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Tuesday, February 23, 2010

Et Tu Toyota?

The Bulldog Reporter
The Journal Of Public Relations

Iconic Automaker's Downfall Offers Tough PR Lessons

February 9, 2010

Reputation Management Rule #1: When something bad—large or small—comes to light relating to your organization, alert the media, put it up on your website, put it out on Twitter and all the other social media; disclose it before an outsider hits you with it. Do not listen to your legal department; do not worry about how it happened, or who is at fault; instantly move to make it right. Do the right thing!

A second iconic organization fell victim to what happens when reputation gets shoved to the back of the bus, or in this case the backseat of perhaps the most admired automobile company in the world, Toyota.

Johnson & Johnson led the dumb response parade. They ignored a foul odor emanating from J&J consumer products ranging from Tylenol to Rolaids and St. Joseph Aspirin. After delaying a recall for a ridiculously long period of time, they came out with the lamest excuse ever. Somehow, a preservative chemical banned in the United States had found its way into their wooden shipping pallets and then through multiple layers of cardboard and plastic and into their products. Even if true, so what! If your products stink, recall them, think of the customer. At least no one seems to have been seriously harmed by the stinky J&J pills. Upset tummies and other intestinal problems seem to be the worst of it.

Not so in Toyota's case. It appears that an uncontrolled acceleration problem resulted in several serious automobile accidents. If the reports are true, people were injured and killed. Back in 2002, when the problem first surfaced, Toyota said it was driver error. More recently, they claimed it was connected to an improperly installed floor mat. It turns out that while they were talking driver error and floor mats, they suspected all along that they had problems with the electronic throttle control system used in a wide range of Toyota models. Now they have been forced to recall millions of cars, shutter factories and advise their dealers to stop selling some of their most popular models.

Let's go back to Rule #1. What if Toyota had jumped on this problem right away? Electronic throttle controls were probably not that widely in use six or seven years ago. It would have cost them a lot of money and thrown a monkey wrench into a promising technology. But it would have preserved their reputation and the trust of their worldwide customer base.

Instead, they now face perhaps the most costly recall in history. One analyst in Japan estimates that this issue will take over—wait for it— "a billion dollars a month off Toyota's bottom line." That, however, is peanuts in comparison to the long-term loss of reputation and trust that Toyota will suffer.

It's crushing to have two great companies stumble; they will pay the price for many years to come. Hopefully, others out there will observe and learn.

Johnson & Johnson Stinks Up Its Reputation

Bulldog Reporter

The Public Relations Journal


February 1, 2010

In 1983, a year after the Tylenol tragedy in Chicago, I was in that city looking forward to hearing the keynote speaker at a communications seminar. His name escapes me but his task a year earlier is burned in my memory. He was a high ranking C-Suite executive from Johnson & Johnson who had led the team from

J&J sent to Chicago to deal with people dying from tainted Tylenol.

By then our discipline and the general public had made J&J's handling of the tragic incident Legend. He opened his remarks describing his feelings. He said he felt ill as his plane descended into O'Hare, as he had the first time he came to deal with the tainted Tylenol issue and every time since. And then he gave us an inside view of the sequence of events from the first report linking Tylenol to the unfolding tragedy. From the beginning management at J&J had acted to protect people. Help those harmed, prevent additional harm, and search for the source.

You’ll note that "Fault" is conspicuous by its absence. J&J did not hesitate to help those damaged, or to suffer massive losses by immediately recalling a product that ultimately was shown to be harmless. Nor did they stop there. When their products returned to the market it was in sophisticated packaging to protect against future efforts to tamper with them. Before the Chicago incident Tylenol enjoyed about a third of the market, more than double its nearest rival. Even though Tylenol was then, as it is now, just a J&J brand name for acetaminophen, a compound with no patent protection, none of its competitors were able to take over its dominant share of market.

A year later when I was reliving the horror story through the eyes of this frontline player, J&J had already been rewarded for its response by a rebound in market share. They were soon back to a third or better of the market; a position now at serious risk. They are facing charges of using kickbacks to a nursing home Pharma provider to push their Alzheimer's drug to unsuspecting old folks. And, of dodging possible contamination reports for nearly two years before issuing the recall of foul smelling products across several J&J lines.

A company as trusted as J&J may come away not much harmed. They may retain their massive market share or most of it. But what if the latter should prove to be the case? How much over the next few years would the loss of a point, or two,, or three,,, cost J&J? And how vulnerable are they now to the slightest misstep?

It's important for them to find out what's causing the foul odor, both in their products and in their marketing practices. However, it is much more important to find out who in their midst is responsible for exposing their reputation to these potentially catastrophic issues. In both cases they need to remember their first duty is to serve and protect the public. Then they need to rid themselves of those who twisted the J&J culture and caused the stink before it permeates the entire organization.

Comes the Revolution

IR Alert
The Journal of Investor Relations

January 21, 2010


CEO Compensation will be in our shareholders' crosshairs this year

Anyone in our discipline who believes that public outrage will end at financial sector bonuses is whistling through the graveyard. Executive compensation will be the next target and our shareholders will hit us hard. Anytime the gap between those at the top of our economic food chain and those further down grows too wide, folks rebel.

Teddy Roosevelt became perhaps the most successful occupant of the White House in the twentieth century riding such a rebellion. The former Rough Rider rode roughshod over arguably the most powerful businessmen in our history.

A trustbuster president and master politician led the first revolution during the last century. Growing in the background even as Teddy spoke softly and carried a big stick was the American Federation of Labor. Labor pioneer Samuel Gompers gathered a group of disparate trade unions together under one banner. His dream laid the foundation for John L. Lewis to leverage his position as head of the Coal Miner's UMWA into the head of the AFL-CIO and a partnership with another Roosevelt, Franklin D. This revolution carried up to World War II and created a major portion of middleclass America during the last half of the twentieth century.

That same time span, however, saw the roots of another revolution-inspiring trend: ballooning salaries at the top of America's corporate structure. At the end of World War II, these executives earned salaries that allowed room for fair compensation to the middle management and those below. In the ensuing decades, however, executive pay scales have grown way out of proportion to those at the other end of the scale.

Depending on whose figures you use, just the last thirty years have seen a huge disparity emerging. In the early 1980s, CEOs were earning about forty times as much as their average hourly employee. Today they are earning ten to twenty times that much; five hundred times as much is common and a thousand times as much is not unheard of.

Not only that, they are paying a smaller percentage of their income in taxes than those at the bottom of the scale. Who says so? Warren Buffett, who issued this challenge in a 2007 interview on NBC television: "I'll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists." So far he has had no takers, because he's right.

What does that mean for us? It means that not just the folks on the street are fed up with executive compensation. The shareholders we face day to day are increasingly going to raise this issue, and what we're hearing this week tied to banking bonuses is just the tip of the iceberg. We need to be ready, and we need to know the numbers, be it for our CEO or the CEOs of our clients. We need to know the ratio of our top folks versus the hourly folks, and yes, we need to know the tax rate they pay and how it compares to those who greet our visitors (and our shareholders) when they walk up to the reception desk.

Then, as trusted advisors, we need to have a heart to heart with our CEOs.