HEAD IN THE SAND APPROACH OF CEO’S: DEAL WITH PROBLEMS

Posted in analyze the problem, BBC, Business Crises We Create, Business Crisis Management, Corporate Crisis Management, Crisis Management, dealing head-on with a crisis, don't white wash the crisis, fix the problem, head in the sand approach, HSBC Compliance failures, not duck them, Poor crisis management, The DOJ and executives who try to avoid crises, the effect of ignoring a problem, Throw an employee under the bus on January 6th, 2013 by mnayor

The head in the sand approach to solving problems is not uncommon in everyday life. The concept of not getting involved has become more rapidly adopted by our citizenry. People readily subscribe to the maxim: The less involved you are the better off you are. It is also not uncommon in business situations, including at the very top positions. More and more CEO’s and other executives wish to insulate themselves and not sully their hands with messy issues, instead of solving them which is what they are paid to do.

 

When an organization’s leadership wishes to maintain clean  hands instead of confronting crises, the can is kicked down the road or left to those who do not have the authority, knowledge, or responsibility to handle. The result is often a rudderless ship, compounded problems for the organization, and a CEO who either throws other people under the bus or is made to resign leaving a bleeding hulk of a company.

 

Take the case of the British Broadcasting Corporation. For many years a popular, long-time host at BBC, Jimmy Savile, was suspected of sexually abusing young people, sometimes even at the premises of the BBC. The company recently came under blistering attack when it was learned that an investigation of Savile had been cancelled by the editor of BBC’s Newsnight program last year. Newsnight is an important current affairs program of the BBC. Mark Thompson, the BBC’s Director General until a few months ago claims to have had no knowledge of the accusations against Savile although there were many opportunities to delve into the matter if he chose to do so.

 

Another recent example is Stephen Green, now Lord Green. Lord Green became chief executive of HSBC in June 2003 and was appointed chairman in 2006. In December of 2012 HSBC entered into a Deferred Prosecution Agreement with the Department of Justice (DOJ), criminal money laundering activities and agreeing to pay fines and penalties totaling $1.9 billion. According to the Huffington Post, in 2005 Green was also made aware of the bank’s alleged ties with “rogue” regimes in theMiddle East. A US Senate investigation released internal emails showing how in the same year Lord Green was warned by an internal whistleblower in the bank’sMexicosubsidiary that compliance staff had “fabricated records”. He was also told in 2008, two years after being appointed executive chairman, that the Mexican authorities had uncovered evidence of money laundering that “may imply criminal responsibility of HSBC”.

 

Often, top management wishes to be insulated from bad decisions already made, and hard decisions that need to be made, even with the knowledge that, more often than not, the buck stops with them and severe harm can come to the company.

 

A CEO and his/her lieutenants are charged with monitoring the ship as a captain of a vessel or plane would. Rectifying what is wrong is a vital part of the job. Time does not absorb and dissolve bad decisions or situations. It only heightens the culpability of the parties who either made no attempt to rectify, or tried to white-wash them. Recently the DOJ and the SEC jointly released its 120 page Resource Guide to the Foreign Corrupt Practices Act (FCPA) which essentially prohibits and makes criminal the bribery of foreign officials. The Act was first passed in 1977, was amended a couple of times. The Guide explains what the DOJ and the SEC look for when it investigates, including the conduct of company when it learns of violations and the remedial steps which are taken to correct violations.

 

The FCPA states that it shall be unlawful for a company or its officers or directors to offer to pay, pay, promise to pay or authorize the payment of any money, gift or anything of value to foreign officials, or a foreign political party or official thereof, or foreign political candidate including to any person while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly to any foreign official, foreign political party or official thereof or foreign political candidate for the purpose of influencing any act or decision of such official, inducing any act in violation of the official’s duty or securing any improper advantage.

 

The Guide states that Congress meant not only “to impose liability on those with actual knowledge of wrongdoing, but also on those who purposefully avoid actual knowledge” and quotes H.R. Conf. Rep. No.100-576, at 920 (1988):

 

[T]he so-called head in the sand problem – variously described in the

pertinent authorities as “conscious disregard”, “willful blindness” or

deliberate ignorance” – should be covered so that management officials

could not take refuge from the Act’s prohibitions by their unwarranted    obliviousness to any action (or inaction), language

or other “signaling devise” that should reasonably alert them of the “high probability” of an

FCPA violation.

 

It is very likely that in the future the DOJ will adopt various theories expounded in the Guide to other criminal prosecutions besides those arising from the FCPA. For example, in December, 2012, in the highly publicized HSBC money laundering case, the DOJ imposed its FCPA risk based guidelines to the bank’s flawed country risk-rating methodology. It is only a matter of time before we see the “head in the sand” approach to management come under significant direct attack.

 

Thus, it is time for boards of directors to insist that top management take full responsibility to right the wrongs of their organizations.  It is incumbent on top management, and lower levels in turn, to clarify lines of responsibility and authority, to define the values of their organizations, to impose clear lines of accountability and to review regularly issues that arise. Confronting and solving problems is a big part of the job. Basking in increased sales, profitability and market share at the expense of ignoring core issues is a dangerous path that has often set back businesses several years and cost, or should have cost some CEO’s their jobs.

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HSBC AND THE DOJ: WILL THERE BE AN ACT II

Posted in Anti-Money Laundering, cheating the public, corporate integrity, Crisis Litigation, Crisis Management, Crisis Mitigation, DOJ, DPA and statement of facts, Ethics and Crisis Management, HSBC, HSBC Compliance failures, HSBC fine. Was justice done?, Setting ethical standards on January 4th, 2013 by mnayor

The New York Times editorialized that “It is a dark day for the rule of law” when it was announced in mid-December that British bank HSBC would pay $1.9 billion in forfeitures and penalties, but would avoid criminal prosecution for laundering Mexican drug cartel money and engaging in prohibited transactions with Libya, Iran, Burma, Sudan and Cuba,. Instead HSBC Holdings, plc, HSBC North America Holdings, Inc. and HSBC Bank USA (together referred to as “HSBC” or “the bank”) entered into a Deferred Prosecution Agreement (DPA) that requires the bank to clean up its act. The prosecution is deferred for five years and requires a neutral monitor. If the bank conducts itself responsibly, there is no prosecution. None of its executives were cited.

 

In 2003  the Federal Reserve ordered HSBC to police itself better for suspicious money flows. HSBC efforts not only failed, but since 2005 the bank violated the Bank Secrecy Act and otherU.S.laws on a large scale. It ignored massive transactions, including bulk cash and banknote activities, failed to establish or follow review procedures, and created seriously flawed risk assessment policies and procedures. HSBC executives and employees in its money laundering and compliance division were  found to be incompetent. Worse, HSBC failed to generate or did not review its own anti-money laundering alerts or create and report suspicious activity reports (SARs) toU.S.authorities. The Federal Reserve, the Office of Foreign Assets Control, the Office of the Comptroller of the Currency and the Senate Permanent Subcommittee on Investigations all investigated HSBC for similar activities.

 

Undoubtedly there was criminal activity. Lanny Breuer, assistant Attorney General, explained that HSBC was being held responsible “for a stunning failure of oversight and worse”. Worse for sure given DOJ’s own investigation. The Statement of Facts which is incorporated into the DPA is damning. HSBC stipulates that the information contained in the Statement is true and accurate. The Statement runs thirty pages and is rife with allegations against and admissions by HSBC. For example, DOJ alleges and HSBC BankUSAadmits that it violated the Bank Security Act that makes it a crime to willfully fail to establish due diligence for foreign correspondent accounts.

 

DOJ deemed that the criminal Information it filed, without the accompanying Deferred Prosecution Agreement (DPA) would have been too disruptive, that in effect, HSBC and its subsidiaries were too big to fail. If that is the case, how effective is the DPA? While Breuer claims that it is a “sword of Damocles right over HSBC”, if the Bank is too big to be prosecuted now, it will be just that much bigger five years from now and DOJ will be even less willing to take decisive action if HSBC violates the DPA.

 

U.S.attorney Loretta Lynch stated that HSBC cooperated “immediately and extensively” and this was taken into account in deferring criminal prosecution. But that is not the case. HSBC has a paper trail, a track record that leads back to 2003. Nothing so far has seemed to work to get HSBC into line, and there are no concrete indications from insiders that this time it will be different.

 

There is some published speculation that Treasury and/or the Office of the Comptroller of the Currency put some pressure on DOJ to stop short of criminal prosecution in order to avoid significant disruption in the financial markets and perhaps to the world economy. Some say that HSBC would have been damaged, even “destroyed”, but there have been no specifics. This may merely be a bogeyman to convince the public that DOJ avoided a financial disaster. At the very least, DOJ could have wrung out criminal admissions from HSBC Mexico. This may have satisfied some. In the DOJ case against UBS for Libor manipulation the UBS Japanese subsidiary pleaded guilty to one criminal count of fraud. Looking at the bigger picture, the HSBC affair was an opportunity to fight the concept of “too big to fail”. Perhaps HSBC would have had to sell off some of itsU.S.banking operations, or even all of it. 25% of its total assets are located in theAmericasso we can assume thatU.S.assets account for less. It would not have been the end of HSBC. It is already selling assets in countries where it cannot compete and is in the process of eliminating a significant number of jobs.

 

HSBC is a behemoth As of mid-2012 HSBC was the world’s third largest bank, and had the second largest market capitalization on the London Stock Exchange. It was founded only in 1991 by the Hong Kong and Shanghai Banking Corporation which then enabled it to acquireUKbased Midland Bank. It remains the largest bank in Hong Kong and is now the largest international bank inChina. A guilty plea by HSBC in this case might have had serious consequences, but it would have survived in one form or another. For theU.S.government to essentially conspire with HSBC for the bank to remain “too big” is not in the best interests of theU.S.legal system, theU.S.banking system or the world banking system. Such  failure to fully enforce the statutes of theU.S.rightfully brings on criticism of our justice system. This was an opportunity to start whittling away at bigness, to begin to stop the tail wagging the dog. It was an opportunity lost.

 

Finally, in the UBS case, two traders were also charged with taking part in the scheme to manipulate Libor rates. It seems incredible that, at the very least, given the seriousness of the crimes committed at HSBC, that not one executive has been indicted. The Statement of Facts is riddled with the admitted words “knowingly” and “willfully”. What prosecutor, left to his/her own devices, wouldn’t love to have this case. These crimes were committed by individuals. DOJ investigations have been ongoing for several years. Surely a name or two has popped up. When asked whether there may be criminal cases brought against individual HSBC bankers, assistant AG Breuer said “There may be , but there may not be”. Let’s hope he’s merely playing coy because if no individual indictments are forthcoming it will be a travesty of justice. And Breuer has the weapons. The DPA provides that HSBC is obligated to use its good faith efforts to make available to DOJ at the bank’s expense all current and former executives, employees, directors and consultants, and further to provide any information, materials, documents, databases, etc, requested by the Department. There is no protection against prosecution for conduct that HSBC did not disclose prior to the DPA, and there is no protection against prosecution of any current or former officer, director, employee, agent or consultant for any violations committed by them, including conduct described in the Statement of Facts. These provisions in the DPA give the DOJ wide latitude to continue its investigation and take whatever action it deems necessary in its pursuit of justice. Obviously it is not necessary, as the assistant AG has stated, that any individual still be employed at HSBC. And it is not necessary that any individual be complicit with its customers in drug or terrorist activities. It is enough that acts were willfully perpetrated that are statutorily deemed criminal offenses. The Bank Secrecy Act, for example, provides for heavy penalties for individuals and institutions that fail to file SARs, currency transaction reports and money instrument logs. Penalties include heavy fines and prison sentences.

In order for DOJ to redeem itself it is clear that additional action needs to be taken. This may have to wait until the cast of characters inWashingtonchanges. The viewpoint of Treasury may certainly change when there is a new Secretary of the Treasury. Additionally, if the U.K does not remain silent about former executives who were active at HSBC during the times in question, our government may gain more courage. Take for example Stephen Green, now Lord Green. Lord Green  became chief executive of HSBC in June 2003 and was appointed chairman in 2006. According to the Huffington Post, in 2005 he was made aware of the bank’s alleged ties with “rogue” regimes in theMiddle East. The US Senate investigation released internal emails showing how in the same year Lord Green was warned by an internal whistleblower in the bank’sMexicosubsidiary that compliance staff had “fabricated records”. He was also told in 2008, two years after being appointed executive chairman, that the Mexican authorities had uncovered evidence of money laundering that “may imply criminal responsibility of HSBC”.

There is little question that the HSBC affair has left DOJ with a black mark against it. The DPA provides adequate remedies to monitor closely the activities of HSBC over the next five years and to take direct and effective action in case the DPA is violated. The DOJ also has the power to continue its investigation of individuals and to receive the cooperation of HSBC. If and when criminal activities are uncovered DOJ has the power and authority, and hopefully the will, to prosecute to the fullest extent of the law. It should take advantage of this opportunity in order to void the current impression that justice in this country is applied selectively.

 

 

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THE CASCADING DECLINE AT THE BBC

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

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

 

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

 

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

 

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

 

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

 

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

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

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ETHICS AND CRISIS MANAGEMENT

Posted in Crisis Management, Ethics and Crisis Management, ETHICS FROM THE TOP DOWN, guidelines for ethical standards, including ethics as part of your corporate culture, problem employees, Setting ethical standards on September 12th, 2012 by mnayor

 On September 8, 2012 The New York Times ran a front page story about Marcone, a company that may well be the largest authorized dealer of appliance parts in theU.S.  it’s been around since 1932.The reason for its front page notoriety is due to one of its senior vice presidents, Carlos Garcia, buying, essentially smuggling, and reselling large quantities of a banned refrigerant for appliances such as refrigerators and air conditioners. Garcia imported the gas, HCF-22 which damages the ozone layer, without the necessary approvals, thereby violating international treaties andU.S.law. The substance has been prohibited in new appliances since 2010. In June, Garcia was sentenced to 13 months in jail.

 

Faced with a tempting or risky 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. This is what happened to Wal-Mart in April of this year when its Mexican subsidiary was exposed as having engaged in  pervasive bribery as a normal course of business. 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 to the State ofMexico? 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.

What’s the lesson for CEO’s of organizations? It’s simple really. Every organization has  a “culture”. An integral part of that culture should be a requirement for high ethical standards, communicated from the top down. Transmitting the idea of winning at any cost will most likely ensure that some manager or employee down the chain will misconstrue the message and take ridiculous liberties in order to be noticed. Turning a blind eye to actions that are suspect bears the same message, even if it takes a little longer to filter down. Excessive emphasis on the bottom line can put extraordinary pressure on executives and managers to wring blood out of a stone and look for routes that will pay huge rewards, oftentimes the risk be damned. Johnson & Johnson has certainly paid a huge price to its reputation under the leadership of William Weldon, who retired as CEO just a few months ago. Under his guidance J&J’s wonderful standing in the eyes of the public has plummeted. The number of recalls, dirty facilities and end-runs around regulations over the last several years have contributed to the erosion of its sterling reputation of putting the consumer first as it did in the Tylenol scare of 1982.

 

What can a CEO do? First establish a no tolerance rule for non-ethical behavior. Anyone whose conduct exceeds the bounds of propriety is gone. Second, very careful employment screening is a must. Thirdly, establish ethical standards. Easier said than done? Perhaps but the effort should be made. Obviously if certain conduct is illegal, then it clearly has no place in the organization. beyond that if conduct is egregious enough to create the valid claim of negligence or breach of contract it should not be tolerated. Finally, if conduct would offend any one class or more of your stakeholders then it should be carefully considered. No organization should take an action that has the potential for angering its customers or clients, its investors, suppliers, employees, government officials, the public at large or the media. Of course, angering your competition is a different story, unless it angers the public at large and boomerangs.

 

No organization can protect itself against the errant employee who may jeopardize its reputation, legal standing or success. Nevertheless, it is imperative that the CEO and the board of any entity establish the rules of conduct by which it wishes to be known and respected.

 

 

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WHAT WE CAN LEARN FROM THE JPMORGAN DEBACLE

Posted in analyze the problem, Business Crisis Management, Corporate Crisis Management, Crisis Management, Crisis Management Planning, Crisis Management Response, don't white wash the crisis, fix the problem, Jamie Dimon, JPMorgan Chase, problem employees, Taking Responsibility for actions of an organization or its employees, Throw an employee under the bus on May 23rd, 2012 by mnayor

The JPMorgan $2 billion debacle stunned me as it did everyone else. It was like catching the self-righteous little kid with the smoking slingshot in his hand.

Well, not quite. I got to thinking. Yes, it’s true that Jamie Dimon has this holier than thou attitude and perhaps it’s nice to see him knocked down a peg or two. But many crises are without question caused by those employees who you think you know – but don’t. Or caused by the hierarchy or the controls you’ve established but which really don’t work. You look out over your domain and deem it good, but there is always someone or some circumstance or some poor decision that puts you and your company in the hot spot.

 Yes, the buck stops here and the CEO should always take the rap (instead of throwing someone or a few  people under the bus and taking the $23 million), but that doesn’t mean the CEO can really plug every hole that springs a leak. It would require too many thumbs. Dimon was frank and honest, but he did forget to say it was on his watch and he accepted full responsibility. You can’t have everything. But, what do you do when your trusted employee or employees do something dumb, or worse.

 Several months ago I wrote about Charlie Sheen. I also wrote about Christian Dior’s John Galliano. For those who don’t recognize the names, suffice it to say that both of these guys gave their employers and themselves black eyes and heartburn. CBS and C.D. each acted fairly quickly and dumped its famous and talented employee, regardless of his value. They restructured. They went on and in a matter of a couple of weeks after their decisions, the crisis each faced disappeared.

 Crisis management calls for decisive action. That doesn’t mean just dumping a perpetrator. It means analyzing a situation to see if the organization continues to be vulnerable. It means identifying the basic problem and rectifying it. Do potential employees have to be tested? Drugs? Psychological testing? Do they have to be supervised more closely? Should they be cleared to give public statements? Do employment contracts have to be tightened up? Do the work environments have to be more closely supervised? Do supervisors have to have greater responsibility for the conduct of their departments? Do department managers and regional vice presidents have to be more hands on? Should they be required to know all the employees under them? Should the work environments be evaluated for potential risk? Are there checks and balances? Are there activities being conducted that are beyond the scope or the purposes of the business  or the established guidelines or policies of the company?

Crisis management should lead to problem solving not problem white-washing. JPMorgan Chase has to look well within itself to answer these types of questions. So does the rest of the banking industry. The crucial question that needs to be answered is whether the reins on the biggest banks should be tightened: re-institute Glass-Steagall? Put real teeth into the Volcker Rule? Something has got to give and the big boys should act like big boys. The financial fate of the nation depends on it and the right to massive profits is not justification  for behavior that jeopardizes the well being of the country.

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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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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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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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