How can a company repair a damaged reputation?
- 13 October 2016
- From the section Business
A company disaster on the scale of the Samsung Galaxy Note 7 crisis is like rolling thunder - it doesn't just end with a plummeting share price, a quarterly profits warning, and a product recall.
Instead, the shockwaves resulting from the Note 7 handsets catching fire are likely to be felt for years, and cause incalculable damage to the South Korean firm's reputation.
For marketing experts what is at risk for Samsung is its brand equity - intangibles such as customer loyalty, prestige and positive brand recognition.
For large corporations this equity is the company's most valuable asset, and clawing back a damaged corporate reputation can be a long, painful and expensive business.
Just ask German carmaker VW, which is still trying to restore its good name following last year's emissions scandal, when it was revealed to have used software to lower how much pollution its diesel engines released under test conditions.
Or spare a thought for Whirlpool, which is having to modify five million faulty tumble dryers that are at risk of catching fire.
And then there is Merlin Attractions, the owner of UK theme park Alton Towers, which last month was hit with a £5m fine after a roller-coaster crash that seriously injured four people, including two teenage girls who needed leg amputations.
But if a company does need to repair a damaged reputation, what is the best way for it to go about it?
'Do the right thing'
Tim Ward, chief executive of the Quoted Companies Alliance, the trade body that represents the UK's small and medium-sized stock market listed businesses, says that if a crisis occurs firms should go to their public relations (PR) departments before they call their lawyers.
"It's about being out there, being on the front foot, and having a clear plan about what the eventualities might be," he says. "It's all about communicating."
Mr Ward adds that this is a view shared by his members, a majority of whose bosses said in a survey that in the event of a disaster their first port of call would indeed be their PR team and not their legal department.
He says that the textbook case of dealing with a corporate crisis remains Johnson & Johnson's 1982 recall of its best-selling Tylenol painkiller after seven people died in the Chicago area from cyanide-laced capsules.
At a time when companies rarely recalled products, Johnson & Johnson put the consumer first and immediately withdrew 31 million bottles of Tylenol following the malicious attack by a still unknown person.
A year later, the firm's share price had almost recovered its dramatic losses following the sabotage and the company's chairman James Burke emerged a hero for his handling of the crisis.
Mr Ward says: "If you have integrity running through your business then that's the place from which you should act.
"It's a platitude, but you should do the right thing. As Warren Buffett said, it takes years to build up a reputation and it takes minutes to destroy it."
Mr Ward adds that total value of corporate reputation for all UK-listed companies could be worth as much as £1.7tn, or 28% of companies' collective market value.
Neil McLeod, senior consultant at crisis and reputation management company PHA Media, says that Samsung will need to take some pain to regain trust, especially since following an initial recall of its Note 7 it resumed sales, only for the fire problem to return forcing it to halt production all together.
"They were a tech company who didn't seem to know what the problem was," he says. "There's talk of a $17bn (£14bn) black hole in its accounts long-term. It can absorb that but it's really down to whether it spreads to the confidence in its other consumer products.
"I think Samsung needed to act faster in stemming the flow of damage caused to the wider company by persisting with the product.
"Clearly something went badly wrong within the company for a fix-it solution to actually be part of the problem. To get it wrong once is bad enough, to do it a second time is unbelievable."
Mr McLeod says from a PR perspective, it is important for companies to have a recognisable face when confronted with a crisis, something he hasn't yet seen at Samsung.
"I have seen statements from Samsung, but I have not seen the face of Samsung in all of this," he says. "I have not seen a reassuring CEO, and I don't know who's leading in all of this.
"If you look at any crisis scenario, you need a strong leader to come out and reassure the public in their delivery, in their presence and in their response to the crisis."
Dimitrios Tsivrikos, consumer and business psychologist at University College London, says that companies need to realise that recalling their product is just a first step.
"It's about being quick and being confident and taking responsibility," he says. "Companies should not be in denial. Those that have tried to hide these things in the past have paid a much higher price in terms of loss of consumer trust."
Mr Tsivrikos adds that once a company's brand loses its desirability it is "left with nothing".
At Merlin, the owner of Alton Towers, corporate affairs director James Crampton says that while the theme park had contingencies in place for just such an accident as happened last year, there was always the hope that they would never have to be employed.
"We never underestimated the severity of the incident, and our immediate response and subsequent actions were driven by a desire to do what we believed was the right thing by all those affected by the accident," he said.
Merlin's chief executive Nick Varney immediately attended the scene at Alton Towers and took the lead in all important communications.
Mr Crampton said admitting liability was an important part of the process, and the company took full responsibility on the day of the accident. He added that Merlin chose not to have a long consultation with lawyers and other advisers.
"We didn't try to hide behind lawyers," he says.