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Archive for October, 2012

The fall of Lance Armstrong after the damning report released by the U.S. Anti-Doping Agency has been swift and stunning. Following the report, the International Cycling Union upheld the lifetime ban given to Armstrong by the U.S. Anti-Doping Agency and agreed to strip Armstrong of his seven Tour de France championships . But it addition to the personal tragedy it also quickly created a severe crisis for his cancer foundation Livestrong. While Armstrong has stepped down as chairman of the foundation, Livestrong is so closely associated with its founder that creating a successful separate existence will be a difficult task.

This is not the only case where organizations that are closely associated with an individual have faced difficult times. Examples include Martha Stewart’s Omnimedia, as well as Tiger Woods’ corporate sponsors. In these cases we have more than a simple association with a celebrity, as when a former quarterback endorses a car dealership. Rather, the connection goes far deeper, as the salient personal attributes of the celebrity are intended to rub off on the associated entity. Tiger Woods’ “Be A Tiger” Accenture ads made a direct connection between Woods’ outstanding performance on the golf course and general leadership attributes, leveraging Woods’ image of “excellence” and “perfection” into the business world. Similarly, Livestrong exhibited the values associated with Armstrong: toughness, defiance, and a never-say-die attitude. The risk associated with highly personal brands is that the personal life of the endorser/founder/owner is closely tied to the success of the business entity. In case of a personal scandal the positive spillover from an admired celebrity can quickly turn to a severe crisis, especially if the scandal undermines the very values on which the personal brand was built, as was true in both cases. When this happens, corporate sponsors are quick to cut ties with their celebrity endorsers, but legacy organizations, whether a business or a charity, don’t have that luxury. They now need to forge an identity of their own.

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I wrote an op-ed for Crain’s Chicago Business addressing the issue of whether employers should tell employees who to vote for, as presidential candidate Mitt Romney recently requested. The full piece appears here.

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The controversy over a cluster of uninhabited islands northeast of Taiwan (known as Senkaku in Japanese and Diaoyu in Chinese) has not only led to an increasingly tense confrontation between the Chinese and Japanese governments. It has also had severe consequences for Japanese companies doing business in China. Compared to last year, Toyota has seen its sales drop by 49 percent, Honda by 40 percent, and Nissan by 35 percent.

We can now add “country of origin” to the ever increasing list of headaches for today’s multi-national companies. This is not an entirely new phenomenon. Other examples include the 2005 boycotts of Danish products in the Muslin world after the Danish newspaper Jyllands-Posten published satirical cartoons which depicted the prophet Mohammed. A less dramatic example includes the oil company CITGO, which is owned by Venezuela’s state-owned national oil company. Venezuela’s leader Hugo Chávez gave a highly inflammatory speech in 2006 where he called then President George W. Bush the “devil” and “sick man.” As a result, CITGO faced immediate calls for boycotts in the U.S.

These intense reactions are usually triggered by moral outrage, either because of violated national pride or firmly held religious beliefs. In the ensuing angry protests, companies may find themselves the target of popular rage. The strategic options for companies to respond are limited. They usually are well-advised to stay out of the political debate, in part because allying themselves with one government will alienate the other. Changing the company’s headquarter location is usually not an option either, at least not in the short run, and may have little effect anyway if the company is strongly associated with its country of origin.

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James E. Burke, the former CEO of Johnson & Johnson, passed away on September 28, 2012, at the age of 87. He led the company as chairman and chief executive from 1976 to 1989, overseeing a vast growth of products, international expansion, and a tripling of total sales.

Yet, these accomplishments are not what James Burke is remembered for.  His legacy was shaped by his handling of the Tylenol recall in 1982, when seven people died in Chicago after being poisoned by Tylenol capsules that had been laced with cyanide by an unknown serial killer. The New York Times portrait of Burke in his obituary highlights this viewpoint. It hardly mentions his other achievements as a leader of Johnson & Johnson, and dedicates almost two-thirds of the entire obituary exclusively to his handling of the Tylenol crisis. Even nearly 30 years later, the Tylenol recall remains the textbook example of how to manage a corporate crisis. Indeed, modern crisis management arguably started with Burke’s handling of the Tylenol recall.

His forceful, candid, and empathetic approach set the standard for modern corporations. Johnson & Johnson spent more than $100 million pulling more than 32 million Tylenol bottles from the shelves, followed by the introduction of tamperproof packaging. During the crisis, Burke never got sidetracked by the question of guilt, but focused on the most important issue: protecting customer safety and maintaining their trust. It is a powerful reminder of one the fundamental tenets of successful crisis management: seize the decisive moment where customers and the public are really paying attention. Burke later stated the recall was one of the easiest decisions of his life. All he had to do was to apply the company’s value statement, the famed Johnson & Johnson Credo.

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When Apple’s CEO Tim Cook apologized over the flaws in its new Maps software, the gasps from business commentators everywhere were almost audible.

Not only had Apple shown some humility, but, even more surprising, Cook recommended competitors’ software while Apple worked out the bugs. Apple released the apology in the following statement:

“To our customers,

At Apple, we strive to make world-class products that deliver the best experience possible to our customers. With the launch of our new Maps last week, we fell short on this commitment. We are extremely sorry for the frustration this has caused our customers and we are doing everything we can to make Maps better.

We launched Maps initially with the first version of iOS. As time progressed, we wanted to provide our customers with even better Maps including features such as turn-by-turn directions, voice integration, Flyover and vector-based maps. In order to do this, we had to create a new version of Maps from the ground up.

There are already more than 100 million iOS devices using the new Apple Maps, with more and more joining us every day. In just over a week, iOS users with the new Maps have already searched for nearly half a billion locations. The more our customers use our Maps the better it will get and we greatly appreciate all of the feedback we have received from you.

While we’re improving Maps, you can try alternatives by downloading map apps from the App Store like Bing, MapQuest and Waze, or use Google or Nokia maps by going to their websites and creating an icon on your home screen to their web app.

Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working non-stop until Maps lives up to the same incredibly high standard.

Tim Cook
Apple’s CEO”

Humility and apologies were not exactly the typical responses of Apple founder and former CEO Steve Jobs. To be sure, Apple has seen its fair share of problems, with issues ranging from iPhone 4 reception problems to hiccups with MobileMe and iCloud.  But Jobs’ response was typically dismissive or combative. Some observers have speculated that this stance may have been the consequence of a consummate perfectionist. But be that as it may, those days appear to be over. Welcome to a newer, gentler Apple.

Cook’s apology was not the only evidence of this shift in tone. In late March, Apple and its main manufacturing contractor, Foxconn, agreed to significantly improve labor conditions at Chinese factories, following months of controversy worldwide.

Are these shifts in tone advisable? Some observers have suggested that Apple has so much goodwill that it can afford to spend some of it without losing its customers’ loyalty. But this perspective is problematic. It is based on the idea that goodwill, loyalty, or trust works like a bank account, but this metaphor is misleading. To their horror, companies frequently experience that their trust bank account gets depleted much more rapidly than they thought. Rather, it is much better to think of trust as currency. The same message from a highly trusted company has more credibility than a company with lower trust. But like a currency, trust needs to be maintained, especially when things go wrong and people pay attention. From this perspective, Tim Cook’s actions look like confidence-building measures of a company that cares about its customers and their communities.

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