ZARA, SUPPLIER MANAGEMENT AND RESPONDING ONLINE TO A REPUTATIONAL CRISIS By Giulia Dini When stories arise about reputation management in a crisis, many companies bury their heads in the sand, insisting “it will never happen to me”. But then… it happens and this time it’s hitting Spanish clothes retailer Zara, owned by Inditex. On August 17, news broke that Zara was under investigation by Brazil’s labour ministry after a contractor was found to be using employees in sweatshop conditions (in April a similar case involved a Puma supplier in Cambodia). The revelation has reverberated online, especially with anger and condemnation being expressed in social media. The company’s lack of response in the digital environment (so far) is a timely reminder of how important it is for companies to equip themselves with the tools and skills needed to respond to these reputational crises. It also indicates that transparency in disclosing corporate responsibility information must be backed up by intelligent and proactive social media management. The Spanish retailer has two commercial Twitter accounts (@zara_us and @zara_home) while on Facebook it has a commercial account (Zara clothing) and a fanpage for Inditex, its Spanish parent company. As of today no announcements or comments about the accusation of “slave labour” have been released by Zara or Inditex through these channels. No press release regarding this news is available on the corporate website (despite Reuters citing a statement in which the company said the case involved "unauthorized outsourcing" by a Brazilian supplier). Meanwhile, Zara's Wikipedia page has been updated with this latest news and Friday 19 counted 1,500 visits. When crisis situations like this happen, ideally the first thing to do should be take a step backwards, formulate an official explanation of what happened and why, and make a formal apology (if appropriate), also on social media networks. But here come the problems. While some companies have established a social media presence, many are yet to develop the capacities to respond to delicate issues in real time and engage users dynamically. This seems to be the case of the newly launched @zara_us Twitter account. Moreover, reacting appropriately, being transparent and taking responsibility for one’s actions is tough, even if it pays off in the long run (see for example our post on how Patrizia Pepe turned around a social media crisis into a positive experience or the case study on how Ford managed to “extinguish a PR fire” though the use social media). Through our research at Lundquist we monitor the use of social media as part of the corporate communications strategies of companies, not only through Facebook and Twitter accounts, but also including Wikipedia. For instance, our 2010 Wikipedia Fortune Global 500 Research shows that to improve online presence companies must engage with Wikipedia, and not fearfully back away as is often the case. The 2011 edition of our CSR Online Awards, which is currently under way, is also picking up a glaring gap in the way companies address these issues. Our preliminary findings reveal that 57% of Europe’s top 100 listed companies publish a code of conduct for suppliers or social and environmental standards. Just over half of these also add information on how the standards are implemented and enforced, as Inditex does, which is commendable. In Italy, the figures are lower with only 28% of the top 50 companies are publishing supplier standards, of which six disclose additional information about implementation and compliance (Banca MPS, Enel, FIAT, Assicurazioni Generali, Pirelli and Telecom Italia). But while this information about corporate policies is important, it only goes so far. Large companies have hundreds or thousands of suppliers and contractors, making it likely that their standards will not be always respected. What happens when a problem emerges, as it has done for Zara? Our CSR Online Awards research finds only one in seven of Europe’s biggest companies – with examples such as BBVA, Ericsson and SAP – have dedicated social media channels for corporate responsibility. There are only five among Italy’s biggest companies: Edison, Enel, Eni, Telecom Italia and Gruppo CIR. This means the vast majority of Europe’s major corporations lack the ability to engage stakeholders online on issues that are critical for reputation. Needless to say, in a crisis all social media accounts can be employed to manage reputation. For sure, every crisis has its own specificities and we’ll see if Zara dares to stick its head above the social media parapet. The online discussion about its brand is happening daily and not responding should not be an option.