Benjamin Franklin said that “it takes many good deeds to build a good reputation, and only one bad one to lose it.” In an age when news travels almost instantaneously across online and social media portals, the way a company responds to a crisis threatening its reputation can determine whether it survives or sinks.
The Swedish furniture company IKEA earlier this year did a recall in the United States of some of its chests and drawers after toppling accidents killed six children, but it did not initially extend the recall to the China market, saying their products met China’s quality and safety standards. In July, following two weeks of public pressure and rebukes from China’s state media, it belatedly announced a recall of 1.7 million chests and drawers that had been sold to Chinese customers.
IKEA’s attitude and the delay did not sit well with Chinese consumers. Product safety has always been a big concern in this market, and awareness of consumer rights has risen over the past decade, heightened by a long string of incidents, from melamine-tainted baby formula and faulty automotive engines to expired meat products. In the minds of many, IKEA had not treated their Chinese customers as fairly as their American customers, and the condemnations of the company’s recall policies spread quickly across social media. At the same time, China’s media lambasted IKEA’s response as both arrogant and a blatant shirking of responsibility. Government organizations in Shenzhen, Nanjing and Tianjin echoed the message with their own statements criticizing IKEA’s decision.
The uproar might have been avoided if IKEA had exercised better judgment in producing an effective response to consumers, says Cindy Tian, Asia-Pacific vice chair at Edelman, a global communications and marketing firm.
“If we look at the statement [IKEA] issued in China and how they made the recall after the government stepped in on July 12, you can see how they broadened the issue itself – meaning they first tried to say that the broader issue was not their own issue,” she says.
In the company’s initial view, the responsibility lay with government regulators. Their customers felt otherwise. The perception gap between how the company viewed the issue and how the customers viewed it resulted in a damaging blow to IKEA’s brand image.
That the IKEA recall was finally extended to China reflects the growing influence of social media. When traditional media was the main source of information, companies had more time to construct an official response. Not so anymore. Today, dissatisfaction with a product’s quality or a company’s policies can be – and is – shared with millions instantaneously.
Crises in the digital age are a challenge that many companies grapple with, and ineffective management of a crisis can negatively impact both reputation and sales. In the latest Global Risk Management Report from the risk management group AON, respondents for the first time ranked “damage to reputation/brand” as the top risk to their companies, above economic slowdown and regulatory/legislative change.
Foreign brands in China are especially susceptible to scrutiny in the media, and the reputational fallout can have a significant impact on the bottom line. In 2014 McDonald’s and KFC were embroiled in a food safety scandal after Shanghai TV revealed that one of their suppliers was supplying the chains with expired meat. Though McDonald’s and KFC quickly apologized and immediately switched suppliers, many customers lost trust in the brands and sales declined sharply in the ensuing months. Yum! Brands, the parent company of KFC, reported a 9 percent decrease in overall system sales and 14 percent in same-store sales for China in the third quarter earnings following the scandal.
Though most companies recognize in a general way the cost of reputational damage, many are inadequately prepared to deal with sudden crises. A recent Deloitte risk management survey of company board members’ confidence in their organizations’ crisis-related abilities found that while almost three-quarters of respondents felt they were vulnerable to a crisis involving corporate reputation, only 39 percent had a crisis plan.
Crisis management starts with crisis prevention. “Knowing who is engaging with the brand is essential to managing reputation,” says Jennifer Gee, senior director of Asia corporate affairs for Gap Inc. For her company, she says, avoiding a crisis involves a wide range of issues contributing to building a good reputation, including high quality customer experiences, engaged and committed employees, sustainable supply chains with responsible suppliers, compliance with laws and regulations, and corporate social responsibility programs.
Keeping an open dialogue with stakeholders also helps Gap Inc. to offset the potential for problems by building stronger connections and listening to concerns. “For example, [at Gap Inc.] we set up a 24/7 customer hotline as one of the channels for customers to give their feedback. For employees, we have an ‘open-door policy’ and other employee feedback mechanisms, such as surveys and in-person sessions to answer questions,” she says.
Even when protective measures are implemented, they may be insufficient to prevent a crisis. There are also added complexities to operating in China, a fast-moving market of highly social consumers. “China’s market is a complicated market. It’s very big,” says Edelman’s Tian. “So if a product is being sold in many locations, then that is very challenging.”
She cites a variety of difficulties companies may face when in the midst of a crisis in China. Controlling a recall may be a logistical nightmare if the infrastructure is not in place to handle it. Overlapping industry policies from different government bodies (both local and national) can complicate regulatory matters considerably. Keeping up with and effectively countering unsubstantiated, rumor-based reports on social media can be time consuming for a company.
For such cases, it’s important for companies to be prepared for when a crisis does arise. Every industry and every location may require a different set of actions and responses, but in general, corporate crisis management plans typically comprise a similar set of protocols and rules. This includes determining which incidents should be elevated to crisis level; establishing an operational team of executives, HR, public relations, legal and other relevant departments to serve as the crisis management “nerve center”; creating an action plan with prioritized tasks and timeframes for completion; developing a messaging strategy to communicate with key stakeholders; setting policies for employee conduct and the handling of media requests; and monitoring the news and social media for what people are saying about the company, brand or product.
One of the most important considerations is how to communicate with the public during a crisis. Brian West, Global managing director for crisis management at FleishmanHillard, highlights two cases that were initially similar, but where very different responses greatly affected how the companies were subsequently viewed by the public.
In 2014, U.S. retailer Target became a victim of a data breach in which 40 million payment card numbers were stolen. A year later, healthcare insurer Anthem Blue Cross had 80 million of their members’ and employees’ personal information stolen from their data center. Target remained silent while investigating the extent of the breach, while Anthem Blue Cross announced their breach immediately, assuring customers that they would make up any financial loss and pay for the restoration of identities that had been compromised.
“It’s an interesting issue, because [Target was] almost considering it as if it’s their data, but in fact it’s their customers’ data,” says West, “and when it all came out about the breach, their share price dropped off significantly and it destroyed trust.” Conversely, by communicating effectively with their customers, Anthem Blue Cross was able to build trust with them and other stakeholders, and their share price rose.
West believes that trust has to play a starring role in reputation management. When companies in the midst of a crisis decide to communicate early on and keep communicating with the public, they establish trust that the company is transparent and is holding itself accountable in a responsible way. Social media, though it creates challenges, also presents an opportunity for a company to respond directly to key stakeholders quickly, without being filtered through a journalist’s story lens. This allows the company to control the narrative surrounding a crisis from the outset and all the way through.
“It’s an opportunity for a company to do things such as put a statement on its website, do a video with the spokesperson on the issue and use social engine marketing to drive traffic to the website to say ‘here is the truth, here are the facts on the matter’,” says West.
The alacrity of one’s response will also impact the way a crisis is perceived. Even when many of the facts surrounding a crisis are still unclear, Tian recommends that companies respond to a crisis within two hours. “When I say response, I don’t mean you have to issue an announcement, but the speed of response and ability to take action should be much faster than ever before.”
A lack of a response, on the other hand, can generate uncertainty and dissatisfaction and create a vacuum for others to fill, while an immediate denial or an admission of guilt will leave a bad impression with audiences. Instead, the better option is to convey a commitment to investigating the issue and finding a resolution.
Though communication strategies will differ from case to case, there are common elements in those responses that are likely to resonate well with audiences. According to Tian, “concern, action and perspective” are the three keywords every company should keep in mind when formulating their responses to a crisis. Companies should express concern and care for the affected people and communities and show willingness to take ownership of the problem. They should also relay what actions they are taking to investigate the situation and ensure that it won’t happen again. Finally, they should offer perspective, a presentation of the whole picture, as audiences are often unaware of all the facts and details.
Nobody wants a crisis to happen. But when one does, companies should meet them head-on. While plans and playbooks can be a great help in navigating through a crisis, it is the company’s leadership who must be seen as taking charge – communicating authentically with the audience and steering the company through its crisis.
“Companies produce annual reports that talk about how important their customers are, how important their staff and all these different audiences are,” says West. “A crisis is an opportunity to bring that to life and make it real so that you’re focusing not just on trying to manage a crisis, but demonstrating leadership in a crisis.”