Defending Reputation
Corporate Reputation and
Competitiveness
Lecture 5
Lecture Objectives
• To identify the main Issues in Defending
Reputation, so-called Crisis management
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
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
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
Social
Types of Crises
Product Sabotage
IRA Bombings
Anti-Capitalist
Riots
Bhopal
Chernobyl
Internal
Global
Warming
External
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
Signal
Detection
Preparation/
Prevention
Containment
Recovery
Learning
Adapted from Mitroff (1988)
The 5 Elements of a Crisis
Number of Incidents/ Press mentions
The Escalation of Media Comment
Crisis
Isolated
Events
Documentation
Popular
media
attention
Time
Number of Mentions
Crisis
Phase
Popular Media
Attention
Definition
Isolated
Events
Time
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
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.
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.
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.
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
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.
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.
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.
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.
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.
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
H o u s e h o ld E x p e n d itu re o n B e e f a n d
V eal
£ pe r pe rson pe r w e e k
2
1.8
1.6
1.4
1.2
1
1988
1990
1992
1994
Ye a r
1996
1998
‘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
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.
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.
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.
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.
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.
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.
Transaction Analysis
Party 1
Party 2
Adult
Adult
Parent
Parent
Child
Child
Complementary Transactions
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.
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?
Dealing With Pressure Groups
• Two case studies: Shell and Greenpeace and
McDonalds and McLibel
• What are the lessons for all organisations?
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
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
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.
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.
•
McDonalds Sales and Profits and the
1994/6 McLibel Case
£'000
1200000
1000000
800000
Profitx10
Sales
600000
400000
200000
0
Date
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!