Defending Reputation

1. Defending Reputation Corporate Reputation and Competitiveness Lecture 5

2. Lecture Objectives • To identify the main Issues in Defending Reputation, so-called Crisis management

3. Crisis Management • Defending a reputation starts with thinking the unthinkable and then planning for that eventuality. • A crisis is an event or series of events that can damage a company’s reputation. • The reputation of an organization is threatened or harmed by bad media comment leading to short term loss of sales and profit and long term damage to reputation

4. Threats to Reputation Computer sabotage, Man made disasters, Fraud Marketing fiasco, Hostile takeover Fraud investigation, Product boycott Threat to product integrity Extortion threat, Strike Sudden death/departure of senior executive Financial re-statement

5. Industrial Accidents • Of the 28 major incidents that occurred up until the 1980’s, half occurred in that decade alone , Shrivastava and Mitroff (1987) • Bhopal, India in 1984 • Chernobyl 1986

6. Types of Crises Social IRA Bombings Anti-Capitalist Riots Product Sabotage Technical Bhopal Chernobyl Global Warming Internal External

7. Tylanol: Why J&J Survived? • A strong and positive reputation before the crises • Being open with the media at the time of each crisis and after • Chairman James Burke took clear and public command • The media perception that J and J were not to blame

8. Preparation/ Prevention Signal Detection Containment Recovery Learning Adapted from Mitroff (1988) The 5 Elements of a Crisis

9. The Escalation of Media Comment Crisis Number of Incidents/ Press mentions Popular Documentation media Isolated attention Events Time

10. Crisis Phase Popular Media Attention Number of Mentions Definition Isolated Events Time

11. The BSE Crisis • The links between BSE (Bovine Spongiform Encephalopathy) in cattle, more commonly known as mad cow disease, and CJD (Creutzfeldt-Jakob Disease) in humans • According to the website documenting the crisis (www.bse.org.uk) BSE was first recorded in sheep in 1732 and in cows in 1883

12. The BSE Crisis • Concern over the use of certain animal remains in animal food surfaced in America in the 1970’s leading to a decision by the US Department of Agriculture that carcasses of sheep with scrapie should not be used in animal feed. • In Britain examples of BSE were detected in cows in 1985.

13. The BSE Crisis • In America similar findings occurred in 1986 and 1988. In 1986 and 1987 BSE was identified in antelope in a UK wildlife park. The disease was first identified in cattle in 1986. In 1987 a research paper describing BSE was given limited circulation, other publications occurred in that year.

14. The BSE Crisis • In 1988 the British Government began legislation to limit the BSE problem. • A working party made their first recommendations in June 1988. • By September 1988 most animal feed compounders excluded suspect material. • In November the use of milk from suspect cows for other than feeding their own calves was banned.

15. The BSE Crisis • In January 1989 a BBC television programme on BSE brought the matter more to the attention of the public. It was re-screened in July. • That month the European Commission banned the export of any UK cattle born before July 1988

16. The BSE Crisis • In 1990 further evidence that BSE could move between species came with the discovery of similar disease in other species. • The EC imposed further restrictions on the export of British beef. • Calls for the slaughter of all British cattle and for re-stocking were made in the Press but discounted by officials • Agriculture minister John Selwyn Gummer publicly fed his young daughter Cordelia a beef burger in an attempt to allay public concern.

17. The BSE Crisis • In 1991 there was the first case of a calf being born with BSE after the ban on animal sources being used in animal feed. • That year bone meal from suspect sources was banned for use as a fertilizer. • In 1992 press comment included the view from one expert that existing actions had failed to halt the spread of BSE.

18. The BSE Crisis • In May 1995 the first case of so-called new variant CJD was discovered in a man aged only 19. Thus far the theory had been that mainly those exposed to BSE infected meat over a long time period would be at risk. • The incidence of CJD among farmers with infected herds was also reported to be high. • The UK government banned all vertebral tissue from entering the food chain. • In 1996 the European Union (EU) banned all export of British beef.

19. The BSE Crisis • In December 1996 a selective cull was announced of cattle most at risk of contacting BSE. Slaughtering began in May 1997 of 100,000 head of cattle. • In December 1997 the UK government announced a ban on the sale of beef joints containing bone, due to the risk that bone might harbor BSE and be transmitted to humans if cooked with the meat.

20. The BSE Crisis • In November 1998, the EU agreed to lift its ban on the export of British Beef, however both France and Germany refused to accept the decision. • In May 2000 another cow, born 25 days after for the removal of all stocks of cattle feed containing meat and bone-meal from farms, was shown to have BSE. • The number of cases of CJD reported in the last quarter of 1998 was the highest on record, but at 5 deaths was still an insignificant figure • The ban on the sale of Beef on the bone was lifted on 30 November 1999.

21. The BSE Crisis • The epidemic had now killed more than 178,000 cattle in Britain and been linked to the deaths of more than 50 people from CJD. • An estimated 700,000 BSE-infected cattle had entered the human food chain. •  Foreign markets worth nearly £650m a year to British agriculture had disappeared. The cost of compensating everyone in the meat production chain, propping up markets and implementing slaughter schemes was estimated to run to £3.5bn

23. ‘Lessons’ from the BSE Enquiry • To establish credibility it is necessary to generate trust • Trust can only be generated by openness • Openness requires recognition of uncertainty, where it exists • The public should be trusted to respond rationally to openness • The advice and the reasoning of advisory committees should be made public

24. Funny Tasting Coke? • In 1999 people became ill in Belgium and Northern France. They complained of nausea and dizziness after drinking Coca Cola • Over 100 were hospitalized including many children.

25. Funny Tasting Coke? • Coke’s first response was to deny that its products could have been the cause of the reported illnesses. • Governments in 5 countries then banned their product. • 7 days after the first event, Coca-Cola withdrew all Belgium made product from sale.

26. Funny Tasting Coke? • They admitted that, while there was no health issue in their view, there was a problem due to poor quality CO2 used by one of their bottlers and that a fungicide used to treat pallets could have tainted their product.

27. Funny Tasting Coke? • On the 8th day of the crisis, the problem escalated in France, where 80 people near the Belgium border had fallen ill. • The French government ordered the entire stock of Coca Cola products, whether or not they had been made in Belgium, to be removed from the distribution chain. • It was made clear that Coke’s explanation of the odd taste was not believed.

28. Funny Tasting Coke? • By the 10th day Coke’s problem had spread to Switzerland, Germany and Spain, where product was being banned. Scientific tests had still failed to account for the problem. • Despite the absence of any evidence that the company had done wrong, Coca-Cola Belgium offered to pay the medical bills of those affected. • On the 14th day, full-page advertisements appeared in Belgium newspapers apologising for what had happened. On the 15th day the Belgians lifted their product ban, similar actions followed shortly after elsewhere in Europe.

29. Funny Tasting Coke? • Consumers had been sensitized to problems with the food industry due to recent dioxin contamination of animal feed • Coke’s claim that no real problem existed risked giving the impression that they did not care enough about customer health. • The episode cost Coke about $60 Million in recall costs, but the evidence is that long-term sales have not suffered.

30. Transaction Analysis Party 1 Party 2 Adult Adult Parent Parent Child Child Complementary Transactions

31. Proposal & Response • BSE present a small risk to those who eat beef but if you eat only joints of beef or minced products with this label on it then the risks you run are tiny, far less for example than from over-eating. • You can’t trust anything a Government spokesperson such as you says. The more you tell me it’s safe the more I think you’re lying.

32. Proposal & Response • Government scientists have assured us that beef is perfectly safe. Comments in the press are no more than hysteria, designed to sell newspapers, not tell you the facts as we always do. Don’t worry about BSE that’s for us to worry about. • Please don’t tell me what to think. The facts are these. EU scientists disagree with yours. They have banned our beef from leaving our shores. If its not safe for other Europeans to eat our beef why should we? Why should I feed my children beef when they are happy to eat other meats?

33. Dealing With Pressure Groups • Two case studies: Shell and Greenpeace and McDonalds and McLibel • What are the lessons for all organisations?

34. Crisis Management • The vacuum caused by a failure to respond is soon filled with rumour, misrepresentation, drivel and poison.C Northcote Parkinson: • Reputation has become important to CEO’s due to their fear of losing it

35. Crisis Management • All organizations should plan for possible reputation crises. • Conducting a risk analysis, focussing particularly on risks from fire, explosion, and theft, can identify some issues. • Some issues can be predicted by picking up early warnings, for example from what is being commented upon in the technical media. • All organizations of any size should have a crisis plan which should include the nomination of a crisis management team

36. Crisis Management • In a crisis, all communication MUST be via the crisis team. • Don’t allow media vacua to occur. If the cause of the crisis and its solution are still unclear then release a holding statement. • Crises are times of emotion. A purely rational response may not be enough to protect a reputation. Going what appears to be one step TOO far may be the only way to respond to emotive aspects of a crisis.

37. Crisis Management • The bigger the crisis the more it is essential for the CEO to be seen to take responsibility. • Large corporations are vulnerable to attack from pressure groups many of which do not share the capitalist view of business. One answer could be to consult with leading pressure groups on sensitive decisions. • Crises are often expensive in the short term but rarely appear to damage companies in the long run if they handle them well.

38. McDonalds Sales and Profits and the 1994/6 McLibel Case 1200000 1000000 800000 Profitx10 £'000 600000 Sales 400000 200000 0 1992 1993 1994 1995 1996 1997 Date

39. Summary • Crises can be pre-empted • Crisis teams can be prepared • Scanning the environment will identify issues likely to cause crises • Working with pressure groups can be useful!