White hats and black hats. In its simplest form that is the way the reputation game is played. I attributed this in Now Is Too Late to the move of Walter Cronkite style journalism into prime-time television with the launch of “60 Minutes.” Having to compete with drama on TV, they adopted the simplest and most satisfying form of drama: melodrama. And the melodrama is characterized by overly simplified portrayals of white hats (good guys) and black hats (bad guys) fighting over the maiden in distress (any form of public good).
In crisis communication and reputation management, you normally have the black hat on. Someone is accusing you of something. The accusers, as portrayed in media reports, almost universally where the white hat with little attention paid to their motives, interests, or even credibility of their accusations. Why? Because it fits the formula. Nuance doesn’t play well in melodrama or “investigative reports.”
But a major strategic question in these issues is when and how do you get the black hat off you? One response is to do your best to change hats. Knowing that the media will only play this white hat black hat game, unless the hat colors switch, you are going to be stuck.
Being very involved in food related issues, this is a particularly challenging question. I’ve watched the GMO debate with great interest (and frankly, great frustration as long time readers here know). The very voices who rail at the ignorance of climate change deniers for their stubborn resistance to scientific consensus, completely change position when it comes to GMO. The scientific consensus is very clear: GMOs are safe, in fact, likely help make food safer. But, despite the incredible amount of scientific study, the anti-GMO activists cling to their attacks. Even Michael Pollan, the respected food writer, says in effect, well, I’m not really saying that GMOs are bad, but they should be labeled. As I argued before, that for 57% of the population would be putting a poison label on these foods. Do Michael and company really think putting the skull and crossbones symbol on food that is known to be completely safe is in the public interest?
While it seems that the pendulum is swinging and that in general the public is coming to understand that the activists are out to lunch on this, those defending continue to be on the defensive. They continue to wear the black hat, which may only be turning slightly gray. The only way to really move the dial on this issue is to switch hats.
And that is what William Saletan has done in this very important article in Slate. In this meticulously researched article, he demonstrates the dishonesty and hypocrisy of the anti-GMO activists. As the subhead states: GMO food is safe. The rhetoric is dangerous.
As always, these debates involve the public good. If you are going to put a black hat on someone, you have to demonstrate that what they are doing is harmful to innocent people or the environment. Clearly the activists have been harmful as he makes very clear.
Moving the hats isn’t an easy thing, particularly when the accusers have had the benefit of media presenting the story in their typical melodrama fashion for so long. And personally it can be dangerous. The “true believers” in the anti-GMO camp will likely turn on Slate and Saletan with a vengeance. Until many other voices like Saletan’s join in the discussion, calling out the Chipotles and Whole Foods of the world for their participation in something they see as harmful, there will be continuing confusion about who are the good guys and who the bad guys here.
It is interesting to see how the major media are dealing with the shift. Case in point: New York Times published a guest editorial from Mark Lynas in April. Lynas is the well-known British anti-GMO activist turned GMO promoter. But we do not see a NYT article or other mainstream outlets doing the melodrama treatment on Greenpeace or the other activist groups. When we do, we will know that the melodrama game has turned against those anti-science true believers.
Bloggers like me often comment on how organizations are dealing with crises. I do often with a sense of dread knowing that I really don’t know what is going on inside and may not be aware of critical issues that are affecting the response.
That danger was highlighted to me to the extreme when I read today’s comments by Deborah Watson on PR Daily’s blog. My biggest concern is by getting the facts so wrong, the real lessons to be learned from BP’s reputation problems are missed, and therefore those interested will likely take away the wrong things.
I’ll comment on each of the five points she raises as BP’s biggest blunders. (Her comments are italicized).
1. Failure to prepare.
One of the comments made many times by analysts was how little the company seemed to be geared up to handle a crisis of this nature.
Given the type of industry, one would have thought that even the simplest analysis of strengths, weaknesses, opportunities and threats would have pointed to this such disaster as a possible scenario, around which the comms team should have always been prepared to respond.
However big your company, knowing your areas of crisis susceptibility is vital.
Nothing could be further from the truth. BP’s preparations were extensive, in part because they are mandatory. Under the Oil Pollution Act of 1990, all oil companies are required to conduct annual drills, called PREP drills, along with local, state and federal agencies. Every three years they are required to conduct a worst case scenario drill, and every so often participate in a national exercise called the SONS or Spill of National Significance. BP took preparations exceptionally seriously, including the crisis communication side. It is true, that the combination of factors that led to a uncontrolled release a mile beneath the gulf surface was not properly contemplated.
And here is the real lesson to be learned: Don’t just drill the last big event. Use your imagination, no holds barred, to envision scenarios beyond anything you think possible. This was certainly one of those. The problem was not lack of preparation, but lack of imagination. I suspect most companies have that problem as well.
2. Manipulation (or lack of true knowledge) of the facts.
In the first stages of the crisis, the company went to the press saying that the spill was only to the tune of around 1,000 barrels a day. It turned out the stat was five times the amount, but even then, company spokespeople downplayed the figure.
Knowing the facts and taking time to confirm them is imperative if you’re going to face the press to speak about your crisis. It ensures credibility from the outset.
This is one of the greatest false accusations against BP and simply demonstrates lack of understanding of how the Oil Pollution Act works and how the Incident Command System works. Immediately after an event like this occurs (initially the event was the explosion on the platform, it was not until the platform was flooded with water and collapsed did the major spill occur) the ICS kicks in. Local, state and federal officials work directly with the Responsible Party (owner of the oil) and operate in a structure called Unified Command. UC has authority over everything, including releasing information. While all are equal, the FOSC (federal on-scene coordinator) is more equal than the others and if not satisfied can “federalize” the response. Together they are responsible for the release of information about the amount being spilled. The truth is initially the spill volume was limited for reasons I just mentioned and it was ultimately the Coast Guard Incident Commander who bore final authority for the release of the information. When BP was asked about this later, they commented that the spill volume didn’t matter in terms of the response because they treated it from the beginning as if it was unlimited. That’s the fact. They sent out a global call for all boom they could get their hands on.
There are two real lessons to be learned here: 1) Be very cautious at the early stages about any characterization of the event because the media and others (such as commentators) will be quick to use any error here to undermine your credibility. A better example of underestimating and the high cost involved is the Cosco Busan spill. Here is was really underestimated with serious reputation consequences. 2) Correct the misreports. This story went out right away about BP underestimating the volume. One discussion I had with both government communicators and BP during the event was to be much more aggressive in pointing out and correcting wrong reports and conclusions. But that violates old PR rules and they were reluctant to do that. I am more convinced than ever, and this repeated “mistake” makes it clear, that fact checking is one of the most important responsibilities of a communicator.
3. Lack of compassion.
The comments of CEO Tony Hayward have certainly gone down in history. Lives had been lost in the crisis and the implications environmentally and economically were huge for many – but he wanted his “life back.”
This comment garnered disgust and annoyance from the press and the public. Choose your messaging and your spokesperson wisely.
This one is particularly irritating to me, probably because I knew a lot of the people involved. I know how they were hurting. I know the compassion and sorrow they felt for the loss of life and for the environmental damage. And I know how hard they tried to communicate that in an incredibly hostile media and political environment.
But, at the same time I used Tony Hayward’s quote and his subsequent loss of position often in presentations and writing to demonstrate the importance of always staying on message. But blaming this on an uncompassionate company and uncompassionate CEO is just plain wrong, and again misses some very important lessons.
1. A hostile public, media and political environment. The real PR disaster that BP faced was the fact that they spilled oil into the gulf in full view of the entire world for 90 days without being able to stop it. No lipstick will make that pig look good. Then you had an administration which, determined to avoid the Katrina blame placed on President Bush, took every opportunity to heap outrage on BP–often very dishonestly. Add to this the fact that few have much sympathy for Big Oil–huge lessons in that alone. So to me the real lesson was that BP was unwilling to be more aggressive and independent in their public communication until well into the event. When I questioned them during the event about this the answer was until the spill is contained we don’t feel we can say much. But that 90 days were devastating and while the 20 years under OPA 90 prior to the spill practiced cooperative communication with government officials, the hostile approach the administration took required a much more independent and aggressive communication response.
The second important lesson is to limit the exposure of your CEO and spokesperson. I have counseled many after this that the primary face of an event of this nature should be someone in the organization who is operationally expendable. That sounds terrible. But the reason is that sooner or later something may be said that the vicious media will hang on to to hang the spokesperson and company. Hayward’s problem is that he became a bit of a media rock star, making himself visible and available on almost a 24/7 basis. Clearly he did not want to make the mistake of Exxon’s CEO in not even showing up to the scene. But that 24/7 media access meant it was only a matter of time that he would provide an out of context sound bite that would kill him. It’s a dirty shame that the context of the interview is missed. He was trying to communicate how devastating the event was to him and the company. But that one sound bite: “I want my life back” was used (abused) to create an impression of lack of compassion. All the expressions of deep concern and compassion he had previously made were lost. The lesson: use an expendable spokesperson and limit exposure time to enable them to stay completely on message.
4. Deflection of blame.
BP made a big point of the fact that the rig was owned by Transocean, and in so doing, came across as trying to deflect responsibility.
Sure, mention other parties, but in so doing, provide a shared collaborative message around how you are all doing your best to resolve matters swiftly.
For BP, it came across as if the company was trying to buy wriggle room.
This one is also very irritating. As the provider of the web-based communication system that both BP and the Coast Guard used, we were contacted very soon after the event began. In those first confusing minutes and hours it was not known exactly what happened or who was responsible. The fact is that the rig belonged to Transocean. It is an important response question because under OPA 90 (Oil Pollution Act of 1990) the owner of the oil is the responsible party. But it was quite soon after the initial event that BP assumed the actual responsibility under the Act, and launched a response website along with the Coast Guard.
One of the big lessons to be learned is there is a big difference between legal responsibility and public responsibility. The truth is, as courts determined, the spill responsibility was shared by BP, Transocean and Halliburton who supplied the failed cement. That being said, BP always and over and over and over said in their public statements that they were assuming full responsibility for the response. What became a problem was when they were called to testify to Congress. Congressional testimony is quasi-judicial and therefore would play heavily in the legal case assigning damages. So in that testimony they were far more careful in accepting responsibility and of course this was jumped on by the media despite the repeated statements of accepting full responsibility for stopping the spill and cleaning up the mess.
The lesson in this is not the BP tried to avoid responsibility, but that the legal and communication team need to work together as much as possible (before an event if at all possible) to recognize and understand the challenges this issue of liability and responsibility pose. The biggest lesson is, as mentioned above, BP should have been far more aggressive, and righteously indignant, about the reports suggesting they were ducking responsibility. The message should have been: we don’t know and we won’t know for a long time who his legally responsible, but we do know and all our actions are demonstrating it, that we don’t care about that issue right now, as we are taking full and complete responsibility to deal with this disaster.
5. Being angry and unavailable.
Many felt that BP came across as annoyed with the press interference, and that leaders were much much less available in terms of updates and commentary than they might have been.
Keeping your audience in the loop, at regular intervals, helps to no end with credibility. It shows you are keeping communication going and that you have not forgotten your level of responsibility or the fact that so many are now relying on you for answers.
I really have no idea where Ms Watson is coming from on this one. Perhaps it was the huge issue made by the press that BP was keeping responders from talking to the media. The protocol in an ICS response with a Joint Information Center operating is to have media questions directed to the JIC. When some responders on the beach told reporters they were told not to talk to them, the press incorrectly reported that BP was hiding information. In reality, BP was not controlling media access and at that time it was the White House who was dictating media messages and policy. However, the issue became severe enough that Admiral Allen, the National Incident Commander, issued a Media Policy that stated everyone can talk to the media but were to keep their comments restricted to their particular area of responsibility. The real lesson is that following this event, this is exactly the kind of media access policy that should be adopted, not the outdated one that said refer everything to the spokesperson.
BP was part of the JIC for the first month a half. Then they were kicked out of the JIC by the White House and it became, as CNN called it, “talking points from the administration.” BP always made itself available, but did not aggressively and proactively defend itself believing, incorrectly I believe, that until the spill was contained, it was best they let the government speak for the response. By that time the reputation damage was done and BP suffered under a false impression of not being forthcoming.
Again, a major lesson, particularly for private companies operating in a JIC environment, is be prepared to go independent and be prepared for the political leaders involved to inoculate themselves by aiding the media in heaping blame and outrage. It is still far better, and it would have been better all around, if the government and BP could have remained in the JIC and communicated the message that they were in it together. No such luck here. But to blame political decisions about how to best form public opinion on BP is again to misunderstand the fundamental situation.
OK, my rant is over. I do not blame Ms. Watson snor do I wish to leave the impression that I think her analysis of the PR problems is wrong. What this points out to me that without knowledge of what is really happening, and making judgments based on media reports is almost certain to lead to misunderstandings. It would be better (and this is a lesson for me as an occasional commentator on others’ crises) is to say: based on how the media reported the story, it looks like this, and given these reports, this is how the company should have or should respond.
I’ve noticed a major strategy issue emerging in some recent crises I’ve been involved in. When is addressing issues and concerns in your statements providing too much information?
For example, eliminating the potential source of a food borne illness. Saying something like: “The illness is not linked to this source because of …” Or, “we have eliminated the possibility of the accident being caused by…”
The disagreement in strategy relates to the belief that it is best to say as little as possible. People may not have even considered that source or cause, or those observing might not have even know that that was food was served or that situation existing to possibly cause an accident, so why bring it to their attention? It is a very good point and I can see the danger of doing so.
However, my philosophy has long been to identify the potential questions and address them in your statements as much as you possibly can. This does two things: communicates openness and transparency. More important, it reduces the questions that have to be answered. If some media outlets (or stakeholders) ask a question about it and others don’t, the reports are going to come out mixed and likely inconsistent. That undermines trust.
Managing a large volume of inquiries is one of the biggest challenges in a major crisis and most plans that I’ve seen to not adequately prepare for it. Providing consistency of responses and insuring information discipline is another big problem. Both of these are addressed, in my thinking, by providing answers to potential questions in the published statements.
No doubt there are circumstances where raising an issue is going to cause considerably more harm than the benefit gained. But, in general I’ve seen there is an unwarranted reluctance to address touchy subjects even when it is clear the question will have to be addressed.
But, would love to hear your thoughts on this.
While I mostly talk to company, agency or organization leaders about crisis communication and reputation management, sometimes the reputation in question belongs to an individual. You don’t have to be a celebrity to have potential for reputation disaster. Individuals whose name is attached to the business or profession they are in, in other words where their name is also a brand, are particularly susceptible. Search engines and the long memory of the internet make the problem so much greater. Yesterday’s newspaper is already in the garbage and yesterday’s TV report is already in the ether along with all past reports, but on the Internet they are retained presumably for ever, and always accessible at the touch of a Google button.
A recent conversation reminded me of how the Internet has changed reputation management and how it therefore changes the response. The really big question when dealing with media coverage of bad news about a brand (personal, corporate or otherwise) is whether or not to respond, and if so, how far and wide to push the response. The basic rule is: don’t make it worse. You can make it worse by bringing the bad reports to the attention of others who might otherwise have missed the 11 pm news. Maybe it will all just go away. Or, not.
There are no hard and fast rules for making a decision on whether to respond or not, but the three basic communication strategies I’ve incorporated into the OnePage Crisis Communication Plan are useful in helping to make a good decision. The three strategies are Reactive, Semi-Proactive and Proactive.
Reactive involves creating a Holding Statement, Standby Statement or other such name. It is not intended for release, but to provide to reporters or others asking about the situation should media reports arise or social media interest trend upward. It provides your version of the events or story, including if appropriate an apology and explanation of what you are doing about fixing whatever went wrong.
Semi-Proactive is a minor or discreet public release of your story. If you have a website it can be placed in a quiet position, not hidden, but not blatantly visible. It could be included in a Facebook account, but not advisable as Facebook and certainly Twitter I would consider distribution tools, essentially push communications rather than pull communications. If you do use FB or Twitter for the semi-proactive I would have a very gentle headline leading to a more detailed document posted publicly elsewhere. The idea here is to post publicly so that no one can say you are hiding, but not in a way that calls attention to it. If reporters call and ask for your statement, you can say, I posted my comments publicly several hours/days/weeks ago. It shows openness and willingness to communicate but, if handled right, does not draw unneeded attention.
Proactive, as it suggests, is aggressively distributing your story or information. Sending via email. Broadcasting through your social media channels. Distributing releases. Dominant position on your website. YouTube video. Whatever. But again, there are nuances here. Decisions still have to be made about how far and wide to go. The general rule I try to follow is to closely monitor the track the story is taking in the media and social media and try to stay one step ahead. Underlying this whole strategy is the fundamental principle that if there is bad news, it should come from you, not someone else.
I love this video from Wendy’s. Thanks to the now almost ubiquitous GoPro, we take a ride with romaine lettuce from the farm to the Wendy’s table. It’s short, entertaining and doggone effective marketing.
I’m working more and more with food producers these days, who actually have a lot more in common with big oil than they can even begin to realize. Farmers and food producers of any size or scale (except for those part timers who decry the fact they can’t make much money raising organic produce on their five acre patch) are facing a widening gap between producer and consumer.
Consumers of course want the incredible green revolution benefits of exceptionally healthy and low cost food. But their skepticism about health and production methods is growing–fueled I believe by the alarmists who have much to gain fomenting unreasonable fear (including most media). The response to this is not to stick their heads in the sand but to realize that we live in a new age of transparency. That transparency extends to how our food is made and delivered to us.
That’s why I really liked what McDonald’s Canada did a few years ago when they got complaints about the difference between the photos of burgers vs burgers delivered over the counter. It’s why I really like this Wendy’s video.
Farmers, processors, distributors and retailers–take note. People are watching. The way you do things matters more than ever. And it will be seen. Either by you, or by some hidden camera that creates a viral video. If you don’t like that idea, show it yourself. And if you cringe thinking about what others might think when the see it, then rethink your processes while you have the time.
Friend, client and crisis communication manager for global oil company, Tom Mueller sent me this analysis which he shared with his colleagues:
Papa John’s Pizza learned a lesson recently in managing brand via social media after one of their staff delivered a pizza to Australian rapper/model Iggy Azalea on Grammy Awards evening.
When the delivery guy recognized Iggy and realized he had her mobile number, he then shared it with some friends and family, who immediately took to texting the star. She complained to Papa John’s via Twitter, only to have the company send her a joke in reply, saying “don’t bounce us” – a play on one of her song lyrics.
Iggy (@iggyazalea) has 4.2 million followers, many of whom retweeted her further comments critical of the data breach and the company’s apparent lack of security around its customers’ personal information, including credit card data. Papa John’s eventually got smart and realized the brand risk they had incurred, probably after receiving thousands of tweets raising concerns about their company.
Iggy, for her part, was very disciplined in her criticism and did not get emotional about how the firm had treated the breach, nor about the tone of its response to her personally. She wanted answers about how the company was protecting customer data; essentially she became an advocate for Papa John’s customers around the world. Some fans urged her to sue or to demand free pizza for life. She responded that she doesn’t mind paying for pizza. Her last tweet on the issue said she wasn’t interested in a lawsuit, just wanted responsible answers from the company – and was in touch with them now.
While there is a place for humor in communications, that approach must be carefully managed with the customer’s concerns foremost in those considerations. Papa John’s missed the mark on this one.
[Great analysis and advice, couldn’t agree more Tom. I think one of the challenges here is that many companies understandably use younger staff members, digital natives, as front line of their social media team. This makes sense on the one hand. On the other, they may lack some of the judgment that comes with a few gray hairs. I suspect this happened here as one with plenty of gray hairs and definitely not a digital native, I wouldn’t have caught the “bounce” joke.]
There are some outstanding examples of responsible journalism, and reading Francis Fukuyama’s book on political decay reminds me how important quality journalism is to provide accountability in a democratic (or any) society. But two recent examples where I was somewhat involved leave me disheartened–to say nothing of the tragedy of one of my favorite journalists, Brian Williams.
In one example a large local TV station investigative team did an “expose” of a large housing development project. On their teasers and headline for the story, on air and in the online version, they claimed the development was a “cancer cluster.” Now that will get attention. It’s a big claim, and surely needs some substantiation to support it. There was none. They used a community gadfly, well known for her animosity to the local officials because they kicked her out of an office for non-payment of rent, and she uses her blog to attack community officials for any reason. In this case, she accused them of not protecting the public against this development. The only other substantiation offered was an interview with one neighbor (an elderly woman) who said it seemed there was a lot of serious illness in their neighborhood. That, this team considered, was sufficient evidence to tell an audience reaching into the millions that this development was a cancer cluster.
The other involved a screaming headline that was sure to draw attention for its claim about conspiracy. Yet, when you read the story or saw the content of the broadcast report, there was absolutely nothing in their story the justified the accusation. And of course, if someone were to complain, they would point to their story and said, well, we never said those things. And, someone else wrote the headline. Bull.
I’ve long said the media trades on fear, uncertainty, doubt and outrage–FUDO. This is what is used to attract eyes and therefore the price of advertising. Admittedly, these are two extreme examples but I could provide others, and anyone who has been in this business for a while could likely provide many more.
Where will this end? Just how low do viewer trust figures have to go before editors, producers, publishers and reporters understand they are killing the goose? I suspect it will take considerably more. And while I would hate to see it, probably some legislative action to reduce the bar set against defamation and libel.
The one major case, involving “pink slime” has beef producer BPI suing ABC News for $1.2 billion (yes, billion). Despite numerous attempts by ABC to have the case thrown out local and state supreme courts have denied those requests and the case moves forward. I suspect a settlement will occur, but personally I wish it would go to trial and would get much more media attention than it has already. I do not presume to judge the outcome, but holding Diane Sawyer and Jim Avila to account for their scaring the bejesus out people calling a safe product “pink slime” would have some benefit I believe.
In the meantime, unjustified and outrageous media stories are a major risk for many organizations and government agencies. It is so important to remember that these investigative teams must come up with these stories to keep their jobs and to keep their audiences. That means you must prepare to respond.
I can virtually guarantee you that the old method of responding to this which included these options doesn’t work:
– threaten to pull advertising
– threaten to sue
– ask nicely for a retraction or opportunity to respond with similar story
The only thing that I have seen work is a “Fact Check” response where you calmly, without emotion, point out the errors. Digital communications including your news site, your website, your social media presence, your email lists, all provide great opportunities to point out the problems. The issue, as I have discussed here even in the last post, is credibility. The more responsible ones will be concerned about their credibility.
Most, unfortunately, will be more concerned about ratings.
OK, I’m still in mourning over our Seahawks defeat in the Superbowl. Somehow getting there two years in a row–a feat few in our area ever dared dream of–is tainted by one play.
So that’s kinda how Brian Williams and Pete Carroll are alike. Both have had fantastically successful careers, rising to the top of their profession and being counted among the very best of the best. Both made huge mistakes in front of millions–mistakes that cause us mere mortals to shake our heads in wonder, with even a bit of pity. How have the mighty fallen!
Brian Williams’ mistake will likely not only cost him his job, but like Dan Rather, his place in the pantheon next to the place of Walter Cronkite and Edward R. Murrows. Pete Carroll’s mistake will be remembered and talked about, but will likely not diminish much his stature as one of the truly great coaches of our time.
Credibility is gold. It is the currency on which reputations live or die. It is the one thing no person, no organization, no government can afford to lose and expect to be effective. I made that point as strongly as I could in Now Is Too Late, and suggested that if you find yourself in a position where your credibility is lost, you only have two options: give up or borrow someone else’s.
Brian’s credibility was severely damaged by the revelation of being less than honest about his Iraq experience. It was destroyed by his inept explanations that have been denied by the witnesses present.
Carroll’s credibility as a supreme coach, tied closely to his competence and success in winning games, was and is severely tested by the decision to pass the ball rather than let Marshawn run it in. His response was different: he accepted full responsibility. (The fact that Russell Wilson attempted to also take full responsibility leads me to have more pride in the Seahawks in defeat than I could in victory.) There is considerable reason to believe that it was offensive coach Darrell Bevell who made the fateful call. But it really doesn’t matter as Carroll has taken full responsibility. If he had made even the slightest effort to shift the blame to Bevell, his credibility would sink like gold in a pool. Or turn to lead. Like Williams.
Certainly there are other differences. Football, after all is just a game (yeah, try telling that to Seattle right now). Being nightly news anchor means you have exceptionally strong pull over public opinion which can have huge consequences for the nation and world. One mistake was a question of judgment, the other a question of character. There are big differences alright. But the primary lesson remains the same:
Credibility is gold.
CEOs and their communication leaders must understand that nothing, nothing can be allowed to disrupt their credibility. Battles for public opinion most often come down to the question as to who can be believed, who can be trusted. Aristotle was right when teaching about rhetoric that the three basic appeals in persuasion are logos, pathos, ethos. Logic, emotion and the appeal to the person–credibility of the speaker. Of the three, he was clear that the most important was ethos. Yet, how often don’t we see credibility being tossed aside like it doesn’t matter. Even more, how often do we see individuals, companies and organizations fail to protect their credibility against attacks. This is why I highlighted Elon Musk and Tesla’s aggressive response to a negative New York Times review and US government safety investigation.
And how does one build and protect credibility: tell the truth, all the time. Don’t be like Brian.
The big news is that Honda paid a record fine to the federal government. The stories link this $70 million fine to failure to report “more than 1700 deaths and injuries” in its vehicles. Are you kidding me? This car company killed or injured 1700 people and no one knew about it? You would think this would be the story of the decade.
The truth is, this is not at all the truth. And underlying this little reported story is the real story: a story of huge new crisis risk facing companies doing business in the United States. The risk is the unwarranted criminalization of business for the purpose of raising government revenue.
If you are a business owner or executive of almost any size, please look carefully at this chart developed from information provided by the Economist:
That hockey stick growth is the rise in government fines against US companies. The cover of the August 30 edition of the Economist featured “the criminalization of American business.”
It so happened that at about the same time I was working with a client on exactly one of these crises. I can’t reveal details because of the threats made by federal officials against my client. But believe me when I tell you that they paid a huge fine for doing absolutely nothing wrong–a claim supported by other government officials involved in the case. Then the agency fining them aggressively promoted a press release claiming the fine proved their guilt when the settlement was negotiated under threat. If the company didn’t agree to the settlement they would face a court case that if they lost would have destroyed them. When the company tried to set the record straight in the media, explaining it was a settlement done for business reasons, the agency official threatened them with possible jail time.
The Economist article points out the billions in fines against banks like BNP Paribas, Credit Suisse, Bank of America, Goldman Sachs, JP Morgan Chase and others.
Add to this the $1.2 billion fine against Toyota related to the safety recall. You may remember that the federal government (while a major investor in GM) famously said the only place you should drive your Toyota was to the repair shop. This was after a series of highly publicized accidents where the media accused the company of faulty electronic systems and slow recall. After NASA investigators got involved, all the accidents were shown to be driver error or faulty installation of mats–none related to the supposed Toyota problems. But, still, the federal government extorted $1.2 billion from the company. What for? Well, like almost all agreement as the Economist points out, the reasons were kept confidential as part of the settlement.
Why? Why is this happening?
If the dramatic increase cannot reasonably be attributed to a sharp increase in corporate misbehavior, then what? The head of the Department of Justice, Eric Holder, announced that the agency’s efforts resulted in over $8 billion in revenue for the US government against a cost of operating the agency of just $2.8 billion. That excellent return on investment was for 2013 and will be dwarfed by the much larger number for 2014. The Economist reports that the return on the False Claims Act enforcement net the Department a twenty to one return. State and local agencies who participated in settlements, such as Google’s settlement of $500 million for allowing internet users to advertise prescription drugs from Canada, have gone on spending sprees. It’s not surprising that Mark Rosekind says the Department of Transportation will seek to increase the maximum fine for violations or extortion such as this to $300 million. He needs to keep up with the massive amounts of money flowing into agencies like the Department of Justice and he can’t do that on paltry $70 million fines.
Is it any wonder that the Economist, which has endorsed President Obama in each of his presidential elections, called this administration the most anti-business in memory.
If you think this new risk of your own government turning against you unfairly and without justification, you should consider the “hot goods” case involving berry farmers.
In late July 2012 the Department of Labor investigated three blueberry farms in Oregon. Using a formula they established they decided the farmers were in violation of the fair labor law. Their formula showed the farm’s pickers picked more than the formula said they should so therefore they concluded the farm hired “ghost workers.” They had no proof other than the formula. To enforce the law, the Department invoked the “hot goods” provision and notified wholesalers that the fresh blueberries could not be processed. “Hot goods” allows the government to hold the product until the issue is resolved, but of course, when the product is highly perishable you could win the argument and lose the farm. The Department offered a way out: agree they had violated the law, sign an order saying they would not contest the findings even if it proved they were innocent, and pay back wages and a large fine. Two farms ended up paying out more than $240,000 to get their blueberries back in time to avoid ruin.
But, despite the fact that the agreement said they could not fight it or appeal, the farmers did, and they won. The courts agreed that they were coerced into a settlement and agreement of wrongdoing by the Department of Labor and ordered the government to pay the money back. As of this writing, the government is still fighting the courts and refusing to pay. And as in the other cases, may be looking for ways to punish the farmers who had the temerity to challenge this extortion.
Bad behavior by business owners and leaders needs to be punished. Laws and regulations need full compliance. Enforcement is a very important part of the accountability in our system. But, these actions by our government agencies cannot be included in justified enforcement. This is what happens when the government, feeling justified by a backlash against big government, resorts to bullying and extortion to raise funds and generate left wing applause. It represents one of the most significant, frustrating and frightening new crisis risks facing business in a long time.