Reputational Powder Kegs
Reputational crises are powder kegs. One wrong move and the powder ignites. One careless word and the keg may explode. And sometimes, the keg explodes no matter how careful you are.
Our class on June 2nd featured three superb cases prepared by Jesse Stanley, Amanda Young, and Donovan Groh. Each featured an organization in crisis: (1) British Petroleum after its infamous 2010 oil spill; (2) Kleiner, Perkins, Caulfield & Byers facing a lawsuit for sexual harassment seeking $16 million in damages; (3) Volkswagen after its fraudulent emissions regime. Each of the cases featured reputational and public relations disasters. Each had different takeaways.
In the BP case, Jesse led a great discussion that centered on the response of CEO Tony Hayward. In the immediate aftermath of the spill, Hayward allegedly commented that the amount of oil was “relatively tiny” in comparison with the “very big ocean.” Later, he said that the spill disrupted the lives of Gulf Coast residents, commenting famously: “you know, I’d like my life back.” His response ignited a fiery backlash that ultimately resulted in his resignation. It is impossible to run the counterfactual to know whether Hayward would have been forced to resign had he not responded as he did. But the case illustrates how careless words can ignite a powder keg into an inferno.
In the Kleiner Perkins case, the class explored three issues: (1) the pros and cons for Ellen Pao of suing Kleiner for sexual harassment; (2) the pros and cons for Kleiner Perkins of choosing to litigate against Pao versus settling with Pao, and (3) after the lawsuit, how Kleiner and Pao could each go about building or repairing their reputations moving forward. An interesting highlight about the Pao case is that in some sense everyone lost. Though Kleiner won at trial, the stain of being involved in a sexual harassment lawsuit lasted long after the end of court proceedings. For Pao, though she went on to have a successful career, she remains controversial in Silicon Valley to this day. In some sense, regardless of the actions each side took, the crisis damaged reputations all around.
Finally, in the Volkswagen case, Donovan led the class in exploring the impact of VW’s fraudulent emissions scheme on its customers, shareholders, and employees. The case again presented a situation where the company suffered enormous damage to its image and reputation regardless of how top executives responded. One interesting highlight of the discussion centered on whether a very serious punishment — VW executives going to prison — might have actually helped the situation by letting VW move on as a company from the scandal. In some sense, deep punishment inflicted on a few key players in the scandal may have ultimately been best for the company as a whole. By contrast, more limited penalties spread across the company as a whole may in effect have drawn out the conflict and its impact for longer.
At bottom, what all three conflicts illustrate is that in some reputational crises there are no perfect solutions. Nevertheless, ham-fisted or careless responses from top leadership can accelerate a crisis into an existential threat. No doubt effective preventive tactics are the best way to head off reputational crises. But the actions that companies take in the immediate aftermath of a disaster are nevertheless critically important in that they often define the extent of the damage done. Top executives would be wise to learn from these cases — and avoid the mistakes of their predecessors.
