Category Archives: Risk Management

Why the Public Does Not Believe That Corporations Are Accountable

westonAddressing members of the media on Thursday, Galen G. Weston, executive chairman of Loblaw, told reporters that, “I’m very troubled. I’m troubled by the deafening silence from other apparel retailers on this.” Mr. Weston was referring to the tragedy at a Bangladesh textile factory last week in which factory collapsed, killing almost 400 workers.

Mr. Weston said Loblaw has always ensured that factories in its supply chain adhered to rigorous standards in areas including local labour laws and work conditions. Mr. Weston said he was “troubled” by practices that saw it fit to send workers back into the factory after it was declared dangerous.

“Nothing in those reports suggested a problem, but the scope of the audits does not cover structural integrity,” Weston said.

But it is exceedingly difficult to believe that Loblaw executives would have been unaware of the risks associated with shoddy building practices in Bangladesh. Site selection methodologies have become very sophisticated and comprehensive over the last 10 years, covering everything from the cost and availability of labour to elements associated with real estate. The number of fire escapes and other safety factors would have been integral considerations in any evaluation. Site selection may not have been the responsibility of Loblaw employees themselves, but specialists contracted to perform evaluations would have provided a detailed breakdown of risk factors. Since this has been standard procedure for some time, it is disingenuous in the extreme that Mr. Galen would project that this was all new to him and his executive team.

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Filed under Corporate Ethics, Labor force management, Risk Management, Social contract

Managing Corporate Crises in the 21st Century

Published in the Telegraph-Journal 5th October 2012

What have corporations learned about communications and public relations when it comes to negative publicity? Continuous media coverage, aggressive reporting and a relentlessly unforgiving public have made it much more difficult for firms to manage negative perception, even in the absence of a crisis. But has media – social and conventional – altered the dynamics of corporate crisis management? Are corporations under greater pressure today than before the Internet? Conventional wisdom has it that the rise of social media is responsible for today’s increased pressure on corporations to manage bad press. Reviewing two of the most prominent corporate disasters of the last thirty years provides a useful context.

BP was suddenly involved in a major crisis in April 2010 when a pipe broke during deep water drilling in the Gulf of Mexico. An explosion aboard the Deepwater Horizon drilling rig resulted in a fire in which 11 workers were killed. Huge volumes of crude oil began spewing into the Gulf of Mexico from far below the surface. The oil spill would turn out to be the worst in U.S. history.

BP’s disastrous communications and public relations worsened an already bad situation. The company was accused of insensitivity to those who were negatively affected by the spill. At the outset, BP’s CEO Tony Hayward appeared defiant. He succeeded in further angering the public when he said “there’s no one who wants this over more than I do. I would like my life back.” He admitted not long after the spill began that BP should have had a better emergency plan in place. Hayward finally apologized for BP’s actions in June 2010, and said that “the Gulf spill is a tragedy that never should have happened. I’m sorry.” By that time, Hayward’s days as CEO were numbered and he quietly resigned a short time later.

In stark contrast, Johnson & Johnson’s CEO James Burke was called to manage a looming public relations disaster in the wake of the 1982 Tylenol poisoning tragedy which killed seven people. Burke’s reactions are for many a high water mark in corporate crisis management. When it became clear that the seven deaths were the result the tampering of Tylenol containers, Johnson & Johnson issued urgent warnings to people not to use Tylenol products. Production and advertising of Tylenol were immediately suspended. All Tylenol that was already on shelves was recalled at an estimated cost of $100 million to the company. On the news program 60 Minutes,Burke made an impassioned plea for consumers to return their Tylenol.

However, the contemporary response was that Burke’s reaction was unnecessarily extreme. Media accounts of the day focused on how the company would suffer from Burke’s over-the-top reaction. Today’s analysis underscores a very different conclusion. Burke’s handling of the incident, with his perceived honesty, was directly responsible for saving the Tylenol product and Johnson & Johnson’s brand.

In the case of the BP Deep Horizon oil spill, social media played a relatively lesser role than would be imagined today, even though the event took place only two years ago. But the outrage over Hayward’s perceived insensitivity and BP’s slow reactions played broadly across all media, with social media providing support for journalists’ analysis.

BP had no effective systems in place to deal with the oil spill crisis and it showed little ability to move quickly once the problem had occurred. But BP’s failure was not only in communications. Its handling of the crisis was a failure on many fronts. Members of the management team demonstrated little leadership after the event. They were unconvincing in their commitment to ensuring such problems would be prevented in future. They appeared indifferent to the environmental destruction and showed little evidence that they cared about what had happened.

In contrast, James Burke clearly understood the enormity of the crisis his company was facing and reacted in a way that remains the gold standard in crisis management. One can only speculate how he would have fared under the hot lights of contemporary media scrutiny.

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Filed under Media, Risk Management, Social media

The Risk Communications Dynamics of Shale Gas

Published in the Telegraph-Journal 24th April 2012

For some time now, gas companies have explored the development of natural gas trapped within shale deposits across parts of New Brunswick. It is a process that brings with it uncertain environmental risks but certain lifestyle annoyances including noise, truck traffic, and the visual disfigurement of the countryside. For some people in the local community, gas drilling has more downside than upside. For these people, local opposition is justified.

However, there is a case to be made for shale gas projects which are undeniably positive for the organizations proposing them. Gas projects are arguably good for other reasons. Natural gas would be welcomed if it could substitute for less environmentally friendly fossil fuels. And there is no question that gas projects will be good for some people in the affected local communities in New Brunswick. The winners will be those who will gain access to employment or business opportunities, royalties or other economic benefits.

In his iconic book, Responding to Community Outrage: Strategies for Effective Risk Communication, pre-eminent risk communications consultant and former Rutgers University professor Dr. Peter M. Sandman states that the distinction between hazard (implying not only a threat to life, health, safety, or the environment but everything substantive, including noise and property value) and outrage (implying anger, fear, worry and concern) is not a distinction between data and emotions or between data and values. “Outrage and its elements are as real, measurable, tangible and controllable as hazard and we have better data on outrage than on hazard in many cases,” said Sandman. The dissemination of data may have an impact on the perception of hazard (more safe, less unhealthy, less pollution). Outrage is not simply a distraction from hazard. While both are legitimate and important, outraged people tend not to pay much attention to hazard data.

This exposes an obvious challenge. A project that does more harm than good for most local stakeholders can still meet with approval if the opponents are less passionate. Reducing the passion of opponents can assist a committed minority of activists to gain approval for a project that the majority weakly opposes.

However, a project that achieves greater good than harm for the majority of local stakeholders can still fail to gain approval if those who oppose it are more passionate. Increasing the passion of opponents can assist committed activists who are in the minority to prevent approval of a project that the majority supports but only weakly.

This is not subversive radicalism. This is how democracy functions. “In elections we count noses and while people need enough passion to make it to the polls, any additional passion doesn’t mean additional votes. In issue controversies, the impact that people can have is proportional to their passion,” said Sandman. The most important factor in whether that project is approved or rejected by decision-makers is often how many local stakeholders passionately and actively oppose a project. So activists who oppose shale gas drilling will attempt to increase the passion of shale gas opponents, while shale gas sponsors will attempt to decrease the passion of their opponents. Both sides are making rational decisions. Despite the exasperation of shale gas project proponents, this is not a distortion of democracy any more than legislative lobbying is. Some technical experts have resisted the pressure to consider outrage when making risk management decisions. They insist instead that data, rather than the emotional public, should determine the foundation of policy. But outrage factors are not misperception of risk. They are instead intrinsic elements of what to us constitutes risk. This recognition needs to be the starting point to a respectful treatment of an issue that will have historic implications for the people of this province.

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Filed under New Brunswick, Risk Management, Shale Gas