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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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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