Doing right if things go wrong

When companies are rocked by a scandal, management teams need to know they have a plan to restore faith in the organisation. Joe McGrath investigates whether there is such a formula


With numerous high-profile business public relations (PR) disasters in recent memory, it is easy to see why global businesses are continuing to splash out on external agencies to manage and protect their corporate reputations.

According to the 2012 Holmes Report, which measures fee-earning income for the world’s largest public relations agencies, every single agency in the top ten largest PR firms had increased their fee income year-on-year.

In total, the global public relations industry grew by just under 8 per cent in 2011, making it a £6.5-billion (US$10-billion) global business and illustrating the global appetite for services such as reputation protection and crisis management.

Recent examples of these “spin” services in action include the tax evasion furore which engulfed Starbucks last December. It had been widely reported that the company had legally avoided paying large amounts of corporation tax in the UK by utilising international tax-efficient accounting structures.

This particular “scandal” was a clear illustration of how quickly public sentiment can force change, quicker than any legal process.

However, the group’s PR operation responded and volunteered to increase the amount of tax it pays in the UK, allowing the spotlight of media coverage to drift to other companies who were still legally sidestepping a large tax bill.

James Henderson, chief executive of Bell Pottinger Private, says global chief executives are increasingly realising that multinational businesses need to be able to recognise and react quickly to what can be very rapid changes in the media agenda.

“The recent sharp focus on the disparity between the very low levels of UK tax paid by multinational businesses, on what appear to be healthy profits generated here, is a great example of this,” he says.

“Companies that are reliant on the continued goodwill and support of consumers now recognise they must make greater efforts to prove they are worthy of their customers’ trust. You only have to look at the unwelcome attention received by Amazon, Starbucks and Google late last year to see the kind of damage that can be inflicted when businesses are caught without a clear, concise and credible explanation for their actions.”

The tax issue that affected these companies grew quickly because of the access customers have to social media and chief executives must appreciate the pace at which a negative story can get out of hand.

Anthony Danaher, chairman of corporate communications at FTI Consulting, underlines the fact that the rules have changed, noting that the ethical standards required of the corporate world are getting more and more stringent.

The lack of regulation and speed by which social media can mobilise negative sentiment has a growing number of corporate casualties

“Behaviour that was once seen as acceptable is being frowned upon,” he says. “Just in the past year, we have had Leveson [an inquiry into the press], executive remuneration, the Starbucks corporate tax scandal and Libor rigging. Companies need to be thinking about what is around the corner and what they are perceived to be accountable for.

“Social media has been one of the biggest game-changers. The lack of regulation and speed by which social media can mobilise negative sentiment has a growing number of corporate casualties.”

Of course, reputational management extends far beyond the financial affairs of a company. Sunderland Football Club jumped from the back pages to the front pages of the national press earlier this year when the club hired Paulo Di Canio as its new manager. It found itself at the centre of controversy when reports surfaced that Di Canio had once made a fascist salute while he played at Lazio in Rome and allegedly told an Italian news agency that he was a “fascist, not a racist”.

Initially the club was slow to respond to the story and simply hoped the bad news would go away. In the meantime, its reputation was at risk of harm.

Ruth Settle, director at public relations group Freud Communications, explains: “You only have one chance to get it right – so listen to the experts. By refusing to comment on fascism allegations, Sunderland fuelled a manageable story for days before the eventual denial.

“Strategy must be insight-driven and preparation rigorous. Any business that has steered through choppy reputational waters will agree – good crisis management is invaluable.”

In the same way as businesses have specific insurance policies and disaster recovery plans in case of natural disasters, fires or mass technology failures, crisis management plans are invaluable for when the worst happens.

Any business that has steered through choppy reputational waters will agree – good crisis management is invaluable

While the best PR practice is to be open, honest and consistent in your messaging, a good crisis management plan will ensure your organisation weathers any reputational storm if your organisational culture supports your plan.

Derek Wynne, head of engagement at reputation management group Cirrus, says: “During a crisis, it helps if everyone has a shared view of the way forward. This comes from clear and consistent leadership. It also helps if individuals have freedom to act.

“If you have clear values and high levels of trust, people are likely to act with integrity. If your people aren’t very engaged with your goals and don’t really care about your reputation, they’re unlikely to be very on-message, and more likely to say things that can further damage your reputation. This is particularly dangerous in our social-media age.”

While working from a known issues list can assist companies in managing their reputational risks, there is no cure-all when routine “issues management” becomes “crisis management”.

However, a company’s own “toxic issues list” can be a good basis on which to rehearse crisis management scenarios.

Paul Tweed, reputational management lawyer and senior partner at Johnsons Solicitors, says organisations should have solid protocols which dictate who does what as a crisis is dealt with, based on scenario plans which envisage a range of potential situations the company may find itself in.

He says: “These are mapped out in advance, so that a team can be assembled quickly and situations dealt with in an effective manner. The protocols, if well thought through and based on realistic scenarios, act like an insurance policy – hopefully never needed – but invaluable when they are.

“Especially at the beginning of a crisis, time is of the essence and it is important that engagement, particularly with the media, is not done in haste, but in an orderly, calm manner so as to avoid costly mistakes.”

GOOD PRACTICE

TESCO TAKING CONTROL

While British supermarkets and meat suppliers across Europe found themselves under scrutiny as a result of the horsemeat scandal, Tesco managed its response better than most.

In fact, when horsemeat was discovered in beef products at supermarkets and in food products across the UK, Tesco showed how crisis management should be executed.

Brand management researchers at Media Perception Insight (MPI) commissioned research into how the reactions of the brands involved in the scandal affected their reputation in the eyes of the media.

The panel of trade journalists provided insight into the comparative impact of Tesco’s and Findus’ reputation management strategies.

While both brands yielded lower scores for corporate social responsibility, the panel did recognise a marked difference in the two companies’ branding and marketing. Tesco scored higher at 77.6 per cent for how its brand was protected in the scandal while Findus polled just 46.6 per cent in this category. In fact, every journalist asked agreed that Tesco has successful marketing and advertising campaigns in place.

George Robinson, chairman of MPI, says the results of the poll show that, regardless of the allegations being thrown around, it was Tesco’s proactive approach to communications that allowed it to preserve its positioning among the key trade media audience.

He explains: “While many experts commented that Findus tended to keep quiet as the scandal unfolded, Tesco was praised for facing the crisis head-on in the media – and this has been clearly reflected in the survey results.

“We can see the impact of Tesco’s marketing strategy on its reputation, even at times where its responsibility to the public is being questioned.”

The Food Standards Agency’s findings in the horsemeat scandal affected every major supermarket in the UK, either directly – through the supply chain – or indirectly because of a change in shopping habits. However, Tesco’s speed of response, clear, direct messaging and willingness to take ownership of the key issues, protected its reputation.

Freddie Baveystock, managing consultant at Rufus Leonard, says adopting the “active” approach enables large companies to respond to a crisis quickly by instilling the values of clarity, simplicity and humanity.

“Brands need to be defined in clear and simple terms that everyone within an organisation can remember and act upon,” he says. “This enables a PR team to adopt a position that is readily identifiable as a meaningful and decisive response, not an evasion or quibbling over responsibilities that can be interpreted as ‘playing for time’.”

BAD PRACTICE

G4S AND THE OLYMPIC ‘HIGH JUMP’

Reputational damage hit security group G4S last summer when the public reacted with anger after the company was unable to fulfil its obligations to provide security to the London 2012 Olympics.

Having landed the contract to handle the security for various Olympic venues, the company became the focus of global headlines when a disgruntled employee turned whistle-blower.

In the June before the Olympics, the employee claimed staff security vetting had not been completed adequately and that many employees were effectively self-certifying.

Initially, the company denied the allegations, before eventually admitting it had struggled to find sufficient numbers of suitable staff and, therefore, was under pressure to fulfil its obligations.

The delay in owning up to the problem enabled the scandal to rumble on for weeks, eventually becoming a source of huge embarrassment for the British government and G4S chief executive Nick Buckles.

In not dealing with the negative story at the earliest opportunity, the company saw its share price subsequently tumble by $1.1 billion. Worse still, it later transpired that concerns had been raised internally long before the company was “shopped” by one of its own staff.

Mr Buckles would later become the subject of another round of headlines after his performance in front of the investigating House of Commons select committee was less than flattering.

Gavin Ingham Brooke, crisis communications specialist and chief executive of consultancy Spada, says Mr Buckles’ televised committee appearance was uncomfortable viewing.

He explains: “The performance made me squirm. It showed little preparation and the company’s messaging was fundamentally wrong.”

Mr Ingham Brooke says to fail to plan is to plan to fail. “Regular reviews and drills involving the major decision-makers are critical. It is true that few plans escape unscathed from first contact with the enemy, but being rehearsed means a multinational will be better able to distinguish a problem from a true crisis, and deploy accordingly,” he says.

“Your crisis management team must be senior, tightly-managed and empowered to make serious strategic decisions; events can develop too quickly to allow decisions by committee.

Establish shift patterns if the crisis demands it – a multinational will have to contend with scrutiny across time zones, as well as a domestic 24-hour news cycle.”

With G4S, like many companies, it appeared that too few hours had been spent considering the reputational risk of winning an Olympic contract. However, that planning could have been invaluable and should be a lesson for any chief executive.