How Leadership Shapes Crisis

Andrew Hill of the Financial Times recently wrote about managing crises and how all the planning required today cannot suffice when a situation is beyond catastrophic. He uses lessons learned from a second site in Japan that was equally overcome by the earthquake and subsequent tsunami that hit the island in March 2011 as the Fukushima nuclear reactors. Hill says, "managing in a crisis is not just about planning."

He cites an article in Harvard Business Review about how a sister plant of Fukushima Daiichi dealt with similar events to their nuclear reactors after the disastrous tsunami reached them. At this second plant, three of the four reactors lacked the power to run the necessary cooling systems after the waves knocked them out. Nothing prepared the site superintendent and his team for what was happening. As events spun out of control, the site superintendent took to the whiteboard and wrote down what the team knew and didn't know. He turned incidents into data by writing on a whiteboard the frequency and magnitude of the aftershocks in the hope that it would show that they were decreasing. He soon saw that this was not the case. But by using the whiteboard, the superintendent and his team collectively were able to make sense of the senseless and the unknowable. The superintendent also forced himself not to supply answers or try to reduce uncertainty for his team by pretending he had a plan when everyone was shaken to the core wondering if their family members were alive or if they'd make it out alive altogether. The use of the whiteboard fascinated me because it became a mechanism to control the chaos. It became a personal self-organizing system to ward off crippling ambiguity and a way to replace uncertainty with facts, even if they were not what he wanted them to be. Because the team faced the threat of a radioactive breach if they could not rig up a cooling system in time, his whiteboard writings of events and numbers exposed patterns to the madness and most probably, helped the team feel that they were making sense out of fear.  At one point, the superintendent returned to his whiteboard and "ordered a subordinate to write up the overall picture of the plant and an outline of the recovery strategy. He was determined to share information with his workers as it became available, slowly replacing uncertainty with meaning."

The article is a good reminder that crisis response is shaped by leaders in unimaginable ways. Reputations are built on the large and small ways we respond.

Crisis tips when reputation is on fire

Two perennial crisis-related questions look like they have some answers. How long does it take for a reputation to recover and when in crisis, should companies lay low or communicate aggressively and engage like mad?  

Answer to #1: In research by CoreBrand and Brunswick, it took four years for 16 crisis-stricken Fortune 500 companies to restore their reputations. CoreBrand has an extensive database that has been in existence for 24 years and looks at over 1,000 companies across 54 industries. The four year mark matches with executives' perceptions of recovery time in research we have done at Weber Shandwick. Interestingly, their research added two additional dimensions:

  • It took nearly two years to rebuild perceptions of investment potential ( :( says the stock market)
  • Average time to return to pre-crisis brand equity was somewhat over one year ( :( says CMOs)

Answer to #2: Super fascinating to me. When they looked at the 16 companies, 7 began engaging and communicating with stakeholders soon after the crisis erupted. Yet, the other 9 kept a low profile and stayed out of the news, presumably to deprive "the crisis of additional oxygen" until it subsided. So what does the research reveal about the best route to recovery? Not what you may have guessed off the bat. Here's what they learned. "The low flyer (quiet pattern) companies actually suffered slightly fewer hits to their favorability and overall reputation. And perceptions of management took only half the hit that they took among the engaged ones (classic pattern). At first blush – and ethical considerations aside – it appears that flying low is a stronger strategy. But, there’s a catch. The low flyers appear to suffer a longer downturn in their brand equity. The brand strength of those hunkering down, as measured by CoreBrand, took longer to bounce back. Whereas the engaged group actually began to repair their brand after one year, the disengaged group were still stuck in negative territory with losses in brand equity as a percentage of market cap. The “fly low” strategy has other potential drawbacks. There are greater threats of government intervention as stakeholders demand more accountability, and there are the quiet and negative impacts of corporate silence on internal morale. Even in the age of transparency, disengagement may be a valid short-term survival strategy, but it appears to pose greater challenges to the health of the brand. Silence is not always golden."

These are invaluable lessons to be learned on how to communicate after a crisis. The natural instinct is to hope it blows over, to engage as little as possible and to go radio silent. But these findings show that over the long-term, heightened communications is the best way to go. Perhaps the fact that the news is so transient today and a crisis lingers for only so long before it is displaced by someone else's crisis, the best approach is to go on the record as having spoken up, defended your side of the story and shown that you can be trusted to do the right thing. People will remember that you were not silent and could be counted on when it matters. 

Should be mandatory

When it comes to crises and recovery, I am always all ears. Having written a book on how companies recover and restore their reputations, I am always looking at new advice on spreading lessons learned post-crisis. I just read an interesting way that BP has taken their lessons for others to learn from. CEO Bob Dudley said that they give presentations around the world to policy makers, government officials, industry experts and academics on what they learned from the Gulf of Mexico oil spill. As I think of this, this activity should be mandatory when crises occur that are catastrophic like this one was where lives were lost, business closed and economies threatened. The lessons learned should not just be kept internal but externalized so others can learn and refine their own crisis standards and protocols. BP is doing the right thing. Wish I could get a copy. Wish I could have added into my book. 

When qualitative reputation is just as good

There is an intriguing blog post on the HBR Blog Network titled "Don't Trust Your Company's Reputation to the Quants." Considering all the hoopla around Big Data, I was immediately curious about how they would frame an argument about also relying on non-quantitative data when the world seems so enamored of stats and scores. Of course, companies are right to care about making their numbers and the bottom line but there is another side to the story when it comes to reputation risk. "Reputation will always be too impressionistic, and too long-term in its impact, to be left to your Quants. Indeed, if you do leave it to the Quants, it will most likely be neglected, along with other risks that involve intangibles." Quants can often neglect the commonsense solution that protects reputation or overlook how the public might react to and protest a company action. Qualitative insights and experience often adds a dimension to corporate behavior that is not only sufficient but imperative to safeguard reputation. Their advice is for boards and senior executives to listen to the Qualts as much as the Quants. Qualts are defined as those in the organization who "have internalized the values and larger purpose of the organization, and grasp how powerful these are in maintaining healthy connections between the company, its customers, employees, and other stakeholders." This reminds me of an article I just read by BP's CEO Bob Dudley on the BP oil spill in the Gulf of Mexico. Quantitatively, you could say they should have negotiated settlements through the courts but instead they waived the $75 million statutory liability cap and agreed publicly to pay all legitimate claims. They listened to their qualitative side by not delaying acceptance of responsibility and creating long delays before people affected by the disaster received payment. The qualitative side of their character and their focus on reputation came before strenuously litigating from the start of the crisis.

The authors have a good close to their post: "But Qualts appreciate more than anyone else how succumbing to immediate financial temptations can mortgage a reputation, creating reputational debt. They maintain and evolve decision-making models that guide those decisions with clear reputational standards that remain inviolate up, down, and across the extended enterprise." This is where understanding what your company stands for, how it behaves and the value of reputation for the long-term comes into play.

No one is arguing that quantitative inspection is not important. It is just that reputation is not black and white but as someone once told me, plaid. It is very complex and the fabric of reputation is made up of many patterns, colors, threads and how well its owner takes care of it. 

Saving your reputation

I am always looking for quotes and just found two today. They appeared in an article in The Guardian about how charities or non-profits can manage crises. Here they are:

"The 17th century bishop Joseph Hall shrewdly noted that 'a reputation once broken may be repaired, but the world will always keep their eyes on where the cracks were.'"

"Brand is a promise to your stakeholders. It embodies what you want them to believe about you. Reputation, on the other hand, belongs to them. In short: brand is how you talk to the world, reputation is how the world hears you."  Vicky Browning, director of CharityComms

The article was based on a panel held in London and the key advice about managing a media crisis for charities who are caught up in the public glare when crisis strikes:

  1. Understand your risks
  2. Respond proportionally to the intensity of the crisis
  3. Be prepared
  4. Know what you can control and what you can't 
  5. Monitor and measure perceptions
  6. Become the expert and authoritative source on the issue 
  7. Respond quickly and with sensitivity (empathy!)
  8. Involve your employees, keep them informed
  9. Invest in reputation before you need it
  10. Stick to your messages

These reputation remedies could apply to any crisis -- be it a for-profit or non-profit. The one that struck me as an interesting nuance which I had not thought about in a while was reacting in proportion to the crisis event. Sometimes just a statement on a website will suffice whereas sometimes the CEO needs to call a press conference and provide regular updates. Knowing when the CEO should visit the site of a crisis and when not to requires good judgement and good counsel from crisis experts. Over-reaction can intensify a problem.

The nature of the response reminds me of an incident that occurred this week. Chairman Rupert Murdoch of 21st Century Fox made an $80 billion takeover bid for Time Warner and Time Warner's CEO Jeffrey Bewkes responded. Instead of a media statement, no comment, CEO email or other response, he chose to produce a three minute video directed at his employees using the medium that the company has excelled in during the past few years -- digital media. The video begins with “Hi everyone. I wanted to speak directly to you about the news you’ve been hearing today about our company.” Short and simple and appropriate to the situation. Here's an example of taking control of what you can when your company is in the public eye. Bewkes got his points across, took little time out of employees and other stakeholders' time and was personal, conversational and direct. In a way, he discounted (dissed?) the takeover bid by appearing on the small screen. Good choice. 


Toronto Musings

201Had a terrific visit to Weber Shandwick Toronto this week. My colleagues hosted a breakfast to discuss the new rules of engagement for employee engagement and reputation and I shared the platform with my colleague Kate. We met some terrific clients and had some very good questions afterwards, always a plus. Reputation and employee engagement are very much intertwined which made the two angles so easily compatible. We also met with some clients and had meaningful discussions about leadership, character and reputation. Afterwards I headed up to Muskoka for a conference among hydro distributors to talk about safeguarding reputation. Terrific conference put on by The MEARIE Group and to prepare, I learned alot about the challenges facing electricity distributors in Ontario. Of course, it was hard not to mention how Mayor Rob Ford of Toronto was negatively impacting the city's reputation. On the day of the conference, the Mayor of Montreal resigned after being arrested. At the breakfast meeting, I learned something that I aim to keep for posterity. Most probably, I will add it to our compendium on how to recover from a crisis. We have a master deck on how companies recover and build even better reputations and for me, it's my team's Bible. We catalogue all the recovery strategies we can because it always comes in helpful for the next client. But sometimes people have a way of saying something that just lights up your brain waves because it is so insightful and speaks so directly to a company's character. This Canadian company had a crisis some years ago and one year later to the day, they ran full page ads reminding people of what happened and what they had done since the fateful event. The head of comms said to us while we were chatting at the breakfast that they ran the ad because..." "We will be the first to remember, not the first to forget." The company wholeheartedly owned the crisis and was not going to forget. Sage advice.

Crisis Lessons to Chew On

Lessons on dealing with a crisis are always helpful, especially when your company's reputation is in jeopardy. I found this list particularly worthwhile because it was written by Sallie Krawcheck, one of the most senior women on Wall Street. I heard her speak at a Forbes conference years ago and really enjoyed her tales of juggling work, family and husband. She was very down-to-earth, approachable and humble. She recently wrote on her LinkedIn page about the lessons she learned from leading through various crises and as she says, watching others make career-ending mistakes handling crises. Here is a brief synopsis of what she advises: 1. Be heroically available. I wholeheartedly agree with her that there are times when executives wish they could just close the door and wait until a crisis fades. We all also know that this strategy does not work and rarely happens. She mentions a colleague who hosted a call for Financial Advisors when investments had gone south and how he said he'd stay on the call until every last question was answered which lasted late into the evening.

2. Allow people to ask real questions, even if you don't want to hear them. We have all been in meetings when no one wants to ask the hard question and most people just throw softballs. Leaders have to create an environment where the hard questions can be asked and there are no repercussions. Sometimes I advise a leader to ask the question himself, provide the answer and get on with it. Once the question is asked, others might have the courage to speak.

3. Frequency matters more than perfection. Krawcheck mentions how her management team had a call at the start and end of every day when the economy was tanking a few years ago. She says that some of the calls were not all that good and packed with answers but at least everyone knew they would be getting an update on a regular basis.

4. On your message: Repeat it, repeat it, repeat it. And do in different media. That is dear to my heart because those of us in public relations understand that to reach people who need certain information, you have to reach them where they are. And they are often not where you think they are. Some people read company emails, some ignore them. And as Krawcheck says, some people are readers and some are listeners. Some are in facilities where there is no easy access to electronic information. Make it easy to find out what needs to be known.

5. Bring in people who know more than you do or provide a different perspective. I found this one unusual since so many companies keep all their information and goings-on close to the vest. And rarely do they want to admit that they might not know something. She mentions how during the recent downturn, her company brought in some experts to bring a new voice into the conversation even if they were saying the same thing she was saying. This is good counsel.

6. Let them see you sweat, but don't let them see you tremble. Another piece of good advice and a good way to end this post. It is okay to work super hard and show that you are not home for dinner with the family night after night when crisis is on your doorstep but make sure that your team does not see you scared. Being confident "goes a long way." Yes indeed.

The High Cost of Reputation Loss

I was pleased to be alerted to a copy of Reputation Review 2012 by Rory Knight, chairman of Oxford Metrica. Years ago I used some of their research in my book on CEOs and particularly on how CEOs can build their reputation or kill it when crisis strikes.  Knight just completed his annual reputation review for AON, the global risk management, insurance and reinsurance company, and as I expected, the report has insightful and timely information for those seeking to better understand the impact of crisis on a company and its bottom line.

 

Knight reviews the top crises of 2011 such as TEPCO, Dexia, Olympus, Research in Motion, Sony, UBS and News Corp, among others.  His company looks at the recovery of shareholder value following crisis. Among 10 crisis-ridden companies in 2011, only News Corp found itself in positive terrain afterwards. In fact, what they found was that 7 of the top 10 lost more than one third of their value. Two companies lost nearly 90% of their value. These companies clearly had to put big restoration processes in place afterwards and I would suspect paid good dollars to firms to restore their good names and overlooked other everyday business to move forward.  Oxford Metrica says: “Managing the restoration and rebuilding of reputation equity is an essential part of the value recovery process following a crisis. Reputation equity is a significant source of value for many companies and a coherent reputation strategy can be the difference between recovery and failure.”

 

The big takeaway from the report, or at least what seems to resonant with me, is that there is an “80% chance of a company losing at least 20% of its value (over and above the market) in any single month, in a given five-year period.” Those odds are not good and as Knight says, screams for having a careful and well thought out reputation strategy in place before a minor event turns into a raging crisis and monopolizes headlines, offline and online.  A solid reputation strategy will also help guide the reputation recovery process which is often too hurried.  This is the kind of advice that I write about in my book on reputation recovery and underscores having a strategy so you do not find yourself in this situation in the first place. Additionally, Weber Shandwick’s stumble rate of 43% for the world’s most admired companies tracks with Knight’s high rate of expectant reputational downfalls. It is not good at either rate.

 

The report outlines a process for managing a company’s reputational equity. They are 1) Measure your reputation through benchmarking and vis a vis your peers; 2) Identify the drivers of your company’s reputation in order to allocate resources properly; 3) Prepare a strategy for recovering your company’s reputation; and 4) monitor your reputational equity often and respond accordingly when risk emerges.

The report analyzes the reputational losses of Olympus and Research in Motion after their reputation-damaging events. It is worth reviewing.  It also takes a look at the financial results from TEPCO after the tsunami hit Japan. Apparently, 90% of TEPCO’s value was lost, over $US37 billion.  Oxford Metrica estimates that events associated with mass fatalities have double the impact on shareholder value than do reputation crises in general.  I believe they are right. BP’s Gulf of Mexico tragedy which involved over two dozen deaths wiped off substantial shareholder value off their books.

 

Where I wholeheartedly agree with Knight is when he talks in the report about the impact of senior management on crisis and the need for that management to lead with transparency and openness.

 

“For mass fatality events particularly, the sensitivity and compassion with which the Chief Executive responds to victims’ families, and the logistical care and efficiency with which response teams carry out their work, become paramount. Irrespective of the cause of a mass fatality event, a sensitive managerial response is critical to the maintenance and creation of shareholder value.” One of the takeaways from the report is that winners and losers, reputationally, can be determined by how the CEO responds to the crisis.

 

The report contains an article by Spencer Livermore, Director of Strategy, at Blue Rubicon, a reputation consultancy. He quotes a stat that is dear to my heart, “Oxford Metrica’s analysis shows that companies which open up more following a crisis and tell a richer, deeper story are valued more highly, increasing share price by 10 per cent on average over a year.” He calls it the communications dividend which comes from investing in communications. Years ago I wrote an article for Ernst & Young’s Center for Business Innovation called Communications Capital and the idea was similar – the right communications can increase market value and strengthen reputation.  As Livermore says, “We can make communications worth hundreds of millions more simply by making them better understood.” Having the right compelling narrative built on a well thought out reputation strategy is worth its weight in gold today.