This year was filled with PR disasters. And Twitter made all of them exponentially worse. “There now seems to be an appetite for getting excited for these blunders,” says Paul Argenti, a professor of corporate communication of Dartmouth’s Tuck School of Business who has advised clients including Goldman Sachs and General Electric on reputation management.
“People weren’t always as interested in seeing organisations fall. There’s more negative thinking about corporations and people are more excited to hear about their mistakes than ever before.”
Argenti offered us his list of the top 11 PR disasters of 2011:
Netflix frustrated millions of customers this fall when CEO Reed Hastings announced he’d split the company in two. There was such huge backlash against Qwikster that shares plunged, and 23 days later, he took back the announcement. (Now Hastings is paying for it, with a 50% reduction in his stock option awards next year.) Argenti says that Netflix will never regain its previous status as the dominant market player: “The company has strategy execution issues. What they should do is kill people with service.”
Former British CEO Michael Woodford exposed “one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history” by revealing that Olympus hid $1.5 billion of investment losses, going back three decades. Details are still emerging, and this week Japanese prosecutors announced they were “set to raid the offices of Olympus Corp and homes of former executives,” reports Reuters.
The News of The World hacking scandal has tarnished Murdoch’s News Corp. brand, and ultimately, his legacy. It led to police and government investigations for bribery and corruption in the UK, and FBI investigations in the U.S. The 80-year-old media tycoon has already paid out settlements to a number of public figures; and the saga is still ongoing.
Tokyo Electric Power Company (TEPCO)
The Tohoko earthquake and tsunami damaged TEPCO’s Fukushima Daiichi plant, leading to the biggest nuclear disaster since Chernobyl. Damaged reactors led to leaked radiation and displaced 50,000 households. The head of TEPCO, Masataka Shimizu, checked into a hospital shortly after the disaster, and resigned in May, when the company reported a $15 billion annual loss, “the largest by a nonfinancial company in Japanese history.”
The former New York U.S. representative ruined his career when he got caught Tweeting explicit photos of himself to a young woman. The impact is “long-term horrible,” Argenti says. “I think Anthony Weiner’s career is over.” And because he’s not as powerful as, say, Eliot Spitzer, the political fallout is “more devastating for him.”
The child sex abuse scandal involving assistant coach Jerry Sandusky has damaged Penn State’s renown sports program for the near future. The implications are “also devastating,” says Argenti. “The university’s entire reputation was built off money they were making off of sports. Consider if your kid were applying to school right now. Now Penn State has a big black mark.” Instead of trying to cover up the scandal, the school should have been more transparent early on, he says.
Buffett caught some rare negative publicity earlier this year when one of his potential successors, David Sokol, bought around $240,000 of Lubrizol Corp. shares after being advised by Citigroup, then pushed Buffett to buy the company — which he did, in a $9 billion deal. Argenti says Buffett has always been a “most-trusted reputation player,” and his reservoir of goodwill is similar to that of Johnson & Johnson, which is why he’s already largely forgiven by investors.
The former prime minister of Italy is the country’s third-richest man — worth $6.2 billion in 2011 — and he has major stakes in the nation’s media companies. He managed to keep his post amidst a firestorm of criticism over his escapades with young women, but the European debt crisis pushed parliament to finally pressure him to resign in November. He’s now on trial facing accusations of fraud, bribery, and paying an underage woman for sex. Berlusconi tried to use political power to cover up his mistakes, says Argenti, instead of being transparent.
U.S. Congress Deficit Supercommittee
The committee was created in response to the 11th-hour debt-ceiling talks in August. But instead of solving the partisan gridlock problem and figuring out ways to balance the budget, the supercommittee announced it couldn’t come up with a deal by its November deadline.
Sheen had an extraordinarily bad year. His drug, alcohol and marital problems became extremely public, but instead of making an effort to solve his problems, Sheen aggravated the situation with some embarrassing public appearances, which led to him getting kicked off his television show, Two And A Half Men. His defiance is what made his PR problem disastrous.
Kardashian is another celebrity who damaged her image in 2011. After 72 days of marriage and making $1.5 million from the photo rights to her wedding photos, she divorced her husband, NBA player Kris Humphries. The move confused and betrayed her fans. Now the Kardashians — who made $65 million this year — are caught up in a sweatshop investigation.
Then there are some PR crises that could’ve turned into disasters, but didn’t. Take McKinsey & Co.’s response to the Rajat Gupta insider trading scandal. “McKinsey understands its reputation, and knew it couldn’t just sit back and do nothing,” says Argenti. “They realised they needed to be more transparent — even though they’ve always been very secretive. Their outreach to media was proactive.”
How can companies protect against a PR disaster? “It’s not so much bad things that happen to you — it’s how you react,” says Argenti. “It’s companies taking out reputation risk insurance. If you’re one of the top organisations in the world, you’re doing everything possible to protect your reputation.”
These PR disasters are a reminder that companies need to plan ahead, and develop social media policies, so that they’re not on the wrong side of the national conversation.