Tag Archives: lessons learned

When “Sorry” is not the hardest word for a CEO

27 Friday May 2016

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When Elton John wrote the song “Sorry seems to be the hardest word” probably he didn’t have in mind a CEO trying to find the right words to apologize. However, Elton John’s song describes the agony and the psychological situation that a CEO finds himself/herself during a crisis.  During 2015 several CEO’s were obliged to express an apology to their customers and stakeholders as a result of failures and misconduct of their companies.

The intention of this article is not to criticize whatsoever the practice of the organizations but to demonstrate the importance and the value of a sincere apology.

You may find below some of these apologies that CEO’s expressed in 2015:

In September 2015, the former CEO of Volkswagen AG, Martin Winterkorn, apologized for the automaker having installed software in its diesel cars to allow the vehicles to pass emissions tests by decreasing emissions when the vehicle detected it was undergoing testing but otherwise pollute at amounts well beyond legally allowed limits. Winterkorn resigned from Volkswagen on 23 September 2015, several days after an emissions cheating scandal was revealedIt was definitely a difficult year for the German automaker.

NVIDIA’s CEO apologized for the GTX 970 memory controversy however he expressed his annoyance saying that “Instead of being excited that we invented a way to increase the memory of [the card], some were disappointed that we didn’t better describe the segmented nature of the architecture for that last 1GB of memory.”

The Keurig Green Mountain CEO apologized for the company’s decision to use DRM in new coffee maker to lock out refill market but his apology was not received by all media  in a positive way.

Peter Fankhauser, Thomas Cook CEO, said about the death of  two children at the Louis Corcyra Beach Hotel, in Corfu, in October 2006: “It took us nine years to correct the mistakes of the past and to do what everyone would have expected of us; treat the family with the respect and empathy they deserve.”

Lululemon’s founder and former CEO Chip Wilson took responsibility for the fat-shaming comments he made in a 2013 television interview.

The CEO of Takata Corp., the Japanese airbag maker at the centre of a defect scandal that has resulted in recalls of more than 33.8 million vehicles apologized to “everyone” over the scandal. Shigehisa Takada apologized to shareholders at their annual meeting. He then faced media questions, bowing in apology both before and after the news conference. “We apologize deeply for the great amount of concern and inconvenience we have caused to everyone,” he said.

The CEOs of Whole Foods apologized for overcharging customers and offering free food to people in return. Investigators found Whole Foods locations in New York City “routinely overstated” the weight of pre-packaged contents and overcharged customers, according to an announcement by the city’s Department of Consumer Affairs. “Straight up, we made some mistakes. We want to own that and tell you what we’re doing about it,” Walter Robb, co-CEO of Whole Foods Market said in a video that Whole Foods published.

The top executive of the Napa Valley Wine Train contacted a predominately African-American women’s book club and apologized for the removal of 11 of its members from one of its trains after several passengers complained the group’s loudness was negatively impacting their experience. “The Napa Valley Wine Train was 100 percent wrong in its handling of this issue,” said wine train chief executive officer Anthony “Tony” Giaccio. “We accept full responsibility for our failures and for the chain of events that led to this regrettable treatment of our guests.”

The merger between United and Continental airlines appears to be hitting the seven-year itch a few years early, as new United CEO Oscar Munoz began his tenure acknowledging the mega-merger may not have been such a good idea after all. United began its regrets tour on the day of the official fifth anniversary of the creation of United Continental Holdings – by taking out ads in eight newspapers around the country. The ads feature Munoz apologizing for failing to meet customer expectations and vowing to improve. “This integration has been rocky. Period,” he tells the WSJ. “We just have to do that public mea culpa… The experience of our customers has not been what we want it to be.”

The chief executive of Reddit has apologized to its community of users for actions that led to an embarrassing revolt which took down some of the social bookmarking site’s largest communities, particularly video gaming forums that drive a good deal of the site’s traffic. “We screwed up,” Ellen Pao said today. “Not just on July 2 but also over the past several years.”

Konami apologized to fans for causing anxiety about its games and how they do business especially in the consoles segment. The rumours of the departure of the legendary Creative Director Hideo Kojima, the cancellation of the anticipated Silent Hills and the appointment of a new, mobile-centric CEO, provoked speculations and anxiety among Konami’s stakeholders.

HSBC CEO Stuart Gulliver has issued a statement offering his “sincerest apologies” after the bank was accused of helping clients conceal their identities to avoid paying taxes on deposits. The apology was printed in British newspaper adverts. The bank’s Swiss private banking arm has been accused of knowingly aiding thousands of individuals evade taxes and break other financial laws. “We have absolutely no appetite to do business with clients who are evading their taxes or who fail to meet our financial crime compliance standards,” Gulliver said.

Twitter CEO Jack Dorsey apologized to developers for past years practice. In reference to the years when Twitter first courted developers, only to then cut off certain features as it grew and tried to find its own business and platform feet, Dorsey said: “Our relationship with developers got confusing, unpredictable. We want to come to you today and apologize for the confusion.”

The CEO of Office Depot has apologized for a store’s refusal to print a pro-life flier. The office supply store received complaints of religious discrimination from customers after its rejection of the flier. “We sincerely apologize to Ms. Goldstein for her experience and our initial reaction was not at all related to her religious beliefs. We invite her to return to Office Depot if she still wishes to print the flier,” Roland Smith, chairman and chief executive of Office Depot, said in a statement.

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

Effect of cognitive biases on decision making and crisis management

05 Saturday Dec 2015

Posted by in Cases, Crisis, Αταξινόμητα

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One of the basic integral elements of crisis is surprise. It is that undefined factor that determines the development of an issue into a severe crisis. The prediction of a forthcoming destruction is easy as long as we accept that eventually there will be an internally or externally driven incident that will or will not have an impact on an organization. This deterministic approach should be challenged. Eventually we’ll all die one day but that doesn’t mean we will stop believing to the value of life.

So, how could we challenge the reality of an underlying undetermined factor? Someone might say we plan carefully and get ready for any eventuality. This is one of the basics in crisis management but we all know that organizations have failed to deal with incidents despite their well-prepared plans. One of the reasons for such failure is the incapability to identify warning signals of an imminent crisis. Most of the times we identify these signals after the crisis has occurred along the lines of a lessons learned process and then we ask ourselves «why didn’t we manage to see these signals before the incident?».

People tend to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment. Put simply, people miss the whole picture of an issue because they do not take into account alternative explanations for the evidence they see. These are the cognitive biases which affect belief formation, business and economic decisions, and human behavior in general.

To give you example, one of the cognitive biases that applies in the finance market is the ostrich effect. In behavioral economics, the ostrich effect is the avoidance of apparently risky financial situations by pretending they do not exist and we will refer to the Madoff scandal to show how the biases affect the decision making process.

The Madoff case is a good example that proves the ostrich effect. Harry Markopolos, an  American former securities industry executive, discovered evidence suggesting that Bernard Madoff’s wealth management business was actually a massive Ponzi scheme. In 2000, 2001, and 2005, Markopolos alerted the U.S. Securities and Exchange Commission (SEC) of the fraud, supplying supporting documents, but each time, the SEC ignored him or only gave his evidence a cursory investigation. Madoff was finally uncovered as a fraud in December 2008.

Markopolos proved using math that Madoff could not really produce 1% to 2% returns every month, in positive territory 96% of the time, producing a 45-degree curve of profit – with no volatility.

Even if the SEC executives did not listen to Markopolos, I wonder how really smart people in the finance sector failed to see Madoff’s Ponzi scheme. The warning signals were all around them but they couldn’t accept that one of the most respectable establishments in Wall Street could be a fraud.  Markopolos’s book on the Madoff Ponzi scheme titled ‘No One Would Listen: A True Financial Thriller’ is a great read and I totally recommend it.

The cognitive biases are an integral part of human behavior and as such they affect decision making in crisis management however it’s up to us whether these biases will play a bigger or smaller role in initially identifying the risks and then dealing with the issues or crisis.

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

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

23 Monday Nov 2015

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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.

Do you really believe you can predict all crises?

15 Thursday Oct 2015

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A few days ago I read an interview of a well-known expert on crisis communications, who said that «All crises are predictable. If they are predictable, then they can be planned for» and I am afraid I have to disagree. To be honest, I tend to agree with the great Danish physicist and Nobel laureate,  Niels Bohr, who said “Prediction is very difficult, especially if it’s about the future”.

The role of all the crisis management professionals and communications experts includes the horizon scanning identifying potential threats and issues which should be analyzed and then integrated into a crisis management plan. A thorough horizon scanning will definitely bring on the surface issues that might harm the reputation and endanger the business continuity of an organization. If we could find out all issues then we could establish all the necessary processes and plans to deal with them. But, it is not so simple, is it? If, in a perfect world, we could know all potential threats then there would be no crises, which means in this case that a crisis is predictable…!

For the sake of discussion, let’s say that our scanning has covered all the potential threats and we now work on a painstaking crisis management plan. I strongly believe that our plan would be complete and very detailed. If that’s the case, we have done what’s necessary in order to deal with any issue. But this is not really what happens in the real world.

Organizations with extensive experience in crisis management, detailed environment scanning that covers all aspects of operations and  very experienced staff have been caught off guard by situations that went out of hand. The BP’s 2009 Sustainability Report says: “Our goal of ‘no accidents, no harm to people and no damage to the environment’ is fundamental to BP’s activities. We work to achieve this through consistent management processes, ongoing training programmes, rigorous risk management and a culture of continuous improvement.” Does anyone believe that BP had no plan to deal with a disaster at an offshore drilling unit like the Deepwater Horizon in 2010?

There are two elements that make a crisis unpredictable. The first one is the element of surprise and the second one is the indeterminable factor. We all have read numerous reports about crises that came as a surprise to top executives, communication professionals, investors, and academics alike although they were expected and they could be avoided. Several organizations are caught by surprise because either they do not really believe that a crisis might really occur or they suffer from a cry-wolf syndrome and they make a wrong assessment at the crucial moment.

The indeterminable factor could be anything… Any unexpected change at the political, environmental, economic, social level or just a human mistake could undermine any crisis management plan.

A crisis is not always inevitable or predictable. A crisis is a situation that has to find us prepared and ready to deal with  issues that go beyond any plan or even our imagination.

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

Back to basics in crisis management

14 Monday Sep 2015

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One of the comments, that my last post regarding the crisis management during the Hurricane Katrina and the forest fires in Greece generated, was the following: «quite interesting post but nothing new or deep». I couldn’t agree more! The conclusions and the lessons learned that were mentioned are not groundbreaking at all. That was intentional. I strongly believe that when we examine cases of crisis management we must always go back to basics.

How many times haven’t we seen violation of basic rules of crisis communications by respectable companies with global footprint and long tradition in their sector?

Half way to success in crisis management is preparedness. Every time we see an organization to be taken by surprise we realize that preparedness is not self-evident. Preparedness requires commitment, planning, leadership, a qualified communications team and so on.  Crisis management always starts before a crisis occurs and this is the basis in order to have successful results.

One common mistake is the delayed response to a crisis. If we don’t express our position on time, someone else will tell our story for us. We all know the importance of a quick response to media queries but sometimes we forget that the citizen journalism and social networks move faster than traditional media.

An organization builds its credibility on transparency. Denying responsibility when an organization has evidently made a mistake will undermine the credibility and eventually damage the reputation. When the public finds out about the trickeries, the consequences in the era of social media might be irreversible.

Finally, when we deal with crisis management, the biggest risk is «commoditization». If we sit back and rest on our laurels we will definitely fail. Crisis management is like the myth of Sisyphus, we should continue rolling the stone from the bottom of the mountain to the top, despite all events to the contrary.

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

Crisis communications under “rain and fire” – Part II (or Why crisis communications in natural disasters should interest us…)

13 Sunday Sep 2015

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Following the post «Crisis communications under “rain and fire” (Part I) » I was asked by several people why a communications or PR professional should be interested in crisis management of natural disasters such as the Hurricane Katrina and the fires in Greece in 2006. My response was that the main characteristics of the two cases apply to crises that might affect a company.  Let’s see these characteristics:

  • There were casualties
  • There was a strong reaction of public opinion
  • There was lack of preparedness
  • There was a lack of coordination at both operational and communication level

I remind you that the Bhopal disaster, the gas leak incident in India, considered the world’s worst industrial disaster, had a death toll of thousands of people and it was not the result of a natural phenomenon.

After this small introduction let’s see some lessons learned from the «Crisis» and «Post-Crisis» phases of the crisis management in Hurricane Katrina and the fires in Greece.

«Crisis» phase

The crisis management in both cases showed the internal malfunction of administration in both countries. Internal conflicts and personal agendas prevailed at the expense of public interest. If the crisis management team is unable to have smooth internal communication, it is almost impossible to lead to coordinated actions, both at operational and communications level. The failure to achieve internal cooperation reflects negatively on the external environment.

Conclusion: The crisis management team must be functional with good cooperation and communication among the members of the team.

During the research of the two cases I realized the importance of the leadership, the credibility of political discourse and the openness towards the public. The leadership of the American president during the crisis had the following phases: absence, optimism, lack of coordination and finally shift of responsibility. The reassurance by President Bush during the first hours of Hurricane Katrina proved a huge communication mistake that followed the American government for some time. On the other hand, the presence of the Greek Prime Minister with evident sorrow in the area of the fires expressed the public sentiment reducing extreme reactions. However, the allegations of Greek Ministers that the fires were part of an organized plan to destabilize the country was a PR stunt which crashed along the way setting credibility issues got the Greek government. As we saw in a relevant quantitative research, part of the Greek public opinion believed these allegations even thought they were never justified. Passing responsibility (blame game) is a common practice but it can be extremely negative for the credibility of the crisis management team.

Conclusion: Credibility with respect to communications and the main messages of the crisis management team is crucial.

“Post- crisis” phase

In the post-crisis phase, the efforts to defuse tension are followed by a learning process. The evaluation of all the actions during the crisis is crucial in order to become better. The improvement of the crisis management process requires the evaluation of correct and incorrect actions of the organization. The lessons of this kind are part of the organizational function of the organization and they are a compass for the future. In the weeks and months following Hurricane Katrina, a series of institutions investigated the reasons of the failure of the US administration to handle the crisis issuing reports that became publicly available. In Greece, there have been no official inquiries to identify errors during the crisis.

Conclusion:  Every crisis should always be a lesson learned.

This post is only a very small part of my thesis “Crisis communication by Public Administration and government organizations” which goes back in time.

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