A tale of two crises

How much damage can be done to a brand in just one year? Quite a lot it seems.

While doing my research for a conference at which I was speaking, I happened across a table of the most admired corporate reputations in the UK.  The table was compiled by Reptrak in the Spring of 2016 and used a methodology that analyses the drivers of corporate reputation under seven headings: products and services, innovation, workplace practices, governance, citizenship, leadership and performance.  Interestingly, Rolls Royce and Samsung were comfortably in the top ten.  So what went wrong in less than a year?

The crises that faced Samsung and Rolls Royce were classics in their own right in terms of cause, shape and effect.  The Samsung crisis was quick and devastating.  In fact it was only two months from the launch of the Samsung Galaxy Note 7 at the usual glitzy New York press conference to a painful global recall of 2.5 million handsets.  In fact it took just a couple of weeks for consumers to report that the new Galaxy Note 7 handset had battery problems that could lead to the phones exploding or catching fire.

For such a potentially devastating product fault Samsung’s response was clumsy and confusing.  While shipments of handsets to some countries were halted they carried on to other territories.  Was it lack of knowledge of their own product that led Samsung to reassure Hong Kong consumers that the battery problem was not  an issue for handsets sold there?  It wasn’t true.  The recall was presented as “an exchange” and in the US Samsung failed to work with the usual authorities when trying to sort the problem out.  The real tipping point was the decision of airlines around the world to put up signs at departure gates banning the Samsung Galaxy Note 7 from their planes on grounds of safety.

Most commentators agree Samsung got there in the end when they announced a permanent halt to all production of the Note 7 last October but their failure to tell a consistent story about the issue coupled with a lack of a human face behind the crisis management did not endear them and leaves a big question mark over their future reputation.  It still feels like unfinished business.

By contrast Rolls Royce’s recently-reported crisis, which leaves them with a record-breaking settlement of £497 million worth of fines in the UK alone, took years in the making but has led, at last, to a textbook response from the company.  Rolls Royce’s crime was one of corruption.  It may be a sin as old as the hills but it is one that increasingly Governments around the world are not prepared to tolerate.

It has been reported that the criminal payments behind the case against Rolls Royce date back to 1989.  Payments were made in a number of countries including China, Thailand and Russia to help Rolls Royce win contracts said to have generated around £258 million in illegal profits.  To compound the wrong-doing Rolls Royce senior management knew of the corruption allegations back in 2010 but failed to notify the Serious Fraud Office or take sufficient action to deal with the issue.  Worse than that there is evidence of a cover up involving the destruction of emails and memos.

In the end Rolls Royce did put its hands up and co-operated fully in a Deferred Prosecution Agreement (DPA) unveiled last month.  A DPA is basically a new vehicle that enables the Serious Fraud Office to bring egregious corporate behaviour to book without a long and expensive trial.  But Rolls Royce’s response does to end there.  A new management team and CEO has enabled the company to draw a line under what went before.  The new CEO has made an effective apology making full use of social media to do so.  New reporting channels have been set up across the company including a 24 hour ethics line; a new and comprehensive training programme to embed high ethical standards has been embarked upon; new ethics and compliance staff have been recruited; and a commitment has been made to publish a report into the company’s behaviour by Lord Gold, an expert in the field of ethics and compliance.

I can’t wait for the next Reptrak most admired corporate reputation league table to be published.  It should be out later on this month but if your company is in the top ten you might want to stop and think before you put up the bunting and raise a glass.