Adani Group recently faced accusations of corporate fraud by short-seller firm Hindenburg. In March 2014, Nestle's cash-cow Maggi faced the MSG ban and reported its first quarterly loss in 15 years. Back in 2006, Johnson & Johnson took a beating as the go-to baby product brand after it was accused of manufacturing “carcinogenic” baby talc powder. Recent reports say Balenciaga sales dipped after it was hit by the controversy over its 'bondage-style' campaign with children.
Going further back, Pacific Electric and Gas, an energy company in the U.S.A, was accused of contaminating a town’s drinking water in 1996 by using harmful chemicals leading to health hazards to the living community in that place and had to pay $333 million in settlement, considered to be one of the biggest penalties for a lawsuit. The feature film 'Erin Brokovich' was also based on the issue.
All the above cases did not just bring bad press but a bunch of monetary settlements and expenses that big corporates, like the ones mentioned, had to bear. Most of the companies did manage to come out of these crisis situations, but some like PG&E are still to come to terms with it.
Given that controversies marring company balance sheets are not really new in the corporate world, we decided to explore what brand strategists and industry experts thought companies should or should not do to cross the turbulent waters safely back to the shore.
Transparency and Communication
Samit Sinha, Managing Partner, Alchemist Brand Consulting believes there is no one universal way of dealing with crisis situations but there are some common ways to go. “Companies can get negative press coverage for a variety of reasons – poor financial results, divisive boardroom politics, product related problems or allegations of corporate malfeasance, and there cannot be a one-size-fits-all response. Not only does it depend on the type of issue, but it also has to be judged on the specific problem and responded to differently case to case.
However, for the sake of some broad guidelines, perhaps the best response in most cases is to honestly confront the issue and take the bull by the horns. Own up and apologize in the case of a slip-up and follow that up with a clear statement of the intended action to redress the problem. Clarify and present the company’s point of view if the case has been misrepresented or at least not been fairly reported. Obviously in the case of proven willful wrongdoing on the part of the company’s leadership and based on the seriousness of it, the crisis management response needs to be in the form of strong punitive action taken against the complicit leaders of the company and then allow time and positive developments to make the controversy fade from public memory.”
Lloyd Mathias, Business Strategist and Angel Investor, explains the importance of transparency in getting out of turbulent times. “I think the key learnings from companies who have handled these crises - one is to have an open line of communication and two is to address the issue authentically with a lot of facts because eventually people really want to understand what the real situation is behind any particular issue. I think that's when the controversy will die down and people will know the whole issue. Of course, the recognition is that all this will take time. But I think the important thing is to be accessible, to be as honest and transparent as possible and to put out as many facts that can be put into the public domain.
I think the larger issue that we have to recognize is that opinion, rather reputation is built over time. So, brands that have built a positive reputation over time can tide over a crisis very well. For example, the Tatas are a classic example in India. Whenever they had a problem, where it was regarding advertising or even during the peak period of the Cyrus Mistry ouster, the Tatas reputation has helped. Similarly, another example, I would say is Infosys. Infosys had a very senior executive about 8-10 years back, who was in the eye of the storm for some allegation on improper conduct. But because of Infosys’s strong corporate reputation, they were able to emerge relatively unscathed.”
Cleaning up the Mess
Sinha says coming out straight and withdrawing FPO was a good step for the Adani group. “In the specific instance of the brouhaha faced by the Adani group, they seem to have done a couple of things right in their response to the crisis, which they just could not have ignored, even if they wanted to, due to its immediate impact on their stock price. So doing nothing was simply not an option. First, it helped that they at least attempted to defend themselves by clarifying their position with a detailed and exhaustive reply. Second, by withdrawing from the FPO. While this certainly had financial consequences, it could give them breathing space to regroup for the long haul.”
Mathias compares the situations of two big corporate names and explains how Adani’s quick steps have already paved a way towards damage control. “I think the core issue for any company is how to protect its reputation. The only way in which companies can pull themselves out of that is to address the core issue. Specifically, in the context of Maggi, it was about an order that indicated that Maggi contained a substance that is not good for people. And therefore, there was a regulatory ban, it took a long time for Maggi to clear the air around it and put out data. So the way forward is always to come out clearly with all the facts by the company to establish a clear line of communication.
But in the case of Maggi or in the question of Johnson and Johnson, it was always product specific. Here, I think it's largely an issue about the financials. I think the two things that are critical. One is to come out as transparently as possible with hard data. And the other is to ensure that your actions underpin it.”
I think some of the steps they (Adani) have taken are in the right direction. One they returned all the FPO money collected from all those who applied for it. I think that was a positive step. The second thing that they're doing is obviously, pre paying loans, to ensure the market understands that their ability to service debt is good for now. So, they don't have a liquidity crunch to service debt. I think both these things are in the right direction. I think, therefore, what the company needs to do is to communicate regularly to pick out facts. And I would say Adani has done both good things, one by calling off the FPO and by prepaying certain sort of loans and by having a direct statement issued by Mr. Adani himself, which I think was relatively positive. He's spoken twice since the controversy broke. The fact that he's reached out directly, people have tended to hear him out, as opposed to using a CFO etc, which was done earlier.”
Viren Razdan says Adani’s gameplan should be to build authenticity. “The massive dent on its (Adani’s) corporate stature has seen erosion of value and slew of collateral damage caused, however magnanimous moves of ‘moral standing’ have begun to build back confidence.
While the capital markets will treat this as a turbulence, the corporate brands equity will need careful management in the second round after damage control. Adani Group’s game plan, while they are already in overdrive on the capital markets front, would be to go for the ‘moral-high ground’ in building their authenticity. Turbulence can be treated as something temporary that will pass, but bold moves can help you emerge stronger so you can not only erase any form of doubt but treat this as baptism into the mega league.”