REPUTATION MANAGEMENT IN A

CRISIS

Annabel Wren

Millward Brown

Corporate Practice

May 2014

“If you lose dollars for the firm I will be understanding.

If you lose reputation for the firm, I will be ruthless.”

Warren Buffett

BIG/MRS conference

2014

Corporate reputation matters; it is essential because it drives advocacy which we know from

extensive research to be the highest measure of success in terms of enhancing the value of brands. A

strong reputation plays an essential role in the conversion of customers (both B2B and B2C) from

considering your company to purchasing and, ultimately, recommending your products and/or

services. We know that a strong reputation stems from trust in a brand amongst its key

stakeholders, which once established can lead to far more than simply boosting sales for a company.

It can also help to:

But what role does reputation play when things go wrong for companies? As Justin King, CEO of

Sainsbury’s recently explained “It’s astonishing how a robust reputation will be resilient against fact”

in reference to the horsemeat scandal in 2013. He described how the whole industry became

stigmatised even though many of the supermarkets, including Sainsburys, did not have any

horsemeat in their supply chain. Of the supermarkets who did find horsemeat in their products,

there was a marked difference in their responses to the situation. Tesco did not attempt to shirk the

responsibility and was quick to respond and apologise for their mistake, with whole page

advertisements in local and national newspapers, whereas Aldi deflected their accountability and

emphasised that the wrongdoing lay within their supply chain. It is clear that Tesco wanted, and

needed, to be seen to be taking action in a serious situation to restore the trust of their customers

and stakeholders because the scandal came at a time when their reputation overall was suffering. In

contrast, Aldi arguably did not react as honestly, but their reputation during the scandal was

safeguarded by their overall reputation at that time; they were seen as unable to do wrong in the

eyes of the consumer as discount supermarkets are becoming increasingly popular.

Over the past few years we have witnessed scandals across various industries including; major

environmental disasters, manipulation of LIBOR by banks, vexing questions for multinationals about

corporate taxation, supply chain issues in supermarkets and alleged bribery within the

pharmaceutical industry. All of these examples have impacted the reputation of the companies

involved and in many of these cases Millward Brown has conducted research to understand the

damage caused and identify routes to recovery. This paper will draw on examples of our research,

along with guidance from leading experts in reputation and communications, based on interviews I

have conducted and will reference throughout the paper, to demonstrate how companies should

react in a crisis to maintain and restore a strong reputation.

Expert advice for managing reputation in a crisis

1) Don’t wait until something goes wrong to think about reputation

As Stephen Pain, VP Reputation Strategy, at Unilever describes, there are many preventative

measures that companies can take to help provide reputational security if a crisis was to hit. Using

Unilever as an example, Pain describes three key points that companies should consider in order to

have a solid reputational foundation.

Internal transparency

It is essential to have a strong understanding of the business internally in order to be

transparent about identifying any potential issues and whether they could lead to a

crisis. In an ideal scenario, companies would have an internal governance system to

manage and monitor the situation internally, which in turn should help to inform the

communications team.

Having a clear vision for the business

Companies need to have a clear direction on how the business is managed and the

issues that are important to them. For example, at Unilever, there is a strong emphasis

on what it calls the Sustainable Living Agenda and how they can help to mobilise the

industry to take action on subjects that they feel are important in terms of long-term

growth and well-being for people. Sustainability has become ingrained in the DNA of

Unilever which gives them a strong vision to leverage and use as an engagement tool

with key stakeholders. This emphasis on higher human values is now understood to be a

key driver of success for companies. Research conducted by Millward Brown and Jim

Stengel, outlined in his book ‘GROW’1, looked at over 50 000 brands and discovered a

direct link between the financial performance of a company and fundamental human

values. As Stengel explains, "Maximum profit and high ideals are not incompatible.

They’re inseparable. Companies with ideals of improving lives at the centre of all they do

outperform the market by a huge margin."

Governance of dialogue

When companies have internal transparency and a clear vision for the business they are

able to form an active dialogue with key opinion formers, such as NGOs, the media and

1 ‘GROW: How Ideals Power Growth and Profit at the World’s Greatest Companies’ Jim Stengel (2011)

government etc. on topics that are relevant to their company and to society. Therefore,

through improved connectivity in the business and with opinion formers, if a crisis hits, it

can be managed through communications with subject experts because the relationship

has already been established and a level of understanding about the business has been

developed. This is particularly important because, as Pain explains “In a lot of cases,

crises are based on a lack of knowledge or misunderstanding”.

This approach, demonstrated by Unilever has been adopted by many companies and is described by

van Riel and Fombrum2 as a “Reputational platform; the root positioning that a company adopts

when it presents itself to internal and external observers”. This reputational platform rests on “a

rendering of the company’s history, strategy, identity and reputation that rings true to internal and

external observers”.

Having a reputational platform strengthens the position of companies with stakeholders because it

enables them to build on their corporate narrative and develop strong relationships. However, not

all companies are sufficiently prepared for a crisis and a lack of internal transparency can be a major

issue when a crisis occurs. Therefore, before actions can be taken, it is essential to:

2) Be prepared internally to investigate the issue and have a crisis manual in place

As Christopher Storck, Managing Director at Hering Schuppener and Professor of Strategy and

Communication Management at Quadriga University Berlin explains, there are some key questions

that need to be addressed immediately in times of a crisis. It is essential to find out exactly what is

going on internally; is there any substance to the allegations? If so, how widespread throughout the

company is it? How can we ensure that it will never happen again?

Yet, before a company responds in a crisis, they have to have a strategy in place. In an ideal

situation, companies have a crisis manual available so they can establish the best course of actions -

but unfortunately this is not always the case. Leading industry publication CorpComms magazine, in

association with Nexus Communications Group, conducted a survey among 150 communications

professionals to understand the internal preparedness of companies for a crisis. They found that,

almost one in six organisations do not have a crisis manual in place to consult in times of crisis and

over one third of communications professionals are uncertain whether their companies have the

correct processes in place to cope with a crisis if one was to occur.

Employees of any organisation and particularly those involved in communications need to be aware

of how they should respond, so preparation is key. Until the facts are established and a strategy for

how to handle the situation is put in place, companies should limit the amount of information

shared publically. This becomes a challenge when both mainstream and social media become

involved because events can then move at lightning pace.

This highlights that companies need to prepare internally and have a crisis management strategy in

place so that they can act as quickly as possible when something goes wrong to fully understand the

extent of the situation and respond accordingly.

With forward planning, companies are in a stronger position to respond quickly and think about

communications with their key stakeholders.

2 ‘Essentials of Corporate Communication’ Cees B.M van Riel and Charles J. Fombrun (2007)

3) Inform key stakeholders before the media does

With business to business companies, influential stakeholders can be a relatively small group

compared to consumer facing companies. These include the company’s main customers, the supply

chain, regulatory bodies/ governments and institutional investors. Therefore when a situation occurs

within B2B companies, the opportunity exists to engage with the key stakeholder groups in a direct

way, before the media spreads the story. Of course, a company’s reputation amongst the general

population is very important, but for b2b companies, maintaining a strong relationship with key

stakeholders in times of crisis can help to reduce the impact of the crisis on reputation and restore

trust in the company more quickly.

Christopher Storck, highlights a case study of research that his team carried out for a leading

pharmaceutical company amongst their stakeholders. Through a comparison of their reputation

survey and media monitoring that they undertook, they were able to assess whether there was

statistical proof to show that the changes in stakeholder perceptions of the company were

influenced by media coverage. The results showed that there was only a correlation between the

media coverage and a change in perception for 3 of the 9 key stakeholder groups. These three

stakeholder groups were students, retail pharmacists and NGO representatives, among which none

of them had privileged access to information from the pharmaceutical company. Amongst the other

stakeholder groups, for example doctors and healthcare policy makers, there was no statistical

correlation and these were the groups who had a continual dialogue with the pharmaceutical

company. Therefore, companies who do not actively engage with their stakeholders leave their

reputation more vulnerable to perceptions formed from what is written in the media.3 This is

supported by reputation studies conducted by Millward Brown Corporate which also reveal

stakeholder dialogue to play a critical role in driving advocacy of a company. In a crisis, stakeholders

require transparent, timely information that is based on facts. If these needs are not met by the

company and an information vacuum occurs, companies lose control of the situation and

reputational damage is very likely to occur.

A major issue nowadays though, is the speed at which information is spread. Stories can become

global within hours of an event because of the influence of the internet and specifically social media,

bloggers and 24 hours news sites. It can be an extremely useful tool for companies in a crisis;

communications teams have multiple channels to defend themselves against allegations, but more

often the speed in which stories are spread means that companies have less time to prepare a

response and are faced with the complicated situation of being both initiators of sharing information

and responders at the same time.

To maintain reputational control, companies therefore have to:

4) Understand the importance of new information channels and be internally prepared to

engage with a diverse set of powerful opinion formers

Vivian Lines, Global Vice Chairman of Hill and Knowlton Strategies cites the example of the Costa

Concordia cruise ship disaster in January 2012. In the 3 day period following the collision, there were

35,000 tweets, 11,000 blog mentions, 34,000 news mentions online, and more than 4,000 YouTube

video mentions. This rapid spread of the story globally, through the power of the internet, shows

3 ‘Reputation Management’ Sabrina Helm, Kerstin Liehr-Gobbers and Christopher Storck (2011), p. 19 f.

how companies have less control over their reputation than ever before and so it is essential that

they are internally prepared to respond as quickly as possible.

Some companies have succeeded in managing their reputation in a negative situation through their

social media handling. A great example of this, reported in CorpComms magazine was when O2

experienced a service outage in 2012. Nicola Green, director of communications and reputation for

Telefonica, parent company of O2, explained how they had a crisis plan in place and had practiced a

full scale network outage scenario the summer before. They understood the importance of

communicating as soon as a crisis occurs and so the press team are always among the first people

within the company to hear about any issues. In this situation, customers were quick to respond,

tweeting complaints and anger towards O2. Green describes how internally they already had an

established tone of voice for the customer facing teams where the emphasis was on ‘being human’.

They therefore maintained this in the way they monitored and responded to tweets, which had

extremely positive results.

O2 realised that they had to relate to people on a personal level, to show that they were concerned

and to calm their customers without irritating them further. Their light-hearted approach meant that

customers began retweeting the O2 responses and a positive buzz spread throughout Facebook and

Twitter which was remarkable given the situation. The marketing agency, Wunderman, calculated

that the number of negative tweets after the first day was approximately 1.7 million, with a 4,836

percent uplift in people talking about O2. However, O2 were able to turn the situation around and

the tone of tweets changed from anger and irritation to happiness. It was a risky strategy but

demonstrated the internal preparedness of O2 and their clear understanding of their customers.

However, an important point to consider is that, there is a huge difference in how communications

should be managed depending on the type of crisis. In the Costa Concordia example, 54 people were

killed so it wasn’t simply a reputational issue for the operating company but a situation which

involved a legal investigation. In any situation where lives are at risk or deaths occur, the potential

for long term reputational damage through a drastic loss of trust is even greater. In these situations

it is essential that companies:

Customer (@gay_platform): "@O2 We're still waiting for that apology…or maybe they texted me and I can't see the message because my phone DIDN'T WORK" O2 response: "@gay_platform Firstly, here are our deepest apologies. Network should be back up and running for you. How's your service?"

Customer (@24vend_Ltd): "@O2 had to travel to Italy to get signal -- desperate times!!!" O2 response: "You can come back now. We're back in business :)"

@Carole29 tweeted As much as I really don't like @O2 you really have to give whoever handles their twitter, massive credit lol. O2 response Thank you for the massive credit! We'll hang it on the massive credit wall.

5) Act quickly and communicate frequently to inform and reassure the public, whilst being

honest and compassionate

Johnson and Johnson and the Tylenol scandal is a long-standing yet useful example of how

companies can maintain trust and a strong reputation, even when the crisis has caused serious

negative consequences. In 1982, seven people in Chicago died after taking extra-strength Tylenol

capsules that had been reportedly contaminated with cyanide. Immediately after the connection

between the Tylenol capsules and the deaths was made, J&J conducted a product recall throughout

the US which amounted to approximately 31 million bottles and a loss of more than $100million as

well as halting all advertisement for the product4.

Even though J&J knew that they were not responsible for the tampering of the product, they

remained loyal to their company values and put the needs and well-being of the customers first.

When Tylenol products were re-introduced into the market, J&J had developed the packaging to be

tamper resistant; as a result, they became the first company to comply with the Food and Drug

administration regulation of tamper resistant packaging.

When the CEO during the time of the Tylenol crisis, Jim Burke, died in 2012, his obituary in the New

York Times described his success as a CEO with reference to the scandal. The response that he led

became his legacy, because the company delivered on their promises over the history of the

company.

“Nothing good happens without trust. With it you can overcome all sorts of obstacles. You can build

companies that everyone can be proud of.” Jim Burke

Burke understood the importance of maintaining the trust of customers and J&J were able to do so

by a quick response to the situation and consistent communication to reassure the public that they

were taking the situation seriously and taking measures to stop any further fatalities. Their

reputation was managed effectively and even today they are consistently seen as one of the Fortune

Top 20 World’s Most Admired Companies.

From the J&J example we can also see that the public can feel reassured and admire a company

when they make changes to a process that is widespread across an industry. J&J led the industry on

updating the packaging to be tamper-proof to protect the public. In many company crises, although

one company may be implicated initially, it often develops that other companies within the same

industry have acted in a similar way or are equally liable. In that situation, to restore reputation

more quickly, companies can:

6) Take the lead and start an enquiry to make widespread industry changes

There are examples of this across many industries including the finance industry with the LIBOR

scandal, the pharmaceutical industry and its recent bribery allegations and also within the clothing

industry. Nike was heavily criticised for many years and developed a negative reputation for its use

of sweatshops for manufacturing clothing. Between 1992 and 1993, Nike received a great deal of

negative media attention, from protests at the Barcelona Olympics, an exposé report by Jeff

Ballinger highlighting the number of Indonesian workers who were paid less than 14 cents an hour,

followed by other negative media provoked by the ‘Press for change’ NGO.

4Lazare, Chicago Sun-Times (2002)

Initially Nike resisted the criticisms but in 1996 it began to take the allegations more seriously and

set up a department within the company to improve the lives of factory workers. However, it

continued to receive unrelenting criticism and protests against it were widespread, prompting Nike

to commission a report into their labour practices abroad. It wasn’t met with a positive response

since the report was mainly favourable and considered to be biased towards Nike.

A positive shift for Nike occurred in 1998 with a speech from their CEO at the time, Phil Knight. He

showed that he understood the gravity of the situation and that he was prepared to do something

about it. “The Nike product has become synonymous with slave wages, forced overtime, and

arbitrary abuse. I truly believe the American consumer doesn’t want to buy products made under

abusive conditions”. In 1999 Nike began the creation of the ‘Fair Labour Association’ which aimed to

independently monitor factory conditions, minimum age requirements of workers and 60 hour

work-weeks, and they encouraged other brands to join.

In 2005 Nike became the first company in the industry to publish a full audit of its factories, the

conditions within them and the wages they pay their workers. Nike was certainly not the only

company to use sweatshops, but Nike was the name that everyone remembered and they were

used to set an example by the media. Their reaction, ultimately to accept responsibility, become

more transparent and be the leaders in changing the overall process within the industry meant that

they were able to regain respect and restore their reputation. Over the past few years their

reputation continues to improve, moving from the 26th World’s Most Admired Company on the

Fortune list5 in 2012, to 13th in 2014.

For Nike, the response to the negative media coverage and widespread criticism was not an

immediate reaction, but over time the strategy that they developed was very successful and they

managed to restore the trust and respect of consumers. We can therefore see that it is often difficult

to know the correct course of action to take when a crisis occurs but there are various ways that

companies seek advice to understand the best method to take in a specific situation. Therefore

companies need to:

7) Consider the resources available in a crisis to understand the extent of the situation and

plan what to do next

The next case studies outline how three companies invested in different types of research in order

to inform their strategies during their specific reputational challenges.

Global consulting firm’s sponsorship of internal sportsman

Our client needed to assess how widespread negative media coverage about the international

sportsman it sponsored had affected the views of their brand amongst clients. We therefore

undertook a research project, speaking only to C-Suite actual and potential clients of the consulting

company in 5 markets. Through this, we were able to determine the impact of the media coverage

on their brand as well as others associated with the sportsman. Without suggesting any links

between the individual and the different brands sponsoring him we interviewed 50 senior executives

in 5 markets across a range of industry groups to better understand how the reporting was colouring

their views of the brands linked to him, and how differing responses by them might be

received. Understanding that the company needed to make a decision on the future of the

sponsorship in very short timeframe, we were able to feedback back responses in real time which

5 Source: World’s Most Admired Companies by Fortune Magazine (2012, 2014)

enabled our client to identify how opinions were altering as the stories unfolded over the course of

several weeks.

Through our research, we were able to draw a conclusion that suggested the sportsman was no

longer an appropriate personification of the brand values of our client. The global consulting

company reassessed its strategy and severed links with the sportsman in question who no longer

features in their advertising or promotional material. Our research therefore helped the client to

quickly assess the most effective actions to take to ensure the reputation of their company was not

damaged.

Bribery within Pharmaceutical industry

In 2013, many global pharmaceutical companies were implicated in alleged bribery scandals with a

focus on operations in Asia. We conducted a crisis response research project for one particular

company after widespread negative media suggested that some of their senior executives were

involved in bribery allegations.

Our research aimed to understand the reputational damage of the allegations and the perceptions of both the parent company and its individual brands as the news stories developed. We found that, although customers felt more negative towards the organisation, the resulting impact on the purchase intent of customers of the associated brand’s products was largely unaffected. There was an advantage because the organisation’s products are better known for their individual product brands rather than the corporate brand.

We concluded that there was a reputational challenge to address, but the immediate effect on the sales of their consumer products had not been as negative as for other major companies that have faced similar challenges. Our client therefore understood the implications of the allegations on their corporate reputation and they were able to feel confident that they could take time to fully assess the situation internally to restore their reputation. The results also provided a useful tool for benchmarking any future corporate communications effectiveness that aims to reduce the negativity surrounding the alleged bribery.

As Christopher Storck explained, once a scandal is uncovered and the allegations are verified, companies have to repair the damage internally through definite actions. Stakeholders are unlikely to feel that changes internally are credible until the actions of change are demonstrated. This is a longer term process in reputational recovery and the perceptions of it can be tracked over time through research.

Long term tracking for when a crisis hits

As Vivian Lines explains, when a company goes through a crisis, it is important to understand the

impact it has had and to see where reputational repair is necessary. Research can be used to help

support communications to establish priority areas for action and to track reputational recovery.

A major investment bank that was involved in the LIBOR scandal in 2012 used their current research

with Millward Brown to understand the damage it had had on their key brand health metrics.

Speaking to C-suite individuals and Institutional Investors we were able to look specifically at the

likelihood of their stakeholders considering using the bank and the extent to which they would

recommend them.

Using the tracking data we had gathered over four years we were able to see whether the negative

PR had had an impact on the bank’s results, measured against the leading competitors, many of

whom were also implicated in the scandal. We were also able to tailor the research to understand

the bank’s scores on brand attributes such as being a trustworthy bank and the extent to which

being trustworthy is a key driver of advocacy.

The results showed that in the bank’s two main markets, the UK and US, the allegations did not have

a negative impact on the bank’s key metric scores. In fact, the spontaneous awareness scores for the

bank increased which was most likely linked with the media buzz at that time. We were therefore

able to conclude that for our client, their involvement in the LIBOR scandal did not have a negative

impact on their brand metric scores. Our research further demonstrated that, because it was an

industry-wide issue, many of the other banks we measure performance against were also involved

and therefore the negative effects for our client specifically were reduced. In addition, we were able

to understand that amongst the investment bank’s key customers; Institutional Investors and C-suite

executives, attributes such as strong client service are more likely to drive advocacy than

trustworthiness.

Through our research we were able to reassure our client that they remained amongst the top

consideration set for investment banks despite the allegations and they were able to use our results

to help inform their strategy for the following year. We were then able to measure the impact of the

new marketing strategy over the past year and the impact it has had on their performance against

competitor banks.

Conclusion

This paper has highlighted key actions that need to be taken into consideration when companies are

suffering a reputational crisis, based on experiences of companies in similar situations as well as

insight from leading in corporate communications professionals. They provide advice on how

companies should react when they find themselves in a crisis and how actions should develop as the

crisis unfolds. However, it is important to note that even when companies are not sufficiently

prepared to act in the model way, all is not lost. There are numerous examples of when companies

have been heavily criticised for their response in a crisis, which have then gone on to recover their

reputation; Exxon Mobil and the Exxon Valdez oil spill in 1989 demonstrates this. In 2004, Exxon had

to pay £2.5bn in damages for the oil spill which killed over 250 000 animals and birds. It emerged

that the oil spill was the result of a crew master who was under the influence of alcohol, combined

with an insufficiently trained crew.

Exxon did not respond to the crisis immediately; their chairman at the time, Lawrence G. Rawl did

not fly to Alaska until two weeks after the spill. In the meantime, the flow of information had been

insufficient because Exxon has chosen to only communicate with the local people, rather than

publically and the official spokesperson had responded with ‘no comment’. This led to a lack of trust

amongst the public and a loss of respect for Exxon.

However, the incident did not permanently damage their reputation; for the past three years Exxon

Mobil has been amongst the 30 World’s Most Admired Companies on the Fortune ranking6 as well as

being ranked within Millward Brown’s BrandZ Top 50 most valuable brands7 globally.

6 Source: World’s Most Admired Companies by Fortune Magazine (2014)

7 Source: BrandZ™ Top 100 Most Valuable Global Brands by Millward Brown (2013-14)

This research has demonstrated how key actions can have a huge impact on corporate reputation in

a crisis, many of which stem from sufficient preparation for a crisis and the actions taken post-crisis

to restore a reputation. These are all elements that our corporate reputation research focusses on,

because, as the final three case studies showed, many companies invest in research at different

stages which can help to manage reputations, through:

As John F. Kennedy once said:

If companies are sufficiently prepared and engage in research at different reputational stages, then

the emphasis in a crisis can lie within opportunity rather than danger.

REPUTATION MANAGEMENT IN A

CRISIS

Annabel Wren

Millward Brown, Corporate Practice

24- 28 Bloomsbury Way

London

WC1A 2SL

annabel.wren@millwardbrown.com

Tel: +44 2071265148

BIG/MRS conference

2014