Learning from Last Year’s Reputation Meltdowns

Looking at the 2011 reputation meltdowns listed by Kellogg School of Management professor Daniel Diermeier in his trenchant blog, I’m reminded of rule no. 1 of crisis psychology: pressure makes you stupid, and sustained public pressure makes you even more stupid.

There is more to it than shrinking your mental systems down to flight-fight mode, of course. A badly handled reputational crisis, to be sure, usually reflects institutional failings.

First, a crisis will surface shortcomings in the organizational culture. And more often than not, these cultural failings tend to be compounded by structural weaknesses that prevent effective and strategic deployment of the organization’s IQ and EQ.

Decision trees are unwieldy, so decisions get made too slowly. The PR function isn’t brought fully inside the strategic tent, so stakeholder concerns are not treated as valuable input but dismissed as hostile.

Or, the CCO’s counsel is simply outweighed by risk-averse advice from Legal or IR, and as a result,  the company often will act and sound out of touch, bureaucratic, calculating and uncaring.

At the root of a reputation meltdown nearly always you’ll find a real or perceived broken promise – the organization is not behaving in accordance with what its stakeholders expect from it.

Laws or regulations might also be infringed, but aren’t reputation crises at their core most often driven by deep public disappointment caused by an organization’s failure to live up to its espoused – or expected – values?

Compare the lived values of the mobile phone hacking reporters and editors of the News of the World with the fair competition and freedom of expression rhetoric used by Rupert Murdoch when he seeks new broadcast licenses or sets out plans to buy up newspapers. Governance, any one?

Failure in culture, structure – or both? Certainly, the scandal revealed a deep values problem, also among the police, and caused a UK political crisis. The public revulsion will not go away anytime soon.

TEPCO, the operators of the Fukushima nuclear plant, was the 2011 prime example of how a crisis causes paralysis. Frankly, though – would any organization be sufficiently culturally robust to deal with a run-away nuclear plant meltdown?

TEPCO’s unpardonable failings lay elsewhere. It missed every opportunity to derive public sympathy from its plight. It could have won goodwill by mixing technical level-headedness with transparency,  a touch of real regret and humility over the Herculean challenge facing the company, Japan and a worried world.

ERGO and Netflix, also on the top 10 reputational crises of 2011 list, seem straightforward enough compared to a fateful natural disaster of a tsunami opening the nuclear nightmare box. Two cases of hubris and a lack of common sense – understanding customers and stakeholders, and the boundaries of decency.

As Diermeier says: “Brands are now largely about trust, but trust is fragile. When trust is violated (or perceived to be violated), trust quickly turns to betrayal, and passionate support to rage. Add to that the difficulty of operating in a (social) media environment with less and less control over the message customers receive, and this new brand fragility is not an exception, but a common risk that needs to be managed”.

To me, the Penn State scandal is a total values breakdown, as well as a glimpse into an ugly workplace culture. Lack of integrity seemed to have marked key players.  On integrity, FIFA, the world soccer association, also has been found deeply wanting. Again.

HP seems in recent years to have got itself mired in a governance crisis – again culture and structure. In 2011, the HP Board must be up for a dysfunctionality award. HP needs a values and strategy reboot.

Political reputation damage came in several guises in 2011. They ranged from a crisis over the German defense minister’s doctoral thesis, which had liberally borrowed page after page of other people’s thoughts without citing them as authors, over the deadlock in Congress to the most entertaining way that the Republican candidates kept shooting themselves in the foot.

Values again, at the core, potentiated here by a seeming epidemic of failing self-awareness in the political class. As Diermeier says, the deadlock on the Hill is cemented by the structure there.

He says that in a bargaining situation each chamber, seeking the best deal for its members and their constituents, creates what he calls “internal veto players, such as powerful party leaders and committee chairs that need to sign off on any deal”.

Diermeier suggests a change, so that the president would need only the backing of one chamber to sign off initiatives such as the budget deal.

Not likely to happen, but an interesting illustration of how a practical outcome of structure and culture – in this case decision-making procedures – could fix the root cause of a recurring political crisis.

Diermeier makes many good points in his blog, and in the contributions it is linked to. Perhaps the most relevant for CCOs, whose work is at the cutting edge of reputation management, and who, when crisis strikes, must manage reputation recovery, is this:

“Whenever disaster strikes, companies and governments are not only criticized for their immediate handling of the crisis, but also their ability to reassure the public.”

It reminds me of my first lesson in crisis management, long ago, from a PR agency veteran:

1.      Admit there is a problem

2.      Take responsibility for solving the problem

3.      Offer solutions

Not much to add. Except, make sure your culture is solid; that it is accurately reflected in your values, and that you have the right structure to be able to live those values if crisis should ever test them.