PRovoke Media 18 Jan 2023 // 11:45AM GMT
8. Nestlé and Buitoni tackle tragedy
Nestlé’s history is not without controversy, from its marketing of baby formula milk in developing countries to bottled water extraction in the US, but last year the food giant and its Buitoni frozen pizza brand hit a new reputational low, confronted with the horrific evidence that their products were likely to have caused the deaths of two children and the illness of many more in France, in Europe’s biggest food scandal for decades.
The tragedy started to unfold in January, when eight-year-old Nathan Aïech and his family sat down for pizza night at home in Paris. Two days later he had a stomach ache; within a week he was in intensive care with an E. coli bacteria infection that led to severe complications. After dialysis, surgery and two heart attacks, Nathan died on 18 February.
Within weeks, another child – two-year-old Kelig Soave – had died after eating the same kind of pizza, and there was an alarming E. coli outbreak across France that left more than a dozen people with serious, long-lasting health problems.
In March, the French health authorities said the infections could be linked to the Buitoni Fraîch’Up pizza range and the company recalled almost one million pizzas. Nestlé France was ordered to suspend production at its Buitoni factory in northern France; the state order highlighted “a deterioration of food hygiene controls” and said inspections had shown the presence of rodents and insufficient measures to prevent pests from contaminating the site.
In December, the factory was partially re-opened, except for the pizza production line in question. More than 50 people were affected by the outbreak of either haemolytic uremic syndrome (HUS) or Shiga toxin-producing E. coli (STEC) at the plant.
A preliminary criminal investigation is under way for involuntary manslaughter, injury and breaches of food safety requirements, and a group of 48 families, including 55 victims, are calling for more controls over the food industry and have filed a €250m civil suit for gross negligence against Nestlé France. In a further knock-on effect on the business, Nestlé’s share price dropped by nearly 9% in the wake of the scandal and has not recovered according to SenateSHJ’s Crisis Value Erosion Index.
In October, Nestlé France again expressed its “deep sympathy for the victims and their families affected by this tragedy” and said it was setting up a support fund for people with HUS in France, although it stressed “This fund support does not in any way replace any claims for compensation in the context of the ongoing legal investigation.”
The firm said it had tested more than 2,000 samples from its factory and ingredients, and that an E. coli contamination of the flour seemed “the most probable” explanation, adding that it found no trace of the bacteria on production lines. However, French TV programme Envoyé Spécial said an internal document showed Nestlé found E. coli in flour at the Buitoni pizza factory in August 2021, seven months before the outbreak. The legal investigation will have the final word, but it could take years.
In a statement when the factory re-opened, Nestlé said: “Our thoughts are with the families of the victims of the E. coli STEC contamination. All the actions we have taken to date have been to ensure that such a situation can never happen again.”
It said the restart at the factory followed a process lasting several months, in consultation with French authorities, to “meet detailed specifications on the safety of supplies and products and on a plan to modernise the plant… We need to give our consumers and customers strong guarantees and live up to their legitimate expectations. We are entering this reopening with an approach of proof and transparency for all.”
Florian Silnicki, president of Paris-based reputation and crisis management firm LaFrenchCom, says that this is the worst crisis in Nestlé’s century-old history and, indeed, “a model of anti-crisis management”.
“The shortcomings observed in the management of the Buitoni crisis are staggering,” he said. “Nestlé should obviously have better managed the crisis caused by the presence of E-coli in its pizzas. Is this linked to a faulty identification of risks? Is it linked to a lack of anticipation of the crisis? Is it linked to irregular crisis management exercises?
“And what will be the damage of this crisis on the Nestlé brand in the eyes of consumers and investors? And even towards products which have nothing to do with the contaminated Buitoni factory? It is by being open and transparent to correct the crisis that an industrialist allows his consumers to see his efforts and regain trust in his brand. Everyone knows that there is no risk-free consumption, but everyone needs to be assured that everything is done by the manufacturer to identify and fight against the occurrence of these risks.”
Silnicki said the company’s handling of the early stages of the E. coli crisis was woefully inadequate: “One of the basic rules when a case of contamination occurs is to react quickly, which Nestlé surprisingly did not do in this case. It was the health authorities who were forced to mention the possible link between the consumption of pizzas and the state of health of young victims. The best way to manage a crisis is to act, not react. In this case, the company was not proactive. Christophe Cornu, CEO at Nestlé France, has never appeared in front of the media. Didn't children's lives deserve mobilization at the top of the company?”
He concludes: “Nestlé did not recognize from the outset that there was a problem. It costs a lot less to do that than to try to sweep the problem under the rug. Nestlé did not recognize its responsibility from the start, no doubt so as not to expose itself to legal action, which is a serious strategic error because you can win a case in court and lose it in public opinion, and vice versa. It is better to lose your money than to lose your reputation.” — Maja Pawinska Sims
9. Adidas & Kanye
With the world on high alert for bad behavior, and Kanye West (now known as Ye) a media magnet no matter what he says, it’s baffling how Adidas last fall got its response to Ye’s anti-Semitic rant so wrong — no matter how many Ye-branded Yeezy sneakers the sportswear giant had in stock.
For a couple of weeks after Ye was locked out of Twitter for antisemitic remarks, Adidas sat back as the rapper and pop culture star was dropped by other brands including Balenciaga fashion house, JP Morgan Chase, Gap, Vogue and talent agency CAA dropped him. Even Harry Styles traded the Adidas x Gucci sneakers he wore during concerts for Vans.
But, with Yeezy generating an estimated $2 billion a year, roughly 10% of Adidas’ annual revenue, the German company rode out the public outcry, while also taking Ye’s public taunts (“I can say anti-Semitic things, and Adidas can’t drop me. Now what?”), calls to boycott Adidas products and an antisemitic hate group hanging a banner over LA’s 405 freeway saying “Kanye is right about the Jews.”
In an open letter to Adidas execs, the Anti-Defamation League said it was “surprised” and “concerned” that Adidas, a brand that supports inclusion and diversity, hadn’t cut the cord with Ye. “Two weeks ago, after he wore a White Lives Matter shirt, Adidas said he was under review. At this point, what more do you need to review?” the letter said. The situation lent itself to critics dragging up Adidas' dark Nazi past.
“There are plenty of crisis situations in which someone says something out of context or more investigation is needed before you’re able to take a clear action. The case of Kanye was not one of those, and issues like blatant and intentional anti-Semitism leave no room for gray areas,” said Bully Pulpit Interactive partner Ben LaBolt.
Yet, in late October, nine years after signing Ye away from Nike, Adidas did what it had to do: cut ties with Ye, taking a roughly $250 million hit in the process. “Adidas does not tolerate antisemitism and any other sort of hate speech. Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness,” the brand said in announcing the move.
MikeWorldWide president Bret Werner said Adidas essentially had no choice. “The truth is, if they didn’t make this move, the ramifications would have been far more significant by consumers; they would have lost a generation of younger customers,” he said. “The apparel/shoe industry is hyper-competitive, and very few business sectors live in culture more than this one,” he said.
Which doesn’t mean consumers will grant Adidas absolution for its snail-paced response to Ye’s egregious conduct, especially young social-savvy sneakerheads with way too many other options.
“Adidas is supposed to be an inspirational brand especially for young people. Looking slow and flat-footed on the Kanye sponsorship issue made them look obstinate, and it took an outside pressure campaign for them to finally take action,” LaBolt said.
The company also got stuck with $530 million worth of Yeezy sneakers in the breakup, which it is reportedly trying to sell under its own name, of little concern to consumers who believe Adidas failed to suck it up when it should have.
Adidas' share price dropped by almost 23%, according to SenateSHJ, taking more than a month to recover.
“With Kanye we have finally crossed the chasm where brands and consumers can no longer separate the art from the artist,” said Aaron Kwittken, founder/chairman of KWT Global and founder/CEO of PRophet.
“Let’s be honest, by every measure here Adidas shit the bed by not immediately cutting ties with and outright condemning Kanye for his dangerous antisemitic tropes and erratic behavior — especially since Adidas founders were once members of the Nazi party,” he said. — Diana Marszalek
10. Southwest Airlines' mass cancellations
With its founder Herb Kelleher at the helm, Southwest Airlines enjoyed perhaps the best reputation of any American airline of the 80s and 90s, first for its stellar workplace culture and second for an ethos of customer service that was always willing to go the extra mile on behalf of passengers. The last vestiges of that reputation evaporated over the Christmas holidays, with a crisis that demonstrated how the airline abandoned both those stakeholder groups to satisfy its shareholders.
Bad weather and computer systems problems affected pretty much every airline in America over the holiday period, but Southwest was qualitatively and quantitively different. The airline canceled more than 15,000 flights in a week, stranding passengers and crew for days. A week after the storms had passed, Southwest was responsible for more than 90% of flight cancelations. Worse than the numbers alone, however, there were horror stories about passengers sleeping on airport floors, arguments between customer service staff, and of the airline refusing to honor its legal obligations.
And the company’s communications confusion did not help.
“Cancelling a significant proportion of flights will be a reputational challenge for any airline,” says Tim Luckett, global crisis lead for Hill+Knowlton Strategies. “But Southwest’s mass cancellation over the Christmas holiday period represents a different level of crisis.
“Much has already been debated about the organization’s official response, but what also compounded the crisis was that pilots’ unions and Southwest’s own flight attendants were speaking to the media before Southwest started communicating, demonstrating how employees serve as an increasingly critical stakeholder group in any issue. Furthermore, committing to tangible actions in a response is often beneficial, but only if these commitments are absolutely clear and deliverable.”
Adds Amanda Coleman, author of Crisis Communication Strategies: Prepare, Respond and Recover Effectively in Unpredictable and Urgent Situations, “Extreme weather conditions can affect any business and as with all crises it is not what happens but how you respond. Southwest Airlines faced the same holiday chaos as other airlines when snow storms hit large parts of America.
“But they did not recover and get back to normal as quickly as their competitors. The website was at times inaccessible and people struggled to get information and refunds. Preparing for extreme weather is something we all have to do. And don't just expect to return to normal once the crisis has ended, plan for the recovery in the same way you plan for the crisis."
Simon Neville, director of media strategy at SEC Newgate UK concludes: “The key with any airline meltdown is to react quickly. Gather as much information as possible and inform customers through any and every channel. Senior staff need to be out at the airports speaking directly to customers. They will be angry but will also appreciate direct contact with the senior management and they will get more plaudits for keeping a cool head instead of hiding away.” — Paul Holmes
11. Corruption, cocaine and criminality at Credit Suisse
Swiss banking giant Credit Suisse has something of a legacy of making the news for the wrong reasons – dating back to 1986 when it helped Ferdinand Marcos, the Philippines dictator, hide millions of stolen dollars – but in 2022 it was involved in perhaps its biggest scandal ever, leading to massive fines, a plummeting share price and thousands of employees being laid off.
The latest supercrisis – more than worthy of a Netflix docudrama – hit the headlines in February last year, when Credit Suisse became the first bank in history to be on criminal trial in Switzerland, charged with direct involvement in a Bulgarian cocaine-smuggling ring, with millions of euros laundered directly through the bank. In June, the bank was found guilty of failing to prevent money laundering by Switzerland's Federal Criminal Court, which found failings in its management of client relations with the criminal gang and its monitoring of the implementation of anti-money laundering rules. Credit Suisse was fined €1.7 million, and ordered to pay €15 million to the Swiss government.
As if that wasn’t corrupt enough, the bank had a huge data leak of 30,000 customer accounts holding more than 100 billion Swiss francs, revealing that its customers included people involved in human trafficking, drug trafficking and torture. And following Russia’s invasion of Ukraine and Switzerland’s sanctions on Russia, Credit Suisse requested hedge funds and other investors to destroy documents linking Russian oligarchs to loans, leading to probes into the bank’s compliance with sanction requirements.
On top of these incidents – and around $4 billion in litigation costs and losses of a similar dizzying amount over the past two years – Credit Suisse was last year fined €238 million by French prosecutors in relation to a tax evasion scheme between 2005 and 2012, and reached a $495 million settlement with United States regulators over its role in the 2008-2009 financial crisis.
After these heavy, self-inflicted blows to its financial stability, Credit Suisse announced it would be laying off a total of 9,000 people by the end of 2025 and was seeking $4 billion in a fundraising round, including from the Saudi National Bank. In response, Credit Suisse’s stock price has fallen by almost 60% and its market cap has halved. New CEO Ulrich Koerner has attempted to start a clean sheet by reaching settlements to conclude investigations into malpractice and corruption, but Credit Suisse continues to deny responsibility for many of its recent crises, and has said it will appeal the judgement in the money laundering case.
The shockwaves from this explosion of scandals may well shake more than Credit Suisse’s own foundations: the bank claims to remain stable, but there are fears it is on the brink. If one of the world’s largest investment banks fails, it could have the same devastating effect on the global financial system as Lehman Brothers’ collapse, which marked the beginning of the 2008 recession.
According to SenateSHJ's findings, Credit Suisse share price declined by more than 11%, including a 6% EPS drop, and taking more than two months to recover.
Matthias Graf, a partner at BoldT in Zurich, said of the implications for the bank: “Credit Suisse’s fall from grace sent shockwaves not only through large Swiss businesses but also the entire Swiss society - after all, Credit Suisse is classified as ‘too big to fail’ and has been a backbone for the country’s economy for decades. Since then the public debate has gone from a major scandal to questions over the company’s very future, putting it in the bracket of not just corporate crisis but infamy.
“The key question now is: Can Credit Suisse take the action required to secure its future and rebuild lasting belief? This stands to be a potential case study in how a company that has had a crisis of this magnitude can recover from it – and with it the entire Swiss banking industry. The short term remains very fragile, but all Swiss eyes are on how Credit Suisse may be able to truly reform, recapitalise and rebuild reputation over the long haul.” — MPS
12. Wells Fargo struggles to recover
Wells Fargo has been reeling from its false accounts scandal for long enough now that it’s hard to separate the Big Four bank from the worst in corporate corruption.
Since its “pressure-cooker sales culture” was exposed in a 2013 Los Angeles Times investigation, things have gone from bad to worse for Wells Fargo, founded more than 170 years ago during California’s go-for-broke Gold Rush. Federal investigations found employees over more than a decade opened millions of customer accounts without their knowledge to meet impossible sales goals.
In 2020, the bank got its first big financial spanking in a $3 billion settlement with the Securities Exchange Commission for the rampant fraud triggered by the executives’ untenable demands. There was unrelated bad press that year, too, like CEO Charlie Scharf having to apologe after saying a lack of diversity at the bank was due to “a very limited pool of Black talent to recruit from.” Hired the previous year to turn the bank around, Scharf, the third CEO in as many years, said his own unconscious bias fueled the unsubstantiated claim.
“Wells Fargo is the gang that can’t shoot straight,” said Lou Hoffman, president and CEO of The Hoffman Agency.
Wells Fargo went on in 2021 to weather US Sen. Elizabeth Warren’s calls for the federal reserve to break up Wells Fargo, saying it had run out of time to turn things around. Last December, Wells Fargo got hit with another whopper of a fine, $3.7 billion to be exact.
At the time, Scharf called the settlement “an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us,” in a canned comment putting a ludicrously positive spin on a still egregious situation. The difference between Scharf’s take on Wells Fargo’s progress in recovering its good standing and the feds’ was stark. Consumer Financial Protection Bureau director Rohit Chopra referring to the settlement called Wells Fargo a “repeat offender” and “corporate recidivist” at the very start of its road to redemption.
No doubt, though, Scharf, well knows Wells Fargo has a long and arduous road ahead recouping public trust after a scandal that reportedly touched 16 million consumers. And the churn rate of comms leaders indicates the financial institution is still figuring out how to do that. In September, former Chase CCO Amy Bonitatibus joined Wells Fargo as the third comms head in four years, and she very well may do a formidable job. Then again, it’s pretty safe to assume that her predecessors Barri Rafferty, who gave up her Ketchum global CEO role for the in-house job, and Edelman New York head Oscar Suris, who spent nine years as Wells Fargo’s corporate comms leader before leaving in 2018, thought they could turn things around too.
“To be clear, the bank isn’t dealing with a PR crisis. It’s dealing with a business crisis,” Hoffman said, “It’s instructive to rewind the tape back to 2018 when the Justice Department nailed Wells Fargo for pursuing low-income housing credits and colluding with developers. How did the bank respond? It ran a TV ad on trust as opposed to addressing the root cause. That’s why these breaches of trust keep happening.”
It will likely be a very long while before we know whether Wells Fargo can recover from its epic fall from grace. Financially, at least, it’s not even close. The bank saw profits cut in half during Q4 2022, due in large part to the legal costs and fines related to its consumer abuse.
SenateSHJ reports that Wells Fargo's share price decreased almost 20% due to the crises, including an EPS decline of 178%, taking 56 days to recover.
The bank has reduced the staff in its mortgage business and its growth is limited under an asset cap restriction imposed by the federal reserve in 2018. And it certainly is going to take far more than good will.
“Wells Fargo has been wise to acknowledge that it has not lived up to its obligations in the past, while pointing out that it’s a new and different institution now, committed to a set of values that serves customers and complies with the law,” said John Rizzo, Clyde Group senior VP of public affairs. “The question going forward is whether Wells Fargo can truly close the books on its past and put together a string of positive news that indicates that the company is committed to being different in deed and not just in word.” — DM
13. Ferrero's public health problems
Product recalls can be challenging for any business. For food companies, any problem that creates a public health risk can create additional complications. And when children are involved, it’s pretty much a perfect storm. So when European chocolate manufacturer Ferrero had one of its plants closed because of salmonella contamination, things escalated quickly, leading to recalls across Europe, the US, Canada, Australia and New Zealand, and Singapore.
The media tone was alarmist, and Ferrero was criticized for its slow response — British regulators raised questions in January, but the company did not make an official statement until April. “In not acting and communicating quickly enough, Ferrero allowed regulators to control the narrative, resulting in a decidedly negative portrayal of the company in the media,” says Elizabeth Cholis, a partner at Dentons Global Advisors.
There were also questions about the tone of the company’s statement, from crisis expert Amanda Coleman: “The words they used were focused on the business rather than the young people who were ill and in hospital. They talked about 'preserving trust and confidence' but this would need to take time to achieve."
As a result of the company’s somewhat reticent approach to public communications, other voices — regulators in particular — became the go-to sources of information.
The conclusion, according to H+K’s Tim Luckett, is that spokespersons matter. “In the case of a product recall, communication speed and transparency is critical to maintain consumer trust and stabilize reputation. A good spokesperson is an essential part of any crisis communications strategy, as they give the organisation both a face and a voice, which helps build trust with those looking for answers.
“They are critical to keeping customers properly informed, reinforcing the company’s commitments to acting responsibly while also helping to mitigate detractors and potential misinformation.” — PH
14. Worker unrest at Foxconn
Foxconn is no stranger to worker unrest, having made this list more than a decade ago when several employees committed suicide. As a key Apple supplier, the company has worked hard since then to improve working conditions at its factories, but a critical dispute emerged last year at its Zhengzhou plant — the world's largest iPhone factory.
Employees clashed with security personnel after airing their grievances on social media, because of a delay in bonus payments. Thousands of Foxconn workers also fled the factory after the company implemented a lockdown following a Covid-19 outbreak at the factory.
The latter issue would presage wider protests in China, which eventually led to a reversal of the country's strict Covid-zero policies. And the Foxconn crisis also illustrated the manner in which geopolitical tensions can impact a local dispute.
"In any normal year this wouldn’t have been as big a deal internationally as it was," says Epic Communications founder and MD Ray Rudowski. "But you had the Covid spike amplified by geopolitical tensions making this a potentially volatile issue. We’re also seeing this play out as Apple seeks to diversify its supply chain to places more prone to alignment with US interests."
Foxconn's share price dropped by 5.6%, according to SenateSHJ, and has yet to recover. Even so, Rudowski believes Foxconn handled the crisis well, thanks to a sensitive understanding of the situation, supported by a collaborative approach.
"Foxconn’s communications and efforts to contain the labour dispute appear to be the result of all parties in China working together," says Rudowski. "You see this in the tone of both global and Chinese media coverage which focused largely on the company’s commitment to achieve a speedy and equitable resolution."
In particular, Rudowski points out that the company was able to contain the story as a labour dispute, avoiding any wider politicisation.
"Both Foxconn and Chinese authorities were aligned in the wider goal of resuming production and took quick action in the form of offering generous pay incentives and addressing other demands to the satisfaction of all parties," he explains. "Foxconn also appointed new, younger management that appears to enjoy strong government trust."
The bigger question, contends Rudowski, is how ongoing political pressure will impact US companies operating in China, at a time when China is also aiming to diversify its manufacturing sector.
"It’s worth noting that the Taiwan authorities just recently fined Foxconn for an unauthorized investment in a Chinese chip maker," said Rudowski. "These are the types of issues to watch because they could lead to shut-downs and further escalation of labour issues." — Arun Sudhaman