as possible. No one wants to be a whistle blower. Willingly or unwillingly, everyone wants to be a loyal team player.

From politicians to entertainers to corporate CEO’s, there is an ever-growing tendency to believe “I can get away with it”, or “it’s not my problem”, or “let’s not rock the boat” or “I’m not going to stick my neck out”.

These days the words “ethics” and “morals” are used interchangeably Elijah Weber described the difference this way:

“Morals, quite simply, are beliefs about right and wrong conduct….They do not require reason, consistency, or thorough analysis in their initial shaping or practical application…. I can believe that lying is wrong because my grandmother told me it was, and that is what I believe. No further justification is required. Ethics, on the other hand, is a reason based cumulative system of moral decision making. It is built upon one or a few basic principles and requires that we be thorough, honest, and comprehensive in making statements about right and wrong. Ethics is about building the kind of world we want to live in, and developing a consistent process by which to achieve this. Ethics is an advanced expression of morality.”

I like this analysis of ethics: a few basic principles that require that we be thorough, honest, and comprehensive in making statements about right and wrong. It is about building the kind of world we want to live in…Do we wish to live in a world where we turn a blind eye to child sexual abuse? Do we want to turn a blind eye to Ponzi schemes and product failings and financial manipulations built on sand that will have severe consequences to investors, employees, and consumers? I think not.
No one is naive enough to think that every company, every charitable organization, every university will adhere to the straight and narrow but wouldn’t it be refreshing if we could count on ethical behavior most of the time. Wouldn’t it also be nice if every honest whistle blower who performed a public service wasn’t maligned and attacked as a weasel or turn-coat? Wouldn’t it be interesting if every organization that breached ethical norms, faced its predicament responsibly Since it is not possible to have a perfect world, shouldn’t we at least shine a spotlight on those who perpetuate bad conduct no matter how revered, competent and respected they may have been?

I fear that the opposite usually occurs. The whistleblower is a turncoat. The person who tried to do the right thing didn’t do enough. The head honcho and the organization are protected as best as possible. The little guy gets thrown under the bus.

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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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NETFLIX REDUX

Posted in competitive advantage, Crisis Management, Gauge Your Competition, NETFLIX, Respect your customers, You Don't Have a Monopoly on October 27th, 2011 by mnayor

Those fickle consumers! After being presented with a whopping monthly price increase of 60%, 800,000 U.S. subscribers bailed on Netflix in the third quarter of this year. And the company’s stock tanked as a result. At the close of business Monday October 24th the Company’s stock was at 119. By Tuesday morning it was at 75 and currently hovers at 80. In July it was $300. This, while the company has negotiated a potentially great deal with Dreamworks Animation and posted third quarter earnings that rose an impressive 65% from $38 million to $62.5 million. What does this say about investor confidence?

True, the Company has admitted candidly to shareholders that it moved too quickly and dramatically to raise prices although it has emphasized that the new prices are where they have to be in the longer term. But, there is a bit of defiance in between the lines. Interviewed by The New York Times for its October 23rd Magazine Section, Reed Hastings, CEO of Netflix observes that when Netflix started its stock price was $7.50 and it had a million subscribers and it is a mistake to measure everything by what happened recently. Fair enough.

But there seems to be a failure to recognize the obvious. Competition not only looms in the wings. It’s right in Netflix’s face. Confidence is good. Over-confidence can be dangerous. Hastings fails to recognize that Netflix does not have any special competitive advantage in its industry. Yes, it clobbered Blockbuster and yes it got a good jump on internet streaming. However, here’s what is competing with Netflix, now and in the future: cable networks, Direct TV, Dish, Hulu (currently being courted by Google and Amazon), Redbox, and that old stand-by Blockbuster which certainly sees an opportunity to jump back into the game big-time.

Netflix no longer has a monopoly on a product or an idea. Thus it must now compete on service and price. Unless it discovers a new method of delivery or obtains a lock on new products, it will have to provide a superior product at a fair price if it wishes to continue to distinguish itself from its competitors. Which may mean its heyday is over. And that’s the lesson all businesses can take away from the Netflix experience. Better to compete like you have competitors breathing down your neck rather than act like you are the kingpin to whom all customers shall pay homage.

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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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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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CRISIS MANAGEMENT VERSUS HUBRIS

Posted in Business Crises We Create, Business Crisis Management, Crisis Communication Failures, Crisis Management Services, Crisis Mitigation, David cameron, News of the World, reputation management, RUPERT MURDOCH on July 18th, 2011 by mnayor

Does history merely repeat itself instead of teaching us anything? Based on business news about movers and shakers one could deduce that many corporate executives just don’t get it and never will.

After the debacle of 2008 when many financial CEO’s were caught in the proverbial headlights, you would think that a tough lesson would have been taught – and learned. Instead even Teflon-coated Warren Buffet decided that his power, authority and standing in the world were enough to allow him to initially stonewall the public about his executive Dave Sokol’s purchase of Lubrizol stock. Not to be outdone Rupert Murdoch has raised the bar even higher.

In a scant two weeks his empire, headed by the subtly named The News Corporation, has experienced what many would not wish on their worst corporate rival. After approximately four years of an on-again, off-again Scotland Yard investigation of phone hacking by News of the World tabloid, that paper has folded, Murdoch’s attempt to acquire the remaining interest in British Sky Broadcasting (BSkyB) has been aborted, and a slew of his corporate executives have been arrested, resigned or otherwise had their reputations besmirched. Rebekah Brooks the CEO of News International, the parent of the late News of the World resigned in disgrace, after two attempts at resignation that were not accepted by Murdoch. Also, Les Hinton, publisher of the Wall Street Journal tendered his resignation the same day.

The details of the outlandish accusations are certainly important but how they were handled by Murdoch is equally important and instructive. For a “media” guy, you would think he would know how to handle as big a story as this. Instead, up until yesterday we heard nothing from Murdoch – and then when we did, we heard the hrrumphing of a corporate big-wig instead of the measured pronouncements of a savvy media executive. Last week Murdoch flew to England from the U.S. Very quickly News of the World was closed, after a 168 year life. Yesterday he told a reporter for the Wall Street Journal that the matter was handled “extremely well in every way possible”. He further stated (apparently referring to his upcoming testimony before Parliament’s select committee on culture, media and sport on July 19th at which initially he and his son, James, declined to appear) that he was eager to address things said in Parliament some of which “are total lies”. Finally, he refuted the allegation that he might spin off his newspaper operations into a separate company as “total rubbish”. He did visit the family of Milly Dowler, the thirteen year old who was killed and whose phone was hacked; and extended apologies to the family. This last weekend he placed full page apology ads in British newspapers.

What kind of media executive fails so miserably in handling a business crisis like this? Who leaves a yawning time gap of two weeks before stating anything? If we assume the complete innocence of a CEO, we would then expect that leader to dig for the truth and let the public know immediately. Silence can only foster the impression of knowledge and guilt. An announcement that the matter is being extensively investigated and that such conduct is not tolerated in the organization goes a long way to safeguarding one’s reputation and possibly the organization itself (many pundits found the sudden closure of News of the World suspicious, based on protecting the Murdoch empire from legal liability). There were and may still be ways to staunch the bleeding, but it may now be very difficult to do. Clearly Murdoch did little or nothing immediately. As a result his empire is suffering and will continue to do so, as stakeholders in Britain and worldwide continue to question his tactics and the integrity of his enterprises.

Many people in the newspaper industry who have been interviewed about the phone hacking scandal find it implausible that editors and publishers wouldn’t know about the sources of stories. They must have known about the hacking and therefore it was both a bottom up and top down conspiracy. Rupert Murdoch may have had knowledge and thus the reason for the code of silence to date. It will be interesting to hear his testimony. At all costs he must avoid appearing out of touch with his businesses, imperious because of his power, or delusional that his connections will protect him. From David Cameron on down, the flight to high ground has begun.

Events seem to be gathering speed as this is being written for publication. Rebekah Brooks was arrested and released on bail. The leader of London’s Metropolitan Police Services, or Scotland Yard, Paul Stephenson, and his deputy have stepped down under growing allegations that the respected organization was very cozy with members and agents of the Murdoch empire; and more information is surfacing about David Cameron’s personal relationships and frequent meetings with similar individuals.

As individual reputations begin to crumble, little effort seems to be directed towards salvaging the Murdoch enterprises, some of which are very much worth saving. Placing someone who is untainted in a position of authority would appear to be necessary and Joel Klein would seem to be the man to take charge right now. The businesses must be separated from the personalities and be made to run as business as usual. There is no sense in allowing individuals – any individuals – to drag down an entire business empire. Klein has a good reputation (a lawyer who was head of the New York City School System until he joined Murdoch), and can direct the “clean” Murdoch business units on a steady course until the mess can be sorted out or until it at least simmers down.

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