28 November 2008
	REPUTATION DAMAGE Repairing the cracks By David Williams When a reputation is in tatters, act promptly and respond effectively

When bad publicity damages a brand, the essence of the problem is that trust has been undermined. At worst, a company can be ruined - as when there is a run on a bank - or a product may cease to exist. Tiger Brands . . . despite a hefty fine, the brand survived with little damage Interbrand Sampson's Jeremy Sampson likes to quote Benjamin Franklin: "Glass, china and reputation are easily cracked, and never well mended." Brand damage, however, can be repaired fully if a company responds honestly and quickly. Consumers understand things can go wrong occasionally. It's how the problem is handled that matters. Wits professor Roger Sinclair, founder and CEO of Brandmetrix, agrees that recovery from bad publicity is dependent largely on how swiftly the cause is addressed. He points to the way Pick n Pay handled its food scare five years ago. The retailer had to withdraw some product lines from its shelves after claims of poisoning from an extortionist. It turned out later that no products had been contaminated, but the company could take no chances. CEO Sean Summers "was everywhere in the media on the day it happened", says Sinclair, and gave the issue his complete attention for as long as was necessary. It was estimated the company spent R15m-R20m on communications and replacing products that had to be destroyed. But R20m amounted to just 0,25% of Pick n Pay's market capitalisation. The share took a knock, but within a week it was trading back around the record high for that year - a clear sign from the market that trust had been restored. Summers understood the salvage job was not something that could be delegated. Customers needed reassurance from the very top. In the background, to offer further support if necessary, was Pick n Pay founder and chairman Raymond Ackerman. But the job was "handled brilliantly" by Summers, says Sinclair. As a result, the company's reputation made a complete recovery. It is vital that a CEO understands the power of the media and how to handle it - especially in an age when bad publicity is circulated at the speed of light through radio talk shows, e-mails, SMSes and websites. Sampson cites an international survey of 600 executives by communications group Hill & Knowlton. They identified news media criticism as the leading threat to reputation (49%), ahead of unethical behaviour (42%), a disaster that disrupts operations (36%), litigation or adverse court judgments (35%) and allegations about product safety by customers or a special-interest group. The CEO is often seen as the personification of a company... Many resist accepting they have this status Research has also shown the CEO is often seen as the personification of a company. Many CEOs resist accepting they have this status, perhaps out of modesty (genuine or false) or a desire to give credit to their executive team. In fact they cannot afford to take the chance of not taking direct command. A CEO who didn't respond quickly to a crisis was Doug Ivester, who headed Coca-Cola for two years before he was forced out in December 1999 at the age of 52. After a meteoric career at Coke, he had been expected to lead the company well into the 21st century. Instead major shareholders (including Warren Buffett with 8%) called Ivester in and told him they wanted him to resign. As Fortune magazine put it, Ivester "took pride in being a substance-over-style guy - but that translated into taking no heed of image and perception issues, which are all-important to a company like Coke. He took pride in managing for the long haul but that made him unyielding in the face of immediate circumstances. And though he was in command of a vast number of details, he seemed to lose sight of the big picture". Ivester failed to understand a growing global backlash against the dominance of US-based big businesses. The result was hostility in European markets, and investigations into anti-competitive practices. But the incident that really seemed to confirm he was not the man for the top job was when several Belgian schoolchildren fell ill in 1999 after drinking Coke. As Fortune subsequently explained: "Handling the Belgian crisis, Ivester had all the data but missed their larger meaning. He determined that what had made the schoolchildren sick was that Coca-Cola had been made with a bad batch of carbon dioxide. It was a minor problem, hardly a health hazard, he judged. By the time he addressed the issue publicly, it was a full-blown crisis." The case shows what can happen when the corporate brand is synonymous with the company's most important single product. However, there is some protection for individual brands (though this cannot be taken for granted) when it is only the corporate brand that is in trouble. A recent local example was the experience of Tiger Brands, a leading food manufacturer that got into trouble with the competition commission for price-fixing and collusive activity. One of the casualties was CEO Nick Dennis, whose long and distinguished career at Tiger ended in early retirement. Several executives were disciplined and the company paid a R98m admission-of-guilt fine to the commission. The scandal ran sporadically for months, with chairman Lex van Vugt forced to do a lot of explaining to the media. Yet the Tiger share price suffered little damage at the time and in that sense the company can be said to have emerged unscathed. The market shrugged off the fine, and clearly took the view that consumers would not be interested in difficulties at the corporate level - and, more to the point, that many people would not have been aware in the first place that some of their favourite brands were made by Tiger. In other words, long-term revenue and profits would not be affected. When a company is hit by bad publicity, it must be able to draw on reputational "money in the bank". In a crisis it will need to draw on a deposit of trust that has been built up over many years, perhaps decades. Pick n Pay needed that deposit because of the uncertainty created by the poisoning scare - and consumers were prepared to give the company the benefit of the doubt, at least for a time. Sometimes, as in the case of respected auditing firm Arthur Anderson's vulnerability to the Enron scandal, the deposit can be exhausted almost immediately and the company disappears. That is the ultimate nightmare for any CEO - and it could happen to any of them.