Monthly Archives: November 2015

«Oops, my business partner is a fraud…»: Issues and crises caused by business partners

23 Monday Nov 2015

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fraud1

A month ago, a London Stock Exchange listed software company was in disarray as both the CEO and the CFO resigned after disclosing details of financial falsification and misrepresentation to the board only days after denying any wrongdoing. The company said in a statement to the market that the board of directors became aware of a highly critical research report put out by a New York-based hedge fund, which suggested that the company’s revenue was based on fictitious sales invoices generated by shell companies that it created and controlled.

The tech company mentions in its website more than 30 distributors, resellers and specialized partners all over the world. All these partners found themselves connected to a company that is allegedly accused of fraud and wrongdoing. The reputation damage for the tech company is so severe that might be irreversible however this damage might also have an effect on its partners according to the principle of connected vessels.

The damage of the partners’ reputation depends on their business exposure to the organization which is in crisis. If a partnership with this tech company represents only a small part of activity and a fraction of revenues then a few basic communications steps might diminish the impact for the partner’s reputation. If the exposure is graver, then the reputation risk becomes bigger.

The level of exposure to a partnership defines the actions in terms of risk and crisis management. The Madoff investment scandal is a good case study because the 162-page list of clients/investors/partners shows a broad variety of organizations and individuals who not only lost their money but them also had a huge blow on their credibility and reputation for lack of judgement, especially the banks and the hedge funds. A very famous Spanish bank, with distinctions as the World’s Best Bank by Euromoney, and Bank of The Year from the Banker magazine, faced a huge embarrassment being one of the biggest investors in the hedge funds run by Bernard Madoff.

Apart from the legal actions of the wealthy clients which might cost billions of dollars to the banks, some of these banks damaged their credibility (the most important asset for a bank) and reputation.

Another recent example is the case of FIFA and the reactions of its big sponsors which examine the possibility to bring their association with the governing body to an end if it failed to commit to an independent reform process.

Every case is different however the following general rules might be helpful in order to deal with issues and crises caused by business partners:

  • Be prepared to deal with issues or crises caused by business partners
  • Require all the facts from your business partner and prepare your response
  • Do never deny relation with a business partner
  • Do not take the blame on behalf of your partner
  • Do not be apologetic but show sympathy
  • Be open and transparent
  • If your clients or customers are affected by the wrongdoing of your business partner, do the extra mile and cover their loss

The opinions expressed in this article are those of the author, and they do not reflect in any way those of his various affiliations.

The domino effect in issues management and crisis communications

09 Monday Nov 2015

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Domino-Effect

Most of the times, the majority of organizations prepare a crisis management plan covering possible risks and threats that might affect their reputation or their business continuity. They focus on internal and external factors related to the operations of the organization. In my opinion there are four general categories of factors that might cause a crisis:

  • The macro-environment including political, economic, social, technological, environmental, intercultural, environmental, ethical, educational, physical, religious, regulatory, and security factors (see relevant post)
  • The sector of the organization
  • External specific factors related to the organization such as partners, local community and so on
  • The operations of the organization and the internal processes

In this post, we will focus on the role of a sector’s reputation and its effect on the reputation of the organization. Even if an organization makes what’s necessary to protect and promote its reputation, the perception of the public about the activity of the whole sector might ruin more or less the reputation of all the involved parties.

The negative reputation of a sector is the result of a common practice of the involved parties or the practice of the leading powers of the sector that the public opinion has denounced. The first case is rare because most of the times sectors with general and common bad practices are finally regulated or the sector as a whole decides to make a big change.

On the other hand, the activity of one organization might have a huge blow on the reputation of other organizations of the same sector. Two examples that come to mind are the oil & gas industry and financial & banking sector. The Exxon Valdez and BP oil spills have tarnished the reputation of the whole sector. The impact of bankruptcy filing by Lehman brothers had an immense effect in the market and initiated a domino effect that hit all the global finance firms especially the ones from the US. The impact was not only financial but reputational as well. Apart from the real issue that had to do with the exposure to the mortgage market, the finance firms lost their credibility and the trust of investors and the general public.

The domino effect along the lines of a sector might prove even graver for the reputation of an organization. There are issues that might evolve into a crisis if we do not realize that the organizations operate according to the principle of connected vessels.

You may find below five tips how to deal with imported issues and crises from other organizations of the same sector:

  • Examine the mistakes of the competition and be prepared to deal with them as if they are yours
  • Differentiate yourself from the rest of the sector in terms commercial operations and communication
  • Find good benchmarks and best practices from other sectors
  • Be open and transparent to society
  • Invest in Corporate Social Responsibility programs that contribute to society

The opinions expressed in this article are those of the author, and they do not reflect in any way those of his various affiliations.