Whistleblowers and the risk to reputation

Whistleblowers are a well-recognised possibility in most organisations. But how the organisation responds to a whistleblower can help determine whether the problem raised becomes a reputational crisis.

Take the recent case of CEO Jes Staley of Barclay’s Bank who provoked regulatory ire after he ordered bank security staff to try to identify a whistle-blower who raised questions about a friend Mr Staley appointed. The issue was relatively minor but regulators began investigating whether the CEO had breached rules relating to the treatment of whistleblowers. Staley apologised, but the bank now faces investor disquiet and unwanted reputational damage.

Or consider the quality recall currently underway by Hyundai, involving well over a million vehicles, which arose after a corporate whistleblower released internal documents about alleged engine defects. While the recall is serious enough, the New York Times reported the whistleblower was fired for allegedly leaking trade secrets, but later reinstated by Hyundai following a South Korean government ruling to protect whistleblowers. Then the company filed a criminal complaint against the man, which it dropped after he quit the carmaker last month.

Or finally, consider the Fairfax Media report late last year which claimed senior executives at Leightons (later renamed CIMIC) were under investigation by regulatory authorities after failing to respond to an employee who raised allegations of a bribery scandal in India. The report said the whistleblower was sacked in 2014 and his concerns were ignored. It added that the Federal Government and Opposition both subsequently urged consideration of whistleblower reform in the private sector.

The important lesson from such cases is that how a whistleblower is handled can sometimes trigger reputational damage even greater than the original issue.  Management experts advise that whistleblowers typically try to raise concerns using the “normal channels” before taking the “nuclear option” when they believe no-one is paying attention.

So what can be done to protect the organisation? Effective issue management and crisis prevention involves identifying problems early and taking steps to address them. This means whistleblowers should not be seen as a threat, but as a warning that something is not right. Organisations should encourage blame-free upward communication rather than a culture of “shooting the messenger,” plus have a formal process by which individuals can legitimately raise concerns.

The American writers Nystrom and Starbuck suggest that top managers should listen to and learn from what they call “dissenters, doubters and bearers of warnings” to remind themselves that their own beliefs and perceptions may well be wrong.

Similarly, the Australian disaster expert Andrew Hopkins agrees that leaders should not rely on assurances from subordinates that all is as it should be. He describes problems as “lying in wait to pounce,” and says mindful managers should use every means available to probe for these problems and expose them before they can impact detrimentally on the organization.

Indeed, Hopkins goes even further, arguing that mindful leaders should actually welcome bad news. “They recognise that it is often difficult to convey bad news upwards,” he says, “and they develop systems to reward the bearers of bad news.”

Welcoming bad news and rewarding Jeremiahs might seem a stretch for some executives, but there is no doubt that crisis proof organisations have formal systems in place to identify and respond to concerns before whistleblowers feel the need to act. That’s how planned issue management and crisis prevention help protect reputation.

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Celebrity or scientist: Who do you believe?

Some celebrities are famous for having kooky ideas – think no further than Gwyneth Paltrow. But when these ideas potentially threaten the health of thousands of citizens, it can be a real challenge for issue managers and risk communicators.

Television chef Pete Evans seems to be emerging as the latest example of that age-old conflict between opinionated celebrities and experts who actually know the facts.

As one of the stars of Australia’s top rating My Kitchen Rules, Evans has long courted controversy with his promotion of the Paleo Diet. And that came to a head when a publisher had to withdraw and pulp a book he co-authored which suggested bone broth and chicken liver pate as superfoods for young babies.

But his continued claims that dairy strips calcium from your bones, that fluoride does not prevent cavities and that sunscreen is toxic, have now prompted the Australian Medical Association to issue a warning that his “extreme advice” endangers lives. “Celebrity chefs shouldn’t dabble in medicine.”

Managing Outcomes has no particular opinion about the veracity of his claims. But what makes this of special interest here is Evans’ stout defence of what has been called “celebration of ignorance.”

In an extraordinary TV interview, Evans was asked why he gave medical advice when he had no qualifications. “What do you need a qualification for to talk common sense? Why do you have to study something that is outdated, that is industry-backed, that is biased, that is not getting the results? That would be insane to study something that you’re gonna waste your time with? That’s just crazy.”

Evans is certainly not the first to take such a bold stance, and it’s ground which has been well travelled. However, as with anti-vaccine activists, anti-windfarm campaigners and others, such open antagonism towards science creates a major hurdle for issue managers and policy makers.

In an insightful essay in the latest issue of Foreign Affairs,* Tom Nichols wrote that people have reached the point where ignorance – at least regarding what is generally considered established knowledge – is seen as an actual virtue.  “To reject the advice of experts is to assert autonomy, a way for people to demonstrate their independence from nefarious elites – and insulate their increasingly fragile egos from ever being told they are wrong,” he says.

“I fear we are moving beyond natural scepticism regarding expert claims, to the death of the ideal of expertise itself: a Google-fueled, Wikipedia-based, blog-sodden collapse of any division between professionals and laypeople, teachers and students, knowers and wonderers – in other words, between those with achievement in an area and those with none.”

The reality is that managing issues is hard enough at the best of times, and legitimate scientific disagreement makes it even more difficult.  But celebrity intervention in the face of scientific orthodoxy can make it virtually impossible.  And what’s the answer? While recognising that issues are by definition contentious and often revolve around emotion and unfounded opinion, never stray from the known facts and the testimony of genuine experts.

As Nichols concluded: “Experts are the people who know considerably more about a given topic than the rest of us. They don’t know everything, and they’re not always right, but they constitute a minority whose views on a topic are more likely to be right than the public at large.”

*”How America lost faith in expertise.” Tom Nichols, Foreign Affairs, 92 (2), March-April 2017.

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Bean counters are vital for crisis prevention

Why are accountants and other money managers not always included as core players in crisis planning and preparedness? Why are they sometimes seen simply as tactical contributors, maybe concerned more with business continuity and system recovery?

The reality is that their full participation is vital. Crises cause a variety of impacts — organisational, reputational, operational and political — but no crisis impact is typically as immediate as the financial fallout.

The cost impact of a major crisis can be staggering. Think no further than BHP Billiton which lost $8.9 billion of market value in a single day when the Brazilian government announced a mega-claim against the company arising from the Samarco dam collapse. Or think of the Costa Concordia disaster off the coast of Italy, where refloating and removing the sunken cruise ship took total costs to well over £1 billion. Or the Volkswagen emissions crisis which has already cost the company more than $20 billion . . .  and counting.

It might be tempting to think that such massive crises are exceptional and only apply to big multinational corporations. But a study of Australian crises over a ten year period showed one in four crises cost the organisation affected in excess of $100 million and more than 25% of the organisations went out of business or ceased to exist in their current form.

In the face of such stark numbers you would hope that any organisation’s bean counters were intimately involved in crisis planning. But here again the facts suggest otherwise.

One indication of the worrying reality can be seen in a survey of financial analysts and investor relations officers at companies across Canada and the United States. Of responding analysts, 85% said a corporate crisis — fraud resulting in accounting restatement — has the greatest negative impact on a company’s value, yet over 50% said their company plan prepared them only for an operational crisis. Furthermore, 50% didn’t even know if their company conducted crisis simulations.

Commenting on these conclusions, Tom Enright, President of the Canadian Investor Relations Institute, said investment relations officers needed to play a much larger role in developing the crisis communications plan, executing crisis drills and regularly updating the document. He said they should be involved in the process from beginning to end, but our question is: why isn’t that always so?

Anyone who doubts the importance of this challenge need only look at the dark history of financial and accounting-related crises. Accounting fraud and financial mismanagement represent very high levels of risk, sometimes with massive losses, yet resulting crises continue to grab the headlines — choose your favourite example. And most often, such cases go right to the heart of the new concept of Crisis Proofing, with its increased focus on prevention.

The Crisis Proof organisation demands executives and managers at all levels who understand that crisis management is not just about what to do when a crisis strikes but how to identify potential crises and how to act to reduce the chances of a crisis happening in the first place.

While companies have auditors, fraud units, risk assessors and forensic accountants, these activities are typically seen as part of asset protection and risk management rather than as core elements of crisis preparedness. However, industry experts know that most crises are preceded by red flags, and the detection of warning signs should be a vital role for accountants and financial managers. If they are not intimately involved, then it’s time for a major rethink.

 

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Crisis or disaster? IT has helped blur the language

It’s time business stopped misusing the word disaster, and the IT industry needs to take a good share of the blame.

Most recently, an April post on the Hewlett Packard Insights blog, declared: “In general, anything that significantly impairs day to day work can be considered a disaster.” The reality is, No, it can’t!

Writer Wayne Rash went on to say: “It’s worth noting that a disaster in this (IT) context does not necessarily mean widespread destruction, loss of life, or general catastrophe. What a disaster means to you is defined by what interferes with your operations to the point that it endangers your business and thus requires a disaster recovery response.”

What Mr Rash is saying just might, maybe make sense in the IT world where such language is common, but it’s bleeding into general management usage, and that’s a big problem.

Of course the IT industry can’t take all the blame for devaluing the word disaster. Contrary to typical news media headlines, losing a crucial football match is not a disaster, nor is a temporary fall in a company’s share price. In fact, in recent times, the word ‘disaster’ has progressed from being devalued to being entirely trivialised.

A celebrity posting an unwise twitter message is now labelled as a ‘PR disaster’ or a ‘social media disaster,’ while a Hollywood star choosing the wrong dress for a red-carpet event becomes a ‘fashion disaster.’

This language is genuinely unhelpful and distracts attention from serious matters of real concern. Consider by contrast the United Nations definition of a disaster as: “A serious disruption of the functioning of a society, causing widespread human, material or environmental losses and exceeding the coping capacities of the affected communities and government.” Or within a business context, the Dutch crisis experts Arjen Boin and Paul ’t Hart say: “A disaster is a crisis with a devastating ending.” Anything less just doesn’t quality.

While there is clearly a massive difference between a pop culture ‘disaster’ and a true societal or organisational disaster, contamination of broader business language by misuse of the word has serious consequences for issue and crisis managers.

A key consequence arises from the widespread belief in the IT world that the answer to just about every such problem is a disaster recovery plan. As Mr Rash put it: “A disaster recovery response is the set of actions your organisation must take to continue operations in the face of an unforeseen event.”

Business continuity and operational recovery are vital, but they are just one tactical element of an organisation’s crisis management process. The modern approach to crisis management recognises that it should encompass crisis preparedness and prevention; crisis response; and post-crisis management (of which operational recovery is one part). And that it applies to every type of crisis – financial, organisational, legal, political and reputational, not just operational.

We all love IT and the wonders the digital world can bring to issue and crisis management. But any organisation which says: “We have a great business continuity plan so we are crisis-prepared” is in line for a very big and very costly surprise.

 

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Don’t be misled by United’s crisis survival

It could be very easy to draw the wrong lessons from the United Airlines “customer re-accommodation” crisis. United will survive the forced removal of a law-abiding passenger being dragged off their plane and, within a very short time, the “scream heard around the world” will probably be forgotten . . .  if not forgiven.

That’s the sad reality. Public memory is short and boycotts rarely last. In the wake of this mismanaged debacle, the share value of United plunged by over a billion dollars. But it soon recovered and there is no indication that passenger loadings registered any substantial movement.

Like America’s big banks and big car-makers which were “too big to fail” in the 2008 financial crisis, United will most likely sail through its most recent disaster with maybe some cosmetic changes to the way it operates and little or no lasting damage. As TV host Jimmy Kimmell commented: “Next time we book a flight, if one airline is one dollar less than the others, that’s the one we pick. They know this. That’s why we’re stuck with them.”

You don’t have to be loved to survive a crisis – think no further than big oil, big tobacco and big banking. Or consider the combative former Chairman and CEO of ExxonMobil Lee Raymond, who rebuilt the company after the notorious Exxon Valdez oil spill disaster in 1989. He is supposed to have told colleagues: “People hate us, but they are going to keep buying our product.”

However, genuine customer loyalty to a big brand can be an important factor. In the wake of Toyota’s “sudden acceleration” recall crisis of 2010, many pundits, especially in America, predicted that the company would not survive or, at the very least, would have to change its name. Not true of course. Toyota rapidly recovered and within two years record sales restored its title as the world’s biggest car-maker.

And, despite the emission cheating crisis which struck Volkswagen in 2015, early this year the German company overtook Toyota to once again hold top spot. Today, not only are both Toyota and Volkswagen in the Fortune global top ten companies by revenue, they are both in the Forbes top 100 most reputable companies (Toyota at 34 and Volkswagen at 100).

United Airlines clearly has a long way to go in terms of reputation and customer loyalty. However the important lesson here is not that big brands can survive a crisis. The real lesson is that no-one should think this is precedent for the rest of us.

Outside the world of massive global brands, a serious crisis is a very real threat to survival. The American academic John Penrose reported that while large companies with ample prestige, goodwill and financial resources may survive even the worst disasters, 80% of smaller, lesser-known organisations without a well-conceived and tested crisis plan go out of business within two years of suffering a major disaster. And one study of Australian crises across a ten year period showed that more than 25% of the companies affected went out of business.

It may be fascinating to watch the big brands mismanage crises and still survive, but the reality for most companies is that crisis failure may well prove fatal. It’s a pretty good reason to get working on that “well-conceived and tested crisis plan.”

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Should CEOs get personally involved in hot social issues 

Is it helpful for high profile CEOs to personally align themselves with controversial issues which have no direct link to their business?

It’s a question which has just been thrown back into the public arena by an Australian Federal Cabinet Minister launching a shock attack on business leaders who came out in support of same-sex marriage.

In a letter to the Prime Minister two weeks ago, 34 business and community leaders argued that marriage equality is good for business, employees, customers and the country.

They claimed to be writing in their personal capacity, but they still copped a spray from Immigration Minister Peter Dutton, who said companies should “stick to their knitting.” He said CEOs should not use an iconic brand and the might of a multi-billion dollar business “on issues best left to the judgments of individuals and elected decision makers.” (Though it has to be said some of his cabinet colleagues took a different view).

Just last month Managing Outcomes questioned whether companies are becoming newly bold on public issues? But the change from big company support to individual CEO support raises the heat of the question, and may play right into the hands of critics.

As long ago as May 2015 a Who’s Who of Australian companies signed a newspaper advertisement in support of same-sex marriage and it went largely unremarked. Yet this latest letter, signed by top CEOs, seems to have touched a political nerve.

This was promptly followed by the case of Australian brewer Coopers, whose CEO was forced to apologise for a “light-hearted” YouTube video debate on same-sex marriage linking his beer to a religious group known for its opposition. Facing a threatened boycott, MD Tim Cooper asked for the video to be withdrawn and publicly stated his company’s support for marriage equality.

The issue here is not the merits of debate over same-sex marriage. The issue is whether high profile corporate intervention is helpful. Whether a personal agenda can potentially damage the organisation. And whether it’s strategically smart.

It’s certainly a question which has had repercussions at the highest levels of business. Take for example Mozilla CEO Brendan Eich who famously had to step down following an online protest for supporting a proposed ban on gay marriage in California. Or Chick-fil-A President Dan Cathy who faced massive controversy over funding organisations regarded as hostile to LGBT rights. He later admitted it had been a mistake and said that, while he hadn’t changed his mind, in future he would stick to selling chicken.

Or consider the case of Telstra, one of the many Australian corporations which supported the 2015 newspaper advert. A year later the telco said it had abandoned its public campaign for marriage equality, but denied the decision came after pressure from the Catholic Church. Then, just days later, CEO Andrew Penn appeared to reverse direction and said the company would in fact step forward to support marriage equality. “By renewing our active position we acknowledge that we are at equal risk of inflaming a new debate, but it is the right thing to do.” Little wonder some stakeholders were confused.

Unsurprisingly, Mr Penn is one of the signatories to the new letter to the government, which emphasises that the CEOs were signing “in our personal capacity in support of marriage equality.” However that’s a naïve distinction. Big companies or their CEOs are free to intervene in high profile social issues, but they need to do it for the right reasons and understanding that a social issue at one level risks creating a business issue for the organisation as a whole.

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Are companies becoming newly bold on public issues?

Companies need to think hard before they voluntarily link their name or brand to a controversial issue. Whether it’s advertising on Australia Day or at the Super Bowl, or some other public stance, every decision has consequences, and it simply doesn’t matter whether those consequences are rational or reasonable.

Public issues by definition involve emotions and feelings rather than black and white right and wrong, and corporate involvement brings with it a real risk of going very bad, very quickly.

Take the outdoor hoarding promoting Australia Day in Melbourne which featured a picture of two smiling young Muslim girls in hijabs. The social media outcry was pretty predictable, but when the advertising company received credible threats to the organisation and its staff, they felt they had no choice but to take the billboard down.

And when Budweiser’s Super Bowl advert featured the immigrant story of the company founder, the result was a call to boycott America’s biggest-selling beer brand. Or consider the flurry of social media criticism when Target’s back-to-school catalogue included a photograph of a Muslim mother and her two young children.

We’ll probably never know the true intent and strategy behind these and similar corporate decisions. But we do know for sure that such decision-making carries risks and benefits which must be carefully weighed in the social and business interests of the organisation concerned.

A recent Wharton University analysis observed that corporate public interest campaigns are not new, but that the latest reactions from the private sector are “nearly unprecedented in intensity and scope.”  The paper made the obvious point that aligning with a set of values will resonate with one group and won’t resonate with another. “If you think it’s an important enough stance to take politically and as a business in terms of what you do,” they concluded, “then you’ll make that trade-off.” In fact Forbes has reported American research which showed more than half of the public believe corporations should engage in dialogue surrounding controversial social-political issues.

Corporations and CEOs certainly seem to be showing renewed willingness to play a role in high-profile social issues with little or no apparent direct relevance to their core business. Look no further than the Who’s Who of Australian corporates who lent their names and brands to a newspaper advertisement in support of same sex marriage.

Which brings us back to the tale of the Muslim schoolgirls who appeared in that controversial Australia Day advertisement. Its withdrawal generated widespread media coverage, and TV made the two young models instant celebrities. Yet the unexpected sequel attracted much less mainstream attention. Advertising executive Dee Madigan launched a crowd-funding effort to resurrect the campaign and initially hoped to raise $20,000. What became the second fastest growing GoFundMe initiative actually raised nearly $170,000, which allowed her to put up 17 billboards, 500 street posters and seven full-page adverts – plus enough extra cash to make substantial donations to two children’s charities.

Interestingly, it was reported that the original outdoor advertising company, and two other leading players in the field, declined to carry the restored billboards. Doubtless they had their reasons, which have to be respected, though it’s a reminder that when companies choose to enter into high-profile issues there can be real costs. As Dee Madigan warned: “You have to be brave, and you have to expect backlash.”

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