Why some activists break the law – and how to respond

It’s no secret that some activist organisations believe they occasionally need to break the law in support of their “just cause.” And that’s a well acknowledged challenge for issue managers and senior executives trying to navigate their way through responding to a high profile issue.

However it’s a position rarely articulated as explicitly as in a recent speech by a senior advisor to Greenpeace.

Barry Rafe, a Director of Greenpeace Australia, told a governance conference this month that with activist organisations, there is an element of endorsing illegal behaviour. “That’s an area I struggled with because we teach Directors that if it’s illegal it’s unethical.” However, he said it was a struggle he had to get over. “I’ve learnt that as humans we’ve got a human right to break the law. There are consequences, but we’ve got a… right to break the law.”

Mr Rafe, a respected actuarial consultant and company executive, said: “So we do break into things, we do stop businesses, we do blockades where business is stopped.”

“If we’re talking activist organisations . . . you don’t go out of your way to break the law, but sometimes there might be situations where you might need to make a point.”

The predictable corporate response is to call in the lawyers. For example, lawyers for Adani recently issued a blunt warning to protesters against the planned Carmichael coal mine in Queensland that the company would use “all steps available to it” and threatened legal injunctions against the group or suing them in court.

But the courts seem to take a rather different view. When anti-coal activist Jonathan Moylan issued a hoax news release which briefly wiped $300 million from the market value of Whitehaven Coal, he faced up to ten years in prison.  But Judge David Davies said he accepted Moylan had no concept of the ramifications of his deception, and that he was contrite and remorseful.

“You did it for motives that I accept were sincerely held by you, even though your methods of achieving them were wrong,” Justice Davies said, and Moylan walked to freedom with a good behaviour bond.

And when actress Lucy lawless (aka Xena Warrior Princess) joined Greenpeace protesters on a three-day sit-in to block the departure of an oil drilling ship from a New Zealand port, they faced up to three years behind bars. But Judge Allan Roberts handed down a community work order and made them repay some minor damage at the port. Importantly, he declined to consider any order for the oil company’s claimed $600,000 in reparation because, he said, that would be “unfair.”

Then there were the six Sydney housewives who admitted trespassing in a local supermarket to protest against claimed genetically modified ingredients in a brand of baby formula. Magistrate Susan McIntyre placed them all on a good-behaviour bond, saying she recognised their “high moral standing” and their right to peaceful protest. “But you will confine yourself to legal behaviour,” she warned, “or it will come to nothing.”

So what is the best strategy when facing lawbreaking activists? Remember that high profile issues are seldom satisfactorily resolved in court. Any executive who’s inclined to threaten a heavy legal response would be well advised to heed these cases. Everyone remembers that hero David defeated villain Goliath, but no-one knows what they were fighting about or whether, maybe, Goliath was legally in the right.

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Do ‘reputation campaigns’ actually improve reputation?

No-one loves the banks. And their generally poor reputation is pretty much universal. But is the glossy reputation campaign just launched by the Bankers Association the right answer? And is the slogan “We’re making banking better for Australia” believable?

Many people think that banks fully deserve their dubious image. In fact ASIC Commissioner John Price recently cited a UK report which found ten of the world’s leading banks racked up fines and misconduct costs of nearly £150 billion over a period of just five years. Which is impressive, even by banking standards.

The last few months have certainly seen banks in the headlines for all the wrong reasons.  NAB and CBA caught out colluding on foreign currency trading.  Westpac entities accused of failing their consumers “best interests duty.”  ANZ and Macquarie Bank admitting cartel conduct on foreign exchange. NAB returning almost $35 million for financial advice it never delivered. Bankwest refunding $5 million in overcharged mortgage interest.  Morgan Stanley repaying $13 million after overcharging clients. CBA saying it has paid $23 million to customers for bad financial planning advice. And that’s just a very recent sample.

In addition, a new report from Australian Small Business and Family Enterprise Ombudsman Kate Carnell says big bank lending practices can cause “significant harm” to some small businesses.

Late last year, ANZ boss Shayne Elliot surprised a Parliamentary inquiry by admitting that the banks had lost touch with their customers. “We had become too internally focused and forgotten our role in society and in the community at large,” he said.  “That’s taken us down a path that’s created … bad behaviours and poor culture, and really not treated customers with the respect that they deserve.”

True, Mr Elliott, and a good start. But maybe what’s needed is improved performance and a genuine halt to bad behaviour, rather than a generic banking confidence campaign.  After all, brand is what you say about yourself, while reputation is what other people say about you. Moreover, most customers want to see better performance by their own bank, not hopeful messages from an industry organisation they’ve likely never heard of.

As respected business journalist Adele Ferguson says: “If change is to occur, it will require more than a few mea culpas, Senate inquiries and a series of reviews conducted by bank-funded independent experts.”

The latest Australian Bankers Association initiative is undoubtedly well designed and well executed, with great visuals and embedded videos. And it’s certainly more professional than their previous disastrous strategy to secretly pay radio broadcasters to stop saying nasty things about them. That effort led to the notorious “cash for comment” scandal of 1999.

But will this new bank campaign achieve its purpose? Indeed, what is the real purpose? It’s possible that the actual target is not the public at all. It may in fact be aimed primarily at politicians and regulators to try and fend off increasing calls for a wide-ranging inquiry into the finance industry.

Either way they should never forget the old maxim – Most corporate advertising is like wetting yourself in a dark suit. It briefly gives you a nice warm feeling . . .  but no-one notices.

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Why Government cyber crises matter

Cyber crises are hardly unusual. But when government computer systems fail, the social, political and financial impacts are wider than ever.

That’s a lesson the Australian Government has learned over recent months with a litany of IT problems which have plagued the public service.

First there was confirmation in April of a major cyber-attack on the Bureau of Meteorology, allegedly from China. The intrusion, which infected the Bureau’s entire computer network, was designed to steal sensitive information and will reportedly cost hundreds of millions of dollars to fix.

A few months later saw the humiliating disaster of the failure of IT infrastructure supporting the Australian national census, followed more recently by prolonged outages at the Tax Office, which prevented companies submitting end of year returns and making payments. Plus, at a State Government level, the computer glitch which led to Victorian high school students receiving their exam results five days ahead of schedule. Then the Victorian Government accidentally releasing personal details of almost 9,000 licensed gun-owners.

To top off a tumultuous few months now comes the stupendously badly-managed and badly-explained program of computer-generated “robo-letters” from Centrelink demanding money from more than 200,000 supposedly over-paid welfare recipients.

Columnist Jason Wilson seemed to be hyperventilating when the Guardian described scandals like the Centrelink debacle as “revealing the structural rot at the heart of our democracy.” But they do highlight that government cyber crises are very different from crises in the corporate sector.

For example, following the CEO sex scandal at Seven West Media, investors chose to dump the stock, and the company’s market value fell by almost $100 million. And after the fatal accident crisis at Dreamworld, patrons reportedly stayed away in droves.

By contrast, most people have very little choice about their interactions with government departments and some – such as filling out the census or paying taxes – are legally mandated. So it’s not unreasonable to expect that Government computer systems will be held to a higher standard of performance. Sadly, that appears not to be the reality.

When Prime Minster Malcolm Turnbull unveiled his $230 million Cyber Security Strategy, aimed at beefing up the nation’s defences against online assaults on individuals, businesses and governments, it was reported he was “trying to break down the risk-averse attitude of the bureaucracy.”

In the wake of the Centrelink crisis, Paul Shetler, the man handpicked to lead Government’s digital transformation, was even more blunt. He said it was symptomatic of a culture of blame aversion within the bureaucracy, not risk aversion. Shetler, who resigned in November, said successive IT failures, were “not a crisis of IT” but a “crisis of government.” Speaking on ABC 7.30 Report he added: “One of the biggest problems is that the Government just does not feel comfortable with modern technology. It doesn’t know how to use it.  It does things that everyone else has stopped doing, and is dependent on vendors to tell them what to so.”

It is a depressing assessment, but not one which should give the corporate world any comfort. Government cyber crises may garner massive headlines, community protests, and generate opportunistic and unhelpful political commentary. But the private sector is equally vulnerable and, unlike the government, doesn’t have limitless access to the public purse. Just ask some of the shareholders who have had to pay the price.

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Lessons from a food recall health crisis

Sometimes the company at the center of a crisis follows the conventional textbook response, yet external forces drive the situation completely out of control.

Two years ago this month, Australia was gripped by a food contamination panic which triggered political outrage and a national health scare which brought the company to its knees. Only now have the real lessons become fully evident.

In January and early February 2015, multiple cases of Hepatitis A across Australia led health authorities to link the illness to packets of Nanna’s Frozen Mixed Berries, which were grown in Chile and China and processed in China. Cases linked to the allegedly contaminated fruit eventually totalled 31, and produced national headlines questioning the safety of imported food and the adequacy of product labelling. These issues were effectively outside the scope of conventional crisis response, yet left the company struggling to gain influence.

The crisis began when Victorian authorities said two samples of frozen berries had proved positive for Hepatitis A, and that evidence for the association between the berries and the outbreak was very strong.

For its part, brand owner Patties Foods emphasised there was no proven direct link between its berries and individual cases of infection, but they were “guided by the epidemiology” and immediately ordered a voluntary, precautionary recall. Predictably the word “precautionary” was quickly lost in the blizzard of publicity. As one headline blared: “Hep A scare: Buy local to avoid virus-laced berries.”

Shares in Patties Foods fell by almost 8% in a day, and CEO Steven Chaur launched a conventional crisis response. He announced the company was sending samples overseas to specialist testing laboratories (which eventual proved negative, but by then it was too late);  he detailed the company’s testing regime (which he said met and exceeded all required standards); and he terminated the contract with the Chinese processing plant. But no amount of “key messages” could have slowed the crisis. Indeed, one newspaper commented that the brands were “trapped in the chute of a PR disaster … and falling.”

Add to this a very poor public understanding of the risk posed by Hepatitis A.  Health experts agree that Hepatitis A is usually not life-threatening and most people recover quickly.  However it is frequently confused with Hepatitis B and C, major illnesses which can lead to death from liver cirrhosis and liver cancer.  Naturally, none of the misperceived health risk aspect was within the capacity of Patties Foods to influence, though it undoubtedly raised the intensity of the crisis.

Also largely outside the company’s influence was how the crisis was “hi-jacked” to drive a separate political/industry agenda. Australian food producers used the panic to urge consumers to buy local, while the Government promptly pledged to strengthen country-of-origin labelling regulations, despite the suspect berries being clearly marked “Product of China.”

After reporting an 88% drop in profits, Patties Foods sold off the frozen berry business, and in late 2016 the remaining core business of pies and other bakery goods was sold to a private equity company.

For a food producer there could be no more obvious crisis risk than a contamination scare, and Patties Foods should have been better prepared. But given the circumstances of the case, it may be that nothing Patties Foods said or did would make a difference. Looking back, CEO Steven Chaur described the crisis as a case of “guilty until proven innocent.”  In reality it was more a case where guilt or innocence didn’t stand a chance in the face of epidemiology, opportunistic politicians, and a relentless news media.

Adapted from an article in Crisis Response Journal.

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No more ‘Sergeant Schultz’ for top executives in a crisis

How long can top executives credibly claim ignorance of malpractice happening on their watch? The bumbling Sergeant Schultz on Hogans’ Heroes became famous for his catchphrase “I see nothing, Nothing-g-g”. The joke of course was that he DID see what was happening and pretended not to.

In the same way, two major reputation crises in the last few weeks raise the very obvious question – How could senior managers NOT know what was taking place?

The first case saw Princess Cruise Lines agree to a record $US40 million penalty after pleading guilty to Princess Caribbean discharging oily waste into the ocean. Moreover court documents showed illegal practices were found on four other Princess ships, including use of ocean water to fool on-board sensors that would otherwise detect dumping of contaminated bilge-water. Authorities said cost saving was the motive and that the ship’s officers and crew conspired to cover up what was going on.

The company’s official response was to blame “the inexcusable actions of our employees, who violated our policies” and went on to say that although they had policies and procedures in place, “it became apparent that they were not fully effective.” No mention of the fact that the illegal practices came to light after an engineer on the ship told investigators looking into a big discharge off the coast of England in 2013.

The second reputation crisis was reported just days later when BMW Australia’s finance arm agreed to pay back $72 million to car buyers who were misled into thinking they could afford a luxury German car and were provided loans on false documents. BMW will write off $50 million in loans the company should never have made, will pay $14.6 million to people who were misled, and grant $7.5 million in interest rate reductions on current loan contracts.

The Sydney Morning Herald reported “there was evidence that the company’s management was aware of the failures and lack of controls in its business.” The paper said an earlier review blamed “a strong sales culture” in which people with “known compliance failings” were paid unprecedented bonuses, while risk and compliance teams were undermanned, under-trained and not taken seriously. Again it raises the question, where were top management in all of this?

Such cases are eerily reminiscent of the VW emissions scandal, which was initially blamed on a handful of low level employees, unbeknownst to the CEO, whereas later reports make it clear that the problem was known in the executive suite much earlier. Or take the recent scandal involving systematic underpayment of employees at 7-Eleven Australia, which was initially blamed on unscrupulous franchisees acting without the knowledge of Head Office. The company later admitted a culture of underpayment and false records had become “normalised” in its network

Let’s not be naïve here. In some such cases the CEO steps down, but in the background there are usually highly-paid lawyers warning executives not to admit responsibility, and trying to avoid their clients being forced to undergo cross-examination in open court.

However, it would be a welcome change – albeit unlikely – for a top executive to step forward and candidly say: “Yes, I knew about it, and I’m really sorry.”  Just don’t hold your breath waiting for that day.

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How WikiLeaks revealed a ‘secret’ issue management plan

It’s not often the world gets to see inside a confidential issue management plan. But when that happens, it sometimes exposes a strategy which probably sounded great at the Board table, but maybe didn’t look so great on the front page of the newspaper.

The latest major plan to leak was the scheme hatched by US activist PR man David Fenton to fight the influence of Rupert Murdoch over climate change denial, and to go after two of his major news outlets – the Wall Street Journal and Fox TV.

The proposal was to use guerrilla tactics, civil disobedience and targeted advertising to put Murdoch “on the defence” on climate change, and to make it possible for conservative politicians to be able to support positive action on reducing global warming. It was launched in the US to influence the Republican convention, and also proposed similar activities in Australia and the UK.

The $US2 million plan to directly challenge climate change reporting in the Murdoch media was exposed in the massive flood of emails hacked from the account of Clinton campaign Chairman John Podesta and published by WikiLeaks. In the heat of the election campaign and the furore over hacking, this divulged issue management strategy was overshadowed by much bigger revelations. But the plan itself makes interesting reading.

The document sent to Podesta (reproduced in full here) detailed elements including:
• A series of climate science advertisements in the Wall Street Journal
• Television and social media advertising
• Hidden funding for Greenpeace and other activists to target Murdoch and his businesses
• Soliciting and promoting supportive statements by opinion leaders around the world
• Targeting Fox and WSJ advertisers to persuade them to withdraw ads
• A campaign to embarrass News Corp and Fox board members and top executives.

Fenton PR subsequently proudly promoted the science print-ads which were run, and their television advertisements. But it appears they did not formally proceed with the plan to “Replicate these and other relevant tactics in Australia and the UK.”

This isn’t the first time an issue management plan has leaked, and certainly won’t be the last. Look no further than the secret strategy to combat Government efforts to limit gambling on poker machine which Clubs Australia accidentally posted on their own website. Anti-gambling campaigner Senator Nick Xenophon called the document a “smoking gun” which showed they had misled the Government and the public.

Sometimes it takes years for such secret plans to surface. Consider the revelation just last year of a strategy by the sugar industry in the 1960s to combat US Federal research on tooth decay. It came to light only with discovery of a treasure trove of documents from a former advisor to the industry, which showed they knew sugar played a major role in dental cavities as early as 1950.

And who could ignore the decades-long issue management strategies implemented by the tobacco industry, confirmed in the late 1990s by the release of over six million previously undisclosed documents, extending to about 35 million pages of evidence.

Such cases are a vivid reminder of one of the most basic rules of issue management: Don’t write plans you wouldn’t want to see on the front page of the newspaper or going viral on social media. Because nothing remains secret for ever.

 

 

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Should you blame a crisis on a rogue employee or the system?

Blaming a rogue employee or system failure is a pretty popular crisis strategy. But one of the most notorious cases of blaming a rogue employee for a crisis has just been turned on its head, with a court deciding the management system rather than the perpetrator was mainly at fault.

French derivatives trader Jerome Kervial famously went to prison after making €50 billion worth of unauthorized trades and committing forgery and fraud to cover them up.

Société Générale lost €4.9 billion unwinding his trades but, in a case which has come to exemplify failure to recognise and act on warning signs, a subsequent investigation found the French bank had ignored 75 red flags over the previous 24 months.

Kervial consistently argued that managers had turned a blind eye to his profitable transgressions, and earlier this year a French labour tribunal seemingly agreed when it ruled he should not have been fired from the bank he had defrauded. The tribunal concluded that his illegal actions presented “no real and serious cause” for his dismissal and ordered Société Générale to pay Kervial about €450,000 in compensation.

Now the bank has been handed another setback. Although a lower court originally ordered Kervial to repay Société Générale the full €4.9 billion it lost, a few weeks ago the Versailles Court of Appeals reduced his obligation to one million euros, declaring that the bank’s “multiple faults” meant it “had a major and decisive role” in allowing the incident.

While blaming a rogue employee or the system in the face of a crisis is not uncommon, it can carry enormous risk. Take the tragic nightclub shooting in Orlando, Florida, where one challenging question was how the Islamic extremist shooter got to be employed as a gun-carrying security guard? Global security giant G4S quickly adopted the rogue employee strategy, emphasising that gunman Omar Mateen was off-duty at the time of the massacre and the system had failed to alert them to any concern. But that didn’t prevent the news causing an eight percent drop in the company’s share price on the London exchange, which slashed about £200 million off its market value.

After just about every crisis, someone steps forward to say they saw the warning signs, and sure enough, in the Orlando case, a former co-worker, Daniel Gilroy, told reporters Mateen was racist, sexist, homophobic and frighteningly aggressive. “This guy was unhinged and unstable. He talked of killing people. Everything he said was toxic, and the company wouldn’t do anything.” G4S, which is one of the world’s largest employers with over 600,000 staff, said it had no record of any such complaint.

But no matter how large or small the organisation, the lessons are the same:

  • recognise that a single employee can bring high-profile crisis risk
  • have robust processes in place to weed out rogue individuals, and
  • have strong systems which can withstand individual failure.

No amount of blaming rogue employees or the system can detract from the inarguable reality that ultimate responsibility lies at the top. When hackers stole $81 million from Bangladesh’s central bank in February, Governor Atiur Rahman resigned, but blamed flaws in the global money transfer system, and declared: “As a Governor, I’m not supposed to look at each and every small thing.”

Sorry Mr Rahman, but that’s exactly what executive-level crisis proofing is all about.

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