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-- Jon Harmon

BP keeps paying through the nose, but will the public stop holding its nose at BP?

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.

—Jon Harmon

 

Crisis watch: What American Airlines can learn from the NFL after the ‘worst call ever’

It keeps getting worse for American Airlines.

Already operating in bankruptcy, embroiled in a rancorous strike with its pilots, and fighting to stave off a take-over bid by US Air, American Airlines has had a week from hell.

First was a scathingly hilarious op-ed in the New York Times, A Trans-Atlantic Trip Turns Kafkaesque, which began:

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 (!).

According to the Associated Press, an American spokesperson… 

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:

1. Put the seat debacle behind you by inspecting and fixing every plane that could possibly be affected.
   .
2. Commit to clear and informed statements from your spokespeople, and quick action to correct misinformation.
   .
3. Settle your dispute with your most valuable employees. Do you really expect people to fly on your airline when your pilots are on strike?
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4. 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.

 - Jon Harmon

 

If even Joe Pa couldn't resist pressure to cover up an ugly scandal, are we sure we would have done better?

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.

- Jon Harmon

 

Facebook needs to step up its transparency

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.

- Jon Harmon

How can Facebook and JP Morgan win back your trust?

It wasn't supposed to happen this way.

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!

-Jon Harmon

Goldman won't regain public trust with Wall of Secrecy

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.

- Jon Harmon

When should you ignore the lawyers and apologize?

When is an apology helpful? When might an apology prove damaging?

A PR pro who is aiming to repair damage to trust and reputation will likely give you different answers to these questions than a lawyer aiming to limit liability. In many, if not most cases, reputation trumps liability. It’s better to sincerely apologize and attempt to move forward in restoring trust in your organization than to stubbornly remain silent. Losing in the court of public opinion can prove more damaging than losing in a court of law. And refusing to apologize may even prove harmful in the courtroom, perhaps leading an unsympathetic judge or jury to pile on punitive damages to what they see as an unrepentant offender.

Keeping this in mind, I offer the following two-question test to help you decide when an apology is in order, courtesy of Eric Zorn in today’s Chicago Tribune. (Zorn brings up the subject because of criticism Republican presidential candidates have directed at President Obama following his apology to the people of Afghanistan for the inadvertent burning of some copies of the Koran. Regardless of your own political views, Zorn’s simple test is helpful to the corporate communicator deciding whether to push back against the lawyers and recommend a public apology be extended.)

1. Did you (or those who represent you or answer to you) do or say something that caused discomfort, or worse, to others?
2. Would you undo this act if you could?

A “yes” to both of these questions indicates an apology is almost surely in order. Note that the harmful act need not have been deliberate; and if it was indeed unintentional, you clearly should mention that fact in your apology.

Note also that your social responsibility, if not your legal accountability, often extends beyond your own company and its employees—your dealers and even your suppliers may be considered part of your extended organization in the eyes of the public. A socially responsible company holds its dealers and suppliers to the same ethical standards it follows itself.

Finally, Zorn reminds his readers not to offer one of those mealy-mouthed non-apologies that includes caveats like “… if anyone was offended” or is written in a non-accountable passive voice: “mistakes were made.”

And finally I offer these Force for Good posts from the past on the still-pertinent issue of the apology:
When is an emotional apology just too much?

When is an apology a better response than trying to argue the merits of your behavior?

How long do you have to be sorry?

-Jon Harmon

Silence worsened sordid Penn State scandal--2011 PR Disaster of the Year

The real tragedy of the scandal at Penn State is that so many of Jerry Sandusky's alleged acts of predatory sexual abuse over the years could have been prevented if university officials had not tried to keep it quiet. Hoping to avoid an ugly incident, their silence led to arguably the worst scandal in American sports history ... and made for an easy choice for the Force for Good's 2011 PR Disaster of the Year.

Time and again, the lasting impact of a crisis is made worse by those first on the scene hoping to sweep it under the rug. How many times have you you heard, "The coverup was worse than the crime?"

Bold prediction: this won't be the last time a scandal is made far worse by embarrassed officials trying to make it all go away. Don't let it happen at your company. Work with senior leadership to develop a rigorous crisis management plan built around smart, proactive crisis communications to all stakeholders.

Click here for five years of truly memorable recipients of FFG's PR Disaster of the Year.

- Jon Harmon

GM learns from Toyota's mistakes with sure-footed crisis response to Volt fires

GM moved quickly to diffuse a potentially devastating crisis by continuing to learn from Toyota--in this case, avoiding Toyota's mistakes at the beginning of its own product crisis last year.

Media pounced (as they inevitably do) on GM soon after the National Highway Traffic Safety Administration launched an investigation into the Chevy Volt, an advanced plug-in hybrid electric car. A Volt had caught fire three weeks after it had been crash tested, touching off a crisis with far-ranging consequences: to GM (while not expected to make a positive contribution to GM earnings for many years, the Volt is the most visible symbol of the potential of the new GM, reborn after the bankruptcy of the old one), for the Obama Administration (which rightly has taken credit for saving thousands of American jobs with its rescue of GM), and for the nascent electric car industry (which are almost universally powered by lithium ion batteries similar to the ones used in the volt).

Remember that reports of flaming laptop computers originating from over-heating lithium ion batteries forced Dell in 2006 to initiate the largest recall in the history of personal computers.

The most important action for GM was to commit to do the right thing, not just set out to prove that the Volt was a safe vehicle, I told Keith Naughton of Bloomberg news as the crisis unfolded:

"They’ve got to demonstrate that they’re putting their customers’ safety first,” said Jon Harmon, a former spokesman for Ford Motor Co. and author of “Feeding Frenzy,” a book about the Ford-Firestone crisis of the early 2000s. “The focus needs to be on getting to the bottom of this, not trying to prove that they’re right.”

To GM's credit, the company reacted in mostly the right ways--cooperating immediately with NHTSA investigators to understand the cause of the fires while working to reassure the public. The fires had occurred after the crash-tested Volts had been parked without fully discharging the batteries, GM said--and the company would not only get the word out to its dealers and other auto service centers on the necessity of discharging the batteries after a collision, but they would develop an onboard system to slowly and safely discharge the batteries after a crash. And they offered loaners of good-old fashioned petrol-burning GM cars to Volt owners who didn't want to keep their cars while the company was sorting out the problem and the fix.

GM's only misstep was when GM CEO Dan Akerson said the company would buy back Volts from concerned customers, comments the company's PR people quickly clarified (the loaner program had been launched to quell customer concerns and the company has every intent to quickly understand and remedy the problem which would take away the need for any buy-back program).

Toyota in contrast had stone-walled investigators and the media when reports began to surface of complaints of unintended acceleration in a number of Toyota and Lexus models. After much criticism put a significant dent in its sterling reputation for quality and customer satisfaction, Toyota reversed course and began handling the crisis with laudable care and attention. Ultimately, the company was vindicated in its insistence that no computer or electronic malfunction was occurring. But that did not excuse its initial behavior in brushing off reports of its cars speeding up on their own, and undoubtedly that first impression left lasting scars on Toyota's reputation.

GM's adroit handling of the Volt crisis has rightly earned high marks and the contrast with Toyota's bumbling crisis response duly noted (for example, in the Los Angles Times).

- Jon Harmon