Add another $4.5 billion today to the total of still-accruing costs to BP for its massive Gulf of Mexico oil spill in 2010. That’s the amount BP agreed to pay the U.S. government in its guilty plea to criminal charges connected with the deaths of 11 off-shore rig workers as well as the not-insignificant matter of lying to Congress.
The $4.5B is on top of the rapidly evaporating $20B in trust funds the oil company set aside to clean up the mess and to compensate the communities and individuals for property damages. All told, the company has booked $38.1B to cover the costs of the spill. But costs may very well exceed that figure; the settlement reached today specifically does not cover fines stipulated by the Clean Water Act that could reach as high as $20B (the Act calls for fines of $1,100 to $4,300 per barrel spilled; multiply the upper figure in that range by five million barrels of oil spilled).
There truly aren’t many companies that could absorb such massive penalties and continue to do business. And, of course, BP’s very deep pockets are a contributing factor in the magnitude of damages assessed to the company. At some point you have to wonder, how much is enough? Still you won't find too many in the public feeling sorry for the mammoth oil company. Next to the Wall Street “banksters” who collectively deserve much of the blame for the financial credit markets meltdown that precipitated the Great Recession, BP has few peers as a poster-child for corporate malfeasance, though Bernie Madoff deserves a special Dishonorable Mention in the “individual” category.
So it is that even after BP settles all of its criminal and civil legal obligations, it must continue to make progress on the rehabilitation of its reputation. Are oil and gas customers who have stayed away from BP in the after-math of the oil spill satisfied with the fines and penalties assessed the company and in the clean-up and restitution efforts that are now largely complete?
And, finally, are they convinced that BP is a different company now, committed to doing the right thing against a triple-bottom line accounting (people, planet, profit)?
A crisis is an opportunity to demonstrate an organization’s values, or to reevaluate its values. Criminal actions that led to the oil spill and the death of the rig workers came out of a company needing to revaluate its values, as did the well-documented missteps of BP Chairman Tony Heyward, “winner” of Force for Good’s 2010 PR Disaster of the Year. Since then, the company has demonstrated a new value system that can genuinely be applauded: a dedication to the cleanup and restoration of the Gulf shores, and a humility in acknowledging its culpability and its responsibility to make things right.
You, American Airlines, should no longer be flying across the Atlantic. You do not have the know-how. You do not have the equipment. And your employees have clearly lost interest in the endeavor.… You need to stop.
Then today the airline admitted that a row of seats had become unbolted from the floor and tipped over in mid-flight – on three different planes in the past week (!).
said an initial review indicated that there could be a problem with the way the seats fit into tracks on the floor of the Boeing 757, but technical teams from the airline “are looking at everything.” Asked if seats had ever come loose on an American flight before last week, (she) replied, “Not that I’m aware of.”
“American Airlines’ reputation is in free fall,” writes Daniel Gross in Newsweek today.
Ok, it’s easy to pile on (and we certainly will hear more on this seat business from the likes of Jay Leno and David Letterman, prolonging AA’s agony). But let’s focus on what the company should do.
Ground any suspect planes immediately. American Airlines has now taken this obvious first step, grounding eight Boeing 757s. But they need to make sure no other planes in their fleet fall victim to this strange malady—every seat row in every plane should get an immediate inspection. Thoroughness is essential to begin winning back the trust of the public after such an embarrassing series of events. .
Get the facts straight, then correct erroneous reporting. Spokespeople need to thoroughly understand American Airline’s safety record. “Not that I’m aware of” is not a good answer to a question that was sure to be asked. Remember that in the absence of solid information, others will feel free to speculate, and discrepancies over even the most basic information will appear all over the media. For example, some media outlets (including CNN) continue to report that there have been two AA planes with unfastened seats; other outlets insist that there have been three. Which is it? Why isn’t American Airlines clearing up the confusion? It just contributes to the whole Keystone Cops aura that the airline is exuding these days. .
Don’t blame your employees, but don’t be too quick to rule out potential causes. The AP story states:
(The AA spokesperson) was adamant, however, in saying that the incidents were not the result of sabotage by workers. American’s union employees are unhappy about pending layoffs and cuts in pay and benefits that American has imposed since filing for bankruptcy protection in November.
Her instincts are right in not putting the blame on employees, but how can the airline so definitively rule out any potential causes until they understand what is to blame? A better answer might have been: “We have no reason to think any incidents were intentional. We will continue to investigate this matter until we understand what caused them. The safety of our passengers is our highest priority.”
UPDATE: American Airlines is now saying it has determined the cause of the problem, improperly installed clamps.
Understand that your reputation has been seriously harmed with far-reaching consequences. American Airlines’ position in each of its negotiations (with the pilots, with US Air, with the flying public) has been weakened. Public confidence has been eroded. To pretend otherwise will only prolong and deepen the airline’s crisis.
American Airlines should take a lesson from Roger Goodell, the commissioner of the National Football League. Embroiled in a lengthy dispute with its referees, the NFL brought in less-qualified replacement refs which naturally led to suspect officiating and ultimately a devalued product to the fans. Still, Goodell and the league’s owners would not accede to the ref’s demands, though miniscule against the scale of the multi-billion-dollar NFL.
But all that changed last Monday night, when replacement refs blew a crucial call on the last play of a nationally televised game. What became widely known as the “worst call ever” tipped the balance of the referee dispute. The NFL clearly had no remaining fan support for continuing the lockout and the the very credibility of the league was being questioned. The owners wisely folded their hand two days later. On Friday, Goodell issued an apology of sorts to NFL fans, though he avoided using the words “apologize” or “sorry,” and it smacked a bit of arrogance.
So AA, here’s a plan to win back trust in your airline:
Put the seat debacle behind you by inspecting and fixing every plane that could possibly be affected. .
Commit to clear and informed statements from your spokespeople, and quick action to correct misinformation. .
Settle your dispute with your most valuable employees. Do you really expect people to fly on your airline when your pilots are on strike? .
Make a real, sincere effort to satisfy your customers with a safe, reliable and yes, enjoyable experience. It could begin with the CEO sending an electronic copy of that nasty NYT op-ed to every employee in the airline with a note saying he’s embarrassed by the way American Airlines has at times recently lost its way, and asking everyone in the company to commit to doing better. Think of that op-ed as the moral equivalent of a “before” picture someone dedicated to losing weight hangs up on the refrigerator for motivation.
Do those four things and number 5 will be imminently achievable:
Get your fiscal house in order to deliver consistent, sustainable profits.
Back on June 1, I argued here that Facebook's CEO Mark Zuckerberg needed to lead an effort toward greater transparency in conducting the newly public business of the social network behemoth. Two weeks after its epically hyped IPO, Facebook had plunged 28% from its opening price of $38 to reach a new low of $27.50.
I had no pretensions of Zuckerberg noticing my advice, let alone heeding it, even though there were plenty of other voices calling for more business transparency from Facebook. And indeed, the famously maverick young founder of the company continued to keep a fairly low profile. Facebook continued to be vague in detailing its plans to monetize its enormous base of "friends" and failed to provide guidance on future revenue projections. When he did speak, Zuckerberg reminded us that Facebook's mission was never to simply make money but to "give people the power to share and make the world more open and connected."
Having a well-articulated, noble and inspiring mission is critical for encouraging an active and participative employee culture geared to execute corporate strategies. Shareholders can likewise be inspired by the vision. But they also want some guidance to help them figure out if their invested dollars are wisely held in the company, or should be put somewhere else.
(And BTW, employees also want to be reassured that the business has a sustainable trajectory of profitable growth. In short, every stakeholder wants to invest in, work for, do business with...winning companies. "Winning" encompasses all aspects of reputation including social responsibility as well as, yes, profitable growth.)
Throughout the summer, Facebook stock continued its downward trend, dropping below $18, less than half of its initial price four months earlier. That will get your attention, no matter how maverick you are.
Finally, this week at a tech conference in San Francisco, Zuckerberg let it be know that the company's profit performance was indeed important to management. As John Shinal wrote for MarketWatch:
Now that Zuckerberg has seen the damage that the stock drop has done to the image of his company — not to mention to the morale of employees with restricted stock grants — he’s on board with the whole profit thing.
Today, Facebook closed at $22 -- up a cool 25% from its low 10 days ago. There's still a long ways to go before Day One investors recoup their investment. But it's a good start.
So, yes, transparency is critical for all stakeholders, including (especially) employees. And that includes detailing efforts being made to ensure sustainable, profitable growth.
We all know we're supposed to shut off our "portable electronic devices" when our plane is taking off or landing. But it seems every flight has a few sneaks who just can't be bothered.
Which begs the question: does the use of a smart phone or I-pad imperil the safety of everyone on the plane or has there never really been any reason for any of us to shut down?
The FAA announced that it will form a government-industry panel this fall that will study the issue for six months. Ok, it's hard to cheer the launch of another government study. But it does seem to be a common-sense move...although it makes you wonder why no one thought to study the issue long ago. Without any research, how did the take-off and landing shutdown become the industry standard? And why does it need to take six months? The MythBusters folks could solve this in one episode.
Covering up a problem always makes it worse. It's axiomatic in crisis management. And yet even the strong and the brave succomb to the pressure to keep the ugly hidden.
Such a sad reminder of this today in not-so Happy Valley, Pennsylvania, where Penn State continues to feel the repercussions of the Jerry Sandusky sexual abuse scandal and the cover-up that allowed his preditory behavior to continue for so long.
Yesterday, the university did the previously unthinkable in removing the seven-foot bronze statue to beloved coach Joe Paterno and the surrounding memorial, calling it "an obstacle to healing." Gone too are the plaques detailing his many winning seasons. And now we can't even describe Paterno as the winningest coach in college football history, as the NCAA today vacated all PSU football victories from 1998 to 2011. According to US News and World Report, the NCAA found that Paterno and other university officials "had concealed allegations of Sandusky's actions, and concluded their motive was to protect the football program and the school from negative publicity."
The NCAA sanctions will all but shut down Penn State's football program, which has been so much a part of the university's identity. So now a new leadership team at PSU will begin the long, hard process to restore trust and build a new identity stressing excellence apart from football. Meanwhile, litigation from the abuse victims will drag on, a continuing reminder of the ignomy of scandal and cover-up. One can only imagine how many victims of abuse might have been spared if Paterno and the others had acted swiftly against Sandusky--if they had stood up and said "No more," and let the sun shine on the ugly problem no matter the immediate consequences. It would have taken courage and leadership, qualities Paterno seemed to have in abundance.
All of which underscores how hard it is to do the right thing when confronted with credible evidence of wrong-doing in the organizations we represent and believe in. We must redouble our commitment to get after the truth quickly and push back against the inevitable pressures to just keep it all quiet.
When J. P. Morgan Chase CEO Jamie Dimon meets with analysts Friday, he can expect tougher questioning than when he testified before Congress twice last month.
Senators from both sides of the aisle tip-toed around Dimon in June, incredibly deferential in their questioning. The "fawning" from the members of the Senate banking commitee greatly disappointed critics apalled that "too-big-to-fail" banks have jumped back into risky investments so soon after being bailed out by U.S. taxpayers. Dimon had been called on the Congressional carpet after JPM announced that it had lost at least $2 billion in bets on derivative investments tied to a single trader with a made-for-tabloids nickname, the "London Whale."
Some analysts expect those trading losses to be much higher than $2 billion. First order of business for Dimon Friday is to provide an accurate--and hopefully final--accounting of the losses. Then he needs to detail how JPM will improve its risk managment. Analysts certainly will have some tough questions about how JPM judged the riskiness of the trades and controls the bank has since put in place.
A key issue for analysts, investors and, ultimately, the SEC: How JPM and other big banks have kept their investors in the dark about how they calculate trading risks. Investment banks evaluate risk with proprietary "value-at-risk" (VaR) formulas that are kept closely guarded. JPM, for example, did not disclose to investors or regulators even when their VaR calculations showed that risk assumptions had changed. According to a recent Bloomberg report:
Wall Street firms routinely give only broad outlines of how their mathematicians calculate VaR, according to data compiled by Bloomberg, and almost nothing about changes in statistical assumptions or the prices they choose to feed into their models.
Dimon should come to the analyst meeting Friday prepared to detail improvements in transparency, while protecting what is rightfully proprietary. Even though Congress has to this date been easy on him, Dimon cannot expect to be able to continue to keep JPM's investors in the dark.
Ironic though it may be, the world's largest social network (with a misson "to make the world more open and connected") needs to step up its commitment to transparency.
As I write this post, Facebook stock is down another 7% today to $27.50. That's a 28% drop from the $38 IPO price two weeks ago, and an even harder fall for the retail investors who got in at between $40 and $42 a few minutes after the stock went public.
Meanwhile, Mark Zuckerberg who at IPO instantly became the 29th richest person on earth according to Bloomberg's Billionaire Index has fallen off the list completely, even as he and his new bride have tried to enjoy their honeymoon. There have been cries for Zuckerberg to end the honeymoon early and make a statement, just say something! to calm investors.
Others have sensibly pointed out that an abrupt end to the Zuckerberg honeymoon might indicate panic and further unsettle investors. The optics around a message can be as important as the message itself, particularly if you really have nothing new to say.
More to the point, Facebook's executive team needs to step up to the realities of being a publicly traded company. That means quickly addressing accusations that insiders and participating bank partners knew a lot more than was public concerning falling revenue projections. Investor lawsuits have already been filed, the SEC is kicking off an investigation and Congressional hearings clearly are coming soon (expect a circus act of grand-standing Congressmen salivating at the opportunity of grilling Zuckerberg on behalf of aggrieved investor constituents).
“Facebook was not originally created to be a company,” Zuckerberg wrote in a letter to potential investors that was part of Facebook’s filing. “It was built to accomplish a social mission — to make the world more open and connected.”
It's a fantastic thing to have an aspirational mission--it's what drives employees to greatness. But you also have to have a steadfast commitment to integrity in everything you do, including how material information is shared. Zuckerberg needs to return to work Monday totally committed to unearthing and releasing true and complete answers to the accusations. And he needs to commit to conduct open investor webcasts regularly, assuring that his new bosses, stockholders big and small, receive the information they are entitled to.
Facebook launched perhaps the most anticipated IPO ever and instead of the moonshot many expected, it fizzled like a rocket from North Korea--and has since completely imploded. First, Facebook executives made a decision shortly before the IPO launched to increase the number of shares floated, greatly increasing the odds that demand wouldn't keep up and the share price would fall. Then, the big day came. The stock price initially went up by about 10 percent, as individual investors finally got their chance to buy a piece of the dream, but within hours the share price was plummeting. As Facebook stock continued to sink on its second and third day, allegations arose that Facebook insiders (and execs at Morgan Stanley, the underwriter of the IPO) had revised revenues projections downward but didn't inform the market at large. Now the SEC is investigating and the inevitable investor lawsuits have been filed. The prospect of a protracted legal battle has become a thick cloud hanging over Facebook the Stock, a discouraging prospects that will continue to dampen enthusiasm in the investment for some time to come.
Meanwhile, J.P. Morgan has become the poster child for a new chant from the Occupy Wall Street crowd: "We told you so." Just when you thought the Big Banks had been chastened by the near collapse of the world financial markets followed by massive bailouts of those deemed "too big to fail," JPM announces a multi-billion-dollar loss from speculative trades in risky derivatives, the same stupidity that led to the financial meltdown in the first place. The so called "London Whale" trades undermined JPM CEO Jamie Dimon's case that banks should be freed from Dodd-Frank regulations enacted following the bank bailouts. Dimon went from the financial industry's most persuasive advocate to being perceived as the very embodiment of the "Bankster" the Occupy crowds would like to burn at the stake.
So what can Facebook and Morgan do to win back your trust? That's the subject for my next few posts. Your ideas welcome!
What do companies need to do and say to win back pubic trust?
Jordan Kimmel of Trust Across America posed that question to me this week on his radio program on Voice America. Here's the link to listen to the interview.
Jordan asked me about winning back trust after a crisis and about my experience in the Ford-Firestone mess that is the basis for my book, FEEDING FRENZY. And we talked about the turmoil inside Goldman Sachs after former executive Greg Smith took quite a public parting shot in the form of an op-ed in the New York Times. (Smith's piece has since led to a global torrent of negative press and opinion against Goldman and its brand of "pirate capitalism.")
Goldman CEO Lloyd Blankfein
I pointed out that the heart of Smith's accusations against Goldman's corporate culture is the violation of customer trust, of putting profit ahead of customer interest. But even worse, I noted, is a bigger cloud hanging over Goldman, the violation of public trust. It's now clear that Goldman played a key role in the financial crisis that precipitated the global Great Recession, especially in regard to the clever packaging of derivatives built around shaky subprime mortgage disguised as AAA-rated investments.
The American public is incredibly forgiving when the leaders of an organization express remorse and a sincere commitment to change behavior for the better. But contriteness is not the message coming out of Goldman.
Furthermore, in today's world, transparency is an essential element of corporate social responsibility. Goldman's corporate culture is built on impenetrable secrecy. And there's little reason to expect the curtain to be lifted any time soon.
It's only March, but put Goldman Sachs down as an early contender for Force for Good's 2012 PR Disaster of the Year.