From Ignition to Recovery – The Components of Today’s Crises

By Nidhi Makhija, Senior Manager – Insights, MSLGROUP

In our hyper-connected globalized world, we are seeing that reputation crises have the potential to grow faster, spread wider and hit harder than any time before. There are two simple reasons for this:

  1. People are well-connected on social platforms, and actively share information and opinions with their networks in real-time. It’s easier for people to organize themselves and apply pressure to both regulators and companies.
  2. Companies are larger and widely extended, with suppliers, employees and customers spread out across culturally diverse regions. As a result, both products and news extend over a wider geography at a faster pace.

An analysis of recent corporate and brand crises – events that were buzzing in international news sites and social conversations in the last two years – provides us with a broad idea of the issues that stakeholders care most about today.

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1. Company’s Conduct: Before and After Crises

The majority of crises fall into this category, as several brands struggled to deliver on their basic offer (e.g. the horse-meat scandal that affected food manufacturers in Europe), and as several companies, leaders or employees misbehaved (e.g. Lululemon CEO’s comments after the see-through yoga pants scandal).

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Today, people are holding brands to deliver on the product offer (as we saw in China, when a celebrity blogger smashed a defective Siemens fridge), and they are expanding their expectations to include data security (as catalyzed both by the NSA-snooping scandal and the Target security breach which compromised payment details of 40 million customers in the US).

People also expect more out of corporate leaders, and are not shy of punishing the organization for its leaders’ actions or comments (as in the case of Barilla CEO, whose anti-gay remarks on a local Italian radio sparked a global boycott).

Regulators are becoming more demanding as well, especially in the financial services sector, and are raising the severity of fines to match the scale of misconduct (as auditing firms such as PwC and Deloitte are finding in the UK, and banks such as JP Morgan and Bank of America are finding in the US).

2.     Impact on the Economy: Seeking Sustainable Growth

Increasingly, people are paying attention to a company’s contribution to state coffers and its strain on public services. Companies, especially in the US and UK, are coming under the public and legal scanner for avoiding corporate taxes (as Google, Amazon and Starbucks saw in the UK) or for having too many employees dependent on tax-funded welfare programs (as is the case with Walmart and McDonald’s in the US).

People are becoming more and more aware of the larger picture – they are looking past organizational structures and holding profitable parties at the top responsible for the losses at the bottom. This was well-illustrated in the case of Kingfisher Airlines in India, whose wealthy promoters have been heavily criticized for delays in employee salaries.

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3.     Impact on the Environment: Prevention before Cure

Four years after the BP oil spill and three years after the Fukushima nuclear reactor meltdown, people seem determined to avoid similar man-made disasters. Oil companies are facing heat from activist groups and regulators in new drilling projects (as in the case of Shell, which has had to shelve its 2014 arctic drilling plans). Nuclear energy companies are facing similar resistance following the Tokyo Electric Power Company’s inadequacies in preventing and alleviating the Fukushima disaster.

 4.     Impact on Human Rights: Equality for All

A large number of brand crises revolve around human rights, as people continue to fight gender inequality and demand equal rights for the gay community and for workers of different socioeconomic backgrounds.

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The fight for gay-rights is a global one, with tremors felt at the Barilla headquarters in Italy, at the Supreme Court in India, and at Sochi 2014.  People are sensitive about gay rights and it is common for activists to publicly shame companies that fund anti-gay organizations (as in the case of US fast food chain Chick-fil-a, which witnessed national boycotts and appreciation-days as ideologies clashed).

Exploitation of low wage workers has recently emerged as a global issue as well. People are unwilling to be a part of a system based on exploitation, and are demanding brands be accountable for all workers: including those across the supply chain and temporary workers. Companies that have been publicly shamed include the fashion industry for allowing unsafe working conditions in factories in Bangladesh, Amazon for demanding too much out of its warehouse workers, and FIFA for doing little to safeguard labour rights in Qatar.

There’s heat at the opposite end of the spectrum as well, with US regulators clamping down on companies that hire people from wealthy backgrounds in exchange for new business contracts (as in the case of JP Morgan which is under investigation for hiring ‘Chinese princelings’).

Crisis Catalysts: Three things to watch out for

In addition to the issues themselves, corporates and brands should also be prepared for three trends that can fuel crises:

1.     Power of Individuals: the Bank of America case

Bank of America’s reputation took a hit during the financial crisis of 2007-08 and continues to stay low because of the company’s non-empathetic response and the profit-first attitude it continues to portray.

In the last few years, angry Bank of America’s customers and employees reacted to delays and new ‘unjust’ policies with a steady stream of negative stories on social media and calls to rally against the bank.

The impact? American Banker’s 2013 Survey of Bank Reputations shows that Bank of America scored lowest amongst customers and ‘even worse‘ among non-customers.

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2.     Speed of Activism: Bangladesh Safety Accord

In April 2013, the global fashion industry was accused of labour exploitation after the collapse of the Rana factory in Bangladesh killed a thousand workers and injured two thousand more.

Activists and the media quickly revealed the brands whose apparel was manufactured at the factory and mobilized people to petition the brands involved to sign The Accord on Fire and Building Safety in Bangladesh – a five year legally binding agreement to fund and uphold minimum safety standards in the Bangladesh textile industry.

Less than a month after the collapse, 90,000 people signed the petition, pressuring 42 brands to sign the agreement. Today, over 100 brands have signed the accord, and 26 additional brands have created their own independent five-year safety plan.

As the one year anniversary looms ahead, activists and the media are pressuring the industry to contribute to a $40 million compensation fund for victims.

3.     Challenges of Scale: Horse-meat scandal in Europe 

In January 2013, horse DNA was found in frozen beef products in a British supermarket and triggered a ‘major breakdown in the traceability of the food supply chain.’

Adulterated meat was found in 13 EU countries and millions of pounds of food was recalled across Europe. Several hundred companies had received adulterated supplies of meat which was later traced to slaughterhouses in Romania and Poland. Further tests detected traces of the veterinary drug phenylbutazone, sparking fears for human safety.

Consumer-facing brands like Tesco and Findus suffered large drops in sales and changed suppliers. Frozen meat products as a category witnessed a decline, and with people in the UK opting instead for fresh traceable food and shopping at local butchers and farmer’s markets.

Recovering from crisis: Leading the Conversation

In times of crisis, people expect corporates and brands to step up and lead the conversation. Tired of denials, people want companies to acknowledge their mistakes, implement quick solutions, and prevent similar events from occurring again.

1. Power of a Strong Offense: Target

While Target could have done more to prevent the data breach in late 2013, the company has staged a strong offense to restore customer trust.

The company was a victim of a 19 day security breach in which credit and debit card information of 40 million customers and personal information of 70 million customers was stolen.

A day after the breach was announced, the company released an acknowledgement and has since been working with federal investigators, investing in cybersecurity education and offering customers free credit monitoring and identity theft protection. In addition, Target is speeding up its plans to introduce chip-enabled technology in stores to boost security. A section of its website is dedicated to explaining the event to customers.

2. Power of a Clear Positioning: PwC

PwC’s reputation with UK regulators took a dip in 2011, when a House of Lords criticized the auditor for its role in the financial crisis.

The firm responded by acknowledging the lack of trust in the industry, appointing a head of reputation strategy and positioning itself as a part of the conversation –  and the solution.  Already a strong content creator and thought leader, PwC is using these strengths to position itself as leader in addressing the lack of trust plaguing its own industry and its clients.

3. Power of Cultural Leadership: GE

A decade ago, GE was known as a leading polluter. The company has since transformed itself to a leading clean technology provider. 

Since 2005, GE has committed large investments to building ecomagination and Healthymagination – ranges of sustainable eco products and affordable health products. GE also launched open innovation challenges and entrepreneurship programs to support innovation internally and externally. The company engages people around these programs with short visual content packets, optimized for quick consumption on social networks. GE has an audience of 1 million on Facebook.

Strong leadership, open innovation, philanthropy efforts and participatory programs have boosted GE to one of today’s leading global brands.

Components of a Reputation Recovered

When it comes to crisis, it’s not a question of just ‘if’ and ‘when,’ but also ‘how.’ How will you diminish the chances of a reputation crisis? How will you respond when one hits?

From the many cases mentioned above, it’s clear that strengthening and recovering reputation is about…

  • Changing the system – doing the right thing, standing for a purpose, from the start.
  • Realizing that everything is connected – and that people already know it.
  • Being empathetic – people are not numbers, they’re individuals.
  • Being mindful – some people may not be influencers today, but they very well could be tomorrow.

It’s also about being realistic and knowing when to give in to people’s demands. As Ellen DeGeneres poignantly observed at the Oscars:

“Tonight, there are so many different possibilities. Possibility number one: 12 Years a Slave wins Best Picture. Possibility number two: You’re all racists!”

 

This post is part of the People’s Insights magazine “The Future of Reputation

MSLGROUP People's Lab

10 Responses to “From Ignition to Recovery – The Components of Today’s Crises”

  1. The Reputation Complex: Seeking Sustainability in a Liquid World | People's Lab

    […] Whether it is a “real world” crisis (catastrophe, sex scandal, oil spill) or a “flash mob” of activism generated online (Greenpeace vs. KitKat), the news curve and the crisis curve are closely linked, and Social Media is spreading the blame game at a very high speed. The Bank of America case is a very insightful one, as Nidhi Makhija demonstrates in this report. […]

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  6. @robertmehr

    The Behaviour of companies: the role of trust and reputation & the Impact on #humanrights http://t.co/VdM6Y4K4L0 by @PeoplesLab

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  7. MSLGROUP Peoples Lab (@PeoplesLab)

    RT @robertmehr: The Behaviour of companies: the role of trust and reputation & the Impact on #humanrights http://t.co/VdM6Y4K4L0 by @Peopl…

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  8. The Reputation Complex: Seeking Sustainability in a Liquid World | MSLGROUP BLOG

    […] Whether it is a “real world” crisis (catastrophe, sex scandal, oil spill) or a “flash mob” of activism generated online (Greenpeace vs. KitKat), the news curve and the crisis curve are closely linked, and Social Media is spreading the blame game at a very high speed. The Bank of America case is a very insightful one, as Nidhi Makhija demonstrates in this report. […]

    Reply
  9. MSLGROUP Peoples Lab (@PeoplesLab)

    From Ignition to Recovery – The Components of Today’s Crises – an analysis of 40+ crises by @NidhiMakhija http://t.co/pvIqlpMbZm

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  10. Nidhi Makhija (@NidhiMakhija)

    RT @PeoplesLab: From Ignition to Recovery – The Components of Today’s Crises – an analysis of 40+ crises by @NidhiMakhija http://t.co/pvIql…

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