FCPA CHINA TRIPLE PLAY

Posted in Bribery in China, Business Crisis Management, Crisis Communication Response, Crisis Communication Strategy, Crisis Communication Success Stories, Foreign Corrupt Practices, Las Vegas Sands, Microsoft Corp., Wall Street Journal on March 25th, 2013 by mnayor

The Las Vegas Sands. The Wall Street Journal. Microsoft Corporation. What could these three companies possibly have in common? Try China. Each is being investigated by the SEC and the Department of Justice for violations of the Foreign Corrupt Practices Act (FCPA).

 

Last year the Sands disclosed that it was being investigated. It received a subpoena from the SEC in February, 2011 and was advised that DOJ was investigating as well. Some allegations that have come to light are that Sheldon Adelson, the head of the Sands, instructed a top executive to pay about $700,000 in legal fees to aMacaulegislator whose law firm was outside counsel to the Sands. As a result of the government’s investigation the Sands authorized its independent Audit Committee to look into the matter and it recently released its preliminary report. The internal investigation is ongoing.

 

Also last year, the DOJ opened an investigation into allegations of bribery in Chinaby the Wall Street Journal. The WSJ also embarked on its own internal investigation which is close to finished.

 

Finally, a news story broke this week that Microsoft Corp. is being investigated as a result of allegations of potential bribery by employees in China (as well as inRomania and Italy). This is such a new story that Microsoft has not yet begun its investigation.

 

Three different stories with the same tag line, all within the month of March, 2013. So far it seems as if this is the year of the FCPA, even though, in fact, FCPA cases have declined over the last two years. All three of these investigations were prompted by whistleblowers of one type or another. How did each company react and which reaction would appear to best serve its corporate interests?

 

First, the Sands. To its credit the Audit Committee found that there was a likely violation of the books and records and internal controls provisions of the FCPA and this was reported in the Company’s form 10-K filed with the SEC. But the 10-K went on to say in a rather self-serving way that the Company has improved its practices with respect to books and records and internal controls. It also states that the preliminary findings do not have a material impact on the financial statements of the Company, do not warrant a restatement of previous financial statements and do not represent a material weakness in the Company’s internal controls over financial reporting as of December 31, 2012.

 

The Wall Street Journal investigation is part of a much larger DOJ criminal investigation into the News Corporation, WSJ’s parent company, related to revelations that its British newspapers hacked phones and bribed officials in order to obtain information for articles. As part of the overall internal investigation, the Chinese allegations were thoroughly reviewed. The WSJ found no evidence to support the claim or any impropriety, and maintains that the informant is most likely a government official seeking to disrupt or retaliate against the WSJ for reporting on Chinese leadership corruption.  It is not clear that DOJ has closed the matter.

 

Microsoft’s matter is new. But its response to the news report that it is being investigated was straight forward. It said that the matters raised were important and that allegations of bribery should be reviewed byU.S.agencies and its own compliance unit. A spokesperson said that allegations of this nature arise from time to time, that it is possible that sometimes an individual employee or business partner may violate the Company’s policies or break the law, and that its responsibility is to train its employees, build a system to prevent and detect violations, and to investigate allegations and take appropriate action.

 

What can we learn about crisis communication from these three stories. The Sands reaction leaves something to be desired. While it is admirable to admit that the company may have violated the law it is presumptuous and self-serving to draw conclusions that basically are up to the government. The SEC and DOJ may have a hard time swallowing the Sands’ conclusions. It would have been far better to state that it is cooperating with the agencies to resolve all issues and reach determinations that will not have far reaching consequences to the Company.

 

If we take the WSJ’s comments at face value, there is no reason not to aggressively maintain one’s innocence. Yet, it might have been better to acknowledge more clearly that DOJ had not yet signed off on the WSJ’s findings and that the WSJ was working with DOJ to conclude the matter. Instead in a buried paragraph in its own story it states that it is unclear whether the Justice Department considers the matter resolved or still open.

 

The Microsoft reaction is  the best. It is the most honest and direct and states the facts of corporate life: We know our responsibility. We do our very best. Occasionally, a bad apple may slip through. Crisis communication does require that a company assess and anticipate the concerns of stakeholders. Good judgment is needed to walk that fine line between allaying those concerns, and acting appropriately and respectfully to those who have control over the outcomes of your investigations.

 

 

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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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THE SKINNY ON WEIGHT LOSS PROGRAMS

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

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

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

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

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

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

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

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WHAT TYPE OF RESPONSE DOES YOUR CRISIS NEED?

Posted in Crises Communication, Crisis Communication Failures, Crisis Communication Response, Liability Communications on November 10th, 2010 by mnayor

On November 4th, a Rolls Royce engine on a Qantas A380 Airbus blew apart near Singapore. While there were no deaths or injuries there will likely be financial consequences to the three main players in this story: The Australian airline itself, Qantas; Airbus, the pan-European aerospace company; and Rolls Royce Group, plc the manufacturer of the Trent 900 engines.

There has been much press about the incident and the consequences would appear to be a direct function of how quickly the problem is diagnosed and resolved. Qantas and Rolls Royce are both busily inspecting and analyzing specifications, tolerances and operations that could affect performance.

Because Qantas has the most direct relationship with passengers, it has been the most visible and, seemingly, the most direct and quickest in taking action in this crisis. It has taken its fleet of six A380’s out of service at least temporarily and has made major efforts to redeploy aircraft around the world. Additionally it has provided its passengers with a multitude of assistance in order to avoid as much disruption as possible. Its website has detailed instructions to aid passengers.

Rolls Royce made a statement on November 4th and published it on its website.It stated that safety was its first priority and calmly explained that it has “well established processes to collect and understand information relating to the event and to determine suitable actions”. It then finished with a list several self-serving statements about how terrific the company is, the most recent expenditures on R&D, its revenues and its order book. Its November 8th statement advised that it was working closely with Airbus, and that the incident was unrelated to any of its other engines. While the statements exude a coolness and stiff upper lip mentality that Americans are not quite used to, they also reflect competence and a no-nonsense approach that should reflect well on the company, if it is able to determine and fix the problem in a matter of days.

Finally, turning to Airbus itself, the manufacturer of the A380, a search of its website uncovers nothing. There is a highlighted special report on the latest updates on the WTO Boeing-Airbus dispute but no reference to the Qantas incident. The Press Centre tab brings up many articles, all good, about Airbus. A search of its website does not uncover one mention of the incident.

Three different companies, three different types of response. And perhaps rightly so. Obviously, the closer to the consuming public the more urgent the need for a corporate public response. In the case of Qantas there are passengers who need to be immediately tended to. And potential customers need to be considered. One step down is Airbus whose customer base is the airlines themselves, a much smaller market in numbers. At the bottom rung is Rolls Royce whose customer base is tiny. The bottom line is that crisis communication has to be tailored to the complexity of the situation, a company’s responsibilities, and its stakeholders. Crisis communication is not one-size-fits-all. Less communication and more technical expertise and greater effort to solve the problem would have been far more preferable in the BP Gulf oil spill debacle.

Rolls must make good. Qantas can always buy different planes, although it might take awhile. Airbus could always buy different engines, although that could take awhile. Both Qantas and Airbus could suffer financially in the process but can always rebound. But Rolls will certainly suffer the most if it doesn’t fix the problem fast. Strange that it would be criticized for its lack of communication at a time when 100% of its energy appears to be devoted to fixing the problem, as reported by The Wall Street Journal writer Daniel Michaels, on November 9th. Crisis management is more than communication. If Rolls Royce makes a quick diagnosis and resolves all issues expeditiously, it should be praised for its efforts.

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PREEMPTION: THE TWO EDGED SWORD IN CRISIS MANAGEMENT

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

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

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

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

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

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

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

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WHAT REALLY CONSTITUTES A BUSINESS CRISIS

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

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

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

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

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

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

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

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

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

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THE PUBLIC FACE OF CRISIS MITIGATION

Posted in Anticipating A Crisis, Corporate Crisis Management, Crisis Communication Implementation, Crisis Management, Crisis Management Planning, Crisis Management Response on March 27th, 2010 by admin

Pre-crisis mitigation doesn’t have a public face. It is comprised of all the efforts and planning necessary to either avoid a crisis or mitigate its consequences when one occurs. Everything from identifying and buying the appropriate insurance to fire drills fall under this umbrella.

Post-crisis mitigation is an entirely different matter. The crisis has hit the fan and there is much work to do. Naturally the first item of business is confronting the crisis head on, dealing with the issue and taking corrective action. Equally as important is taking on the public. This is oftentimes not as easy as one would think. Very talented people can grapple with the identification of and the solutions to a crisis, yet are completely flummoxed by the requirements for dealing with the public. Read more »

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