Fonterra shows – again – how not to manage a crisis

The Fonterra botulism-in-infant-formula scandal has a long way to run, with four separate inquiries planned. But the crisis engulfing New Zealand’s largest single exporter has already exposed some dramatic examples of what not to do.

When Fonterra CEO Theo Spierings jumped on a plane and headed for his company’s critical Chinese market, it was the right decision.

However when he got there, he told the world’s media that “human errors in life do happen” and launched into a long explanation about the “rules of microbiology” and how some strains of botulism are less toxic than others.

That might be true, but it was extraordinarily unhelpful to protect the reputation of the biggest player in an industry which generates 25% of New Zealand’s exports.  It was certainly no help to worried customers, no help to panicking Chinese housewives, and no help to New Zealand Prime Minister John Key who said the scare threatened New Zealand’s entire export industry around the world, not just dairy sales to China.

Most importantly it exposed what appears to be a culture of inability to take control and make decisions. Knowledge of the problem existed within the company for many weeks before it was made public, and even then it was mishandled.  As one commentator told the National Business Review: “Releasing a statement just after midnight is treating the media with contempt. That’s not even trying to be transparent.”

In Managing Outcomes last month we highlighted that there is a multiplier effect from repeated crises which creates cumulative longer-term reputation damage lasting years. In 2008 Fonterra was caught up in the Sanlu melamine milk contamination crisis in China, and earlier this year Fonterra delayed disclosing minute traces of an agricultural chemical in its milk on the grounds that it was “not material.” As a Chinese government spokesperson commented last week: “Mistakes should not be repeated again and again. Three times and you are out.”

Fonterra is far from “out,” but reputational damage to the company and New Zealand’s “clean green” image is very real, not to mention damage to the New Zealand dollar, which took a hit when Fonterra unwisely announced the problem had been caused by a “dirty pipe.”

Further reputational damage will undoubtedly result as four separate inquiries start to dredge  through the whole ham-fisted affair.  First, the company announced an internal management inquiry; then  the Ministry of Primary Industries called for a “compliance investigation”; and that was followed on Monday by announcement of an expert committee to be chaired by Fonterra independent Director Sir Ralph Norris, former CEO of the Commonwealth Bank.

At the same time, the NZ Government has said it will hold its own full inquiry, with details expected next week.  If past history is any guide, most inquiries set out to hunt for someone to blame, and that hunt is almost always successful.  The final outcome will be months away, but – despite a divisional Managing Director quitting this week – it seems certain that Fonterra’s top executives will have to shoulder most, if not all, of the blame.


About managingoutcomes

Issue and crisis management expert
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