Corporate Crises in the New Media World
Richard Levick is an expert on corporate crises and reputation management. He helps companies manage these issues as president and CEO of Levick Strategic Communications and, last fall, wrote a book on the topic, The Communicators: Leadership in the Age of Crisis. We recently spoke with Levick about how companies can navigate a crisis in 2011.
Risk Management: What is the difference between an organization that navigates a crisis well and one that is forever blemished?
Richard Levick: There are common patterns between why companies succeed and fail during crisis. The first is fear. A company is used to being the engine of capitalism: supplying the jobs, being a great partner in the community, adding to stock value. And then, suddenly, you are the villain in the Shakespearian tragedy. That emotional issue is much bigger than people realize. When CEOs and boards are suddenly thrust into that negative limelight, they tend to become paralyzed. And those first 24 or 48 or 72 hours are critical in determining the narrative. So fear is a huge factor when it makes organizations think that they can do nothing and everything will probably go away.
The second factor is "what got you here won't get you there." What that means is that companies often think, "let's do all the things that we did during peacetime and hopefully that will work well here. As long as we have good quarterly results, everyone will forget." That, of course, is not the truth.
Probably the best example of this is Martha Stewart. During peacetime, she built her brand by being aggressive, uncompromising and doing it her way. Brilliant strategy to build a brand, but not a great way to negotiate with the Securities and Exchange Commission. I can just imagine her conversations with [her defense attorney] Bob Morvillo saying "No, I'm not cutting a deal with the U.S. government because I'm innocent." Well, sorry, but perception always trumps facts. So what got you here won't get you there.
The third thing is "why we can't." What happens during a crisis is that the smart CEO puts together a crisis team including in-house counsel, outside counsel, HR, government relations and corporate communications, and asks them "what should we do?" And any time anyone suggests any course of action, someone in that very smart group says why we can't.
Counsel tells you why you can't for legal reasons, financial tells you why you can't for stock reasons, HR tells you why you can't because it will be hard to communicate internally, etc., etc. No one is willing to make a sacrifice. And in a crisis, particularly if it involves Washington, the Gods of Washington always demand a sacrifice.
So corporations must decide what that sacrifice will be. Is it a product? Is it a brand? Is it an entire company within our company? If you make a sacrifice, the story goes away.
You need look no further than what Speaker of the House John Boehner did with Congressman Chris Lee [after Lee was mired in controversy related to a shirtless photo of him that surfaced online]. What does he do? He makes the sacrifice.
From Speaker Boehner's point of view, the brand is the Republican party. He doesn't want Congressman Lee hanging around and this, for weeks on end, becoming the story instead of health care or tax cuts or deficit cuts. So he says, make the sacrifice; make the Congressman go away. That comes from acting quickly. It was a very smart move.
But in a crisis, someone is always saying why you can't. Well, you can't because that's the guy's job. You can't because he was fairly elected. You can't for all sorts of reasons. But you have to move very quickly.
Risk Management: But there are often legitimate legal and other realities to consider. How do you balance that -- the real concerns from the "no you can't" side -- with the need to act quickly without making missteps? Is it more art than science?
Richard Levick: It is more art than science. But, frankly, one need look no further than how Johnson & Johnson handled its Tylenol crisis in the early 1980s. Then-CEO Jim Burke said -- and this is critical -- "I'm going to act before the FDA requires us to act," and he pulled not just Tylenol but all over-the-counter pain medications off the shelves. That built a level of trust with consumers that proved its customers were more important than profits. That was a remarkable sacrifice to make.
What did that do for them? Tylenol, for nearly three decades, has been the leading over-the-counter pain medication by sales. Johnson & Johnson is separate and apart from all the others when you look at trust of pharmaceutical companies, which collectively are above used-car salesmen -- but not that far above. If you read the analyst reports from the week of the recall, the best that was said was that the Tylenol brand might survive. None of them said that it would be the leading over-the-counter pain medication for the next three decades.
So what they did with that short-term sacrifice is create a level of trust that led to a brand with such long-term profitability. The question is always what short-term sacrifice you are willing to make to invest in the future.
Risk Management: Is accountability and being up-front with consumers more important than trying to be a flawless company that never makes a bad product?
Richard Levick: That's right. Look, people will forgive mistakes -- they will not forgive inaction. If you look at the major recalls, no matter whether it's pet food, spinach or toys, what you find is that, after the critical action is taken, companies can market again. Spinach, pet food and toys all had record sales in the subsequent quarter, and each of them took critical action.
The problem is when you blame it on someone else. Take the Ford/Firestone fiasco: two great companies going back and forth blaming each other. Nobody cares. I don't know if you have children, but if you catch them fighting, and Johnny points to Suzy and says it's her fault, and Suzy points to Johnny and says it's his fault, what do you say? "I don't care. Both of you to your rooms." A crisis situation is the same thing. All each of you does is selectively harm both of your brands.
Risk Management: With the rise of the online and social media, it seems like it is much easier for companies to find themselves in a crisis. How can companies prepare for crises in this new world?
Richard Levick: Control the narrative. I think that the plaintiff's bar, regulators and NGOs are a full internet generation ahead of corporations. They are a full generation ahead. When there is a food crisis -- E. coli, salmonella, food recall -- the plaintiff's bar completely dominates the internet. And that's true for virtually every tort and class action claim.
Why? Because they anticipate what the crisis might be, and they control those terms through search engine optimization and search engine marketing before the crisis occurs. How many enterprise risk management officers identify the likely risk for their company or brand and then overlay that with search engine optimization? We're building widgets and we know they might be hijacked, they might blow up, they might leak they might create a toxic spill. OK. Let's look up "widgets and leaks" and see what comes up. If we see a pattern of NGOs, the plaintiff's bar or regulators on that, it tells us in advance that potential adversaries see that as a lucrative issue for them. If that's the case, it helps us prioritize and tells us where we should be focusing.
Risk Management: Is complacency part of that problem? Do companies not realize they are operating in an era where there is more to a crisis than how the local news or local paper will report on them?
Richard Levick: I don't think it's complacency at the C-suite or board-level. I think it's new. And I don't think there is any senior vice president in charge of brand protection in the digital age. I think the expertise that the brand department uses to make sure the company comes up first [in search results] when it is selling the product is absent -- or in a different building -- when it comes to crisis litigation and public affairs.
Companies are used to being able to control communications because there was a day [when] it was your advertisement that influenced the trade publications that influenced the newspapers. There was a smaller group of people to communicate with. You know, we're spending a lot of time talking about democracy in Egypt, but we're not really fond of it on Wall Street. We're not really fond of it in the internet age where there is a hyper-democracy and a mommy blogger could have as much influence as an analyst did yesterday.
Risk Management: For companies that are behind on this or just want to improve their crisis communications in general, what is the first step they should take?
Richard Levick: I think a mistake a lot of companies make is relying on a crisis plan. That's great. But that's like going to the gym on January 1 -- you have 364 days of the year remaining in which you really have to have a lifestyle change. The same thing is true for companies. You need to make crisis a part of your DNA.
Who is your crisis team? Do they know and trust each other? Have them get together a few times per year to form a relationship. They have to know, trust and respect each other. You are going to have to make decisions if a crisis occurs in the middle of the night. It's going to be four in the morning, you're not going to have enough information, and you're going to have to make decisions as quickly as possible. So the instincts and the comfort level of your trusted team have to be very high.
A few times a year -- or certainly once a year -- go through crisis exercises so you know what it's like to be under the glare of TV lights. The Air Force knows that, as highly trained as their pilots are, in a combat situation, they lose 50% of their IQ. You want your crisis team well-trained enough so that when that shocking moment comes along, they are going to be able to handle it with aplomb. You have to have been in combat situations a few times in practice so that when the real thing comes along, your instincts are honed.