Three Important Mantras for CEOs and Risk Managers in 2002

January 2002

Jeanne Finegan examines three steps critical to mitigating the expense for potential product recall and class-action litigation that also help nurture corporate reputation.

by Jeanne Finegan, APR
The Garden City Group, Inc.

CEO mantras of 2002 should include three principal guides to action:

• Monitor.Watch and listen to the community discussion that takes place over the Internet, in the customer service office, on the sales floor.
• Train. Maintain positive customer/consumer relationships by empowering employees with innovative training to identify areas of customer and product dissatisfaction and how to seek resolution promptly.
• Disclose. Be a responsible and good corporate citizen—tell the truth.

These steps will be critical in mitigating the expense for potential product recall and class-action litigation, and nurturing corporate reputation.

Through careful monitoring, CEOs and risk managers can fully understand how their company is perceived in the marketplace versus how they believe it is perceived. Monitoring allows senior staff to identify areas that could produce an environment for customer dissatisfaction. Combined, these steps provide an excellent barometer for the management of brand and corporate reputation, potentially reducing the fiduciary consequences of liability and litigation.

Mantra One: Monitor

Watch for complaints and accolades. The Internet has become the largest focus group in the world. Savvy risk managers are well advised to work with senior staff and CEOs to listen and react to the community discussion taking place about corporate officers, corporate statements, corporate actions, products, employees, and customer service.

In his book Hypertext, George Landow indicated that the Internet has introduced a dynamic that decentralizes control: no one conversation; no one discipline; and no one ideology dominates or founds the others. According to Landow, it is called an "edifying philosophy, the point of which is to keep conversation going rather than to find objective truth."¹ What impact will this have on corporate America?

Communication is exploding; employees, managers, customers, suppliers, shareholders, media, and advertisers are all discussing, on many levels, lawsuits, settlements, corporations, products, officers, reputation, and practices. Increased communication has the potential to have a long-term impact on corporate action and/or ethics. With so many people talking on so many levels, it is nearly impossible to keep secrets. If a corporation decides to take a shortcut, treat employees badly, or provide poor customer service, chances are someone will talk about it. The result: it has become easier for these groups to speak their minds about problems.

It's all a matter of mining. The Internet provides a wealth of information if you look in the right place. By integrating Internet intelligence feedback from customer service, sales representatives, and marketing staff, the senior management can achieve a "Big Picture" of the market, products, and how corporate actions and statements are aligned and perceived.

Getting the big picture is an imperative for decision-making. One way to pull all of this information together is to create an Internet and Reputation Management Task Force. Your task force should be composed of key people from marketing, sales, customer service, management, and production. Gather field and departmental information. If you don't have a formal Internet monitoring program, assign a team to gather information on-line. Assign "beats" that include their areas of interest. That way, they will be more likely to keep looking. Each week this group might share internal, online, and external information that is critical big picture feedback, thereby allowing management to make informed decisions and potentially mitigate the risk of liability exposure or potential threats of litigation.

In addition to watching consumer complaint sites on the Internet, there are a host of rating sites to watch, including the following:

• Planetfeedback.com—Offering a wide range of intelligence on consumer products, brands, and services.
• OpenRatings.com—This site gathers customer feedback on nonprice features like service quality and on-time delivery.

It is possible that no matter what your company does, customers, employees, and disgruntled individuals may be discussing and rating your company online. Because of the viral nature of the Internet, these individuals can have tremendous positive or negative impact with those who are conducting due diligence on your firm. It is your fiduciary responsibility to know who is saying what about your company.

Mantra Two: Train

Train your employees to adeptly watch and listen for problems and then manage the problems when they occur to keep your customers happy. A recent white paper called the "Feedback Iceberg and Goldmine," published on planetfeedback.com/, B2B section identified an interesting concept called the "Complaint Iceberg." In the paper, author James Heskett, Ph.D., Harvard Business Professor Emeritus, draws a clear picture of how certain consumer behaviors, such as complaining, can give you only a portion of the information you need to know. It is critical for risk managers to know that only the top of the iceberg breaks the waterline. As analog to this concept, Heskett suggests that when consumers want to express a concern or complaint, they may not know where to go. This can lead to frustration and a cessation in communication.

This is where a company can operate on "thin ice." If communications halt, your firm is not getting the information you need to remedy the situation. Customers may stop buying your product, speak negatively about you and your firm, join chatrooms over the Internet, or worse seek a legal remedy—all of which damage corporate reputation, resulting in a loss of profitability.

Employees can help provide corporations with the first line of defense. Therefore, it is crucial to provide them with the right kind of training, which will help them identify areas of customer and product dissatisfaction. Additionally, companies must empower their employees to produce quality work and take decisive actions to remedy problems.

The way to do this is by providing a learning method that trains people to deal with situations that lead to poor quality work and the inevitable result: unhappy customers who are more likely to seek redress in court. This new approach to training should utilize a combination of traditional and compelling new on-demand (just-in-time) multimedia tools and techniques to both motivate new behavior and to educate the learner in critical skills that will help head off problem situations before they become critical issues/lawsuits.

So what does this type of effective training look like? Strictly traditional learning is structured purely around logic: if you do this you will get these results. Avoiding liability often calls for common sense and sometimes thinking "out of the box." Training to create this type of thinking is not simply logic based but should include "messy" things, such as relationships, values, interests, and inspiration, which have to be addressed by any effective learning program, according to John Bernard, chairman and CEO of StoriedLearning Incorporated in Portland.²

Bernard says that for learning to occur and benefit your organization, a number of things must be present.

• The learner must play an active role (they need to do things).
• The learner must have a compelling need to learn (mitigating risk, preserving sales)
• Learning must be delivered to match the learning preferences of the Learner (some people are visual, some auditory, and others are kinesthetic).
• Learning must adapt to the learner's individual needs.
• Learning must be applied immediately.

More importantly, employees will only be willing to learn if they are experiencing job satisfaction. Case in point: consider the number of employees at Blockbuster Video who launched rogue Web sites—disclosing internal practices of the company, which ultimately led to class-action litigation. These employees join chatrooms to discuss their unhappiness with the way their employer had treated them. These employees were not "inspired" to learn, or empowered to take any kind of actions on their own, so they turned their energy to negative practices toward their employer.

Until recently, says Bernard, this innovative "out of the box" training has been a tough bill to fill, but with the advent of multimedia computers and the rapid rise of broadband for the Internet, a new world of possibilities exists. Any effective training program today must combine the advantage of technologies available to deliver on-demand learning to the desktop for the first time in a way that augments traditional classroom lectures, seminars, workshops, etc., and focuses on "situational learning." Bernard had this to say:

Our best time to learn is when the learning is situational. In other words, when it helps us get our work done and feel good about how we did it. The critical time to learn is when you're in the middle of a critical situation and you simply don't have a clue what to do. This is when most problems between managers and employees, employees and employees, and employees and customers and stakeholders crop up. That's the time to tap into a learning program that'll both provide perspective and teach critical skills.

Studies at the California Institute of Technology have proven that when the creative, intuitive, and visual right brain works in conjunction with the logical, linear, and verbal left brain, greater understanding occurs and is effective in changing behaviors. How do you put all this together to keep your customers happy?

First, you need to convert the feedback process into information that works for your company. A database that systematically logs complaints, field data, accolades, and preferences is the first step. The second step is making sure that there is an out-flow of this critical information to the point of action—or those who can respond or remedy the problem.

Make sure that it is easy for your customers to communicate their concerns or opinions, and provide employees with incentives for feeding back information to the company. When all this has been achieved, make sure that you act decisively on the information. At that point, your corporate actions and messages will be in alignment, and your customers will know that you listen and that you care.

Mantra Three: Disclose

Telling the truth is paradoxical concept to many. Attorney Sidney Kanazawa, of Los Angeles based Pillsbury, Winthrop, suggests that, "Honesty is still the best policy and the right thing to do." In an article published in The Practical Lawyer, Kanazawa says,

It is the easiest way to be consistent and not appear to be hiding or saying different things to different people. Second, internal secrets have a bad habit of becoming public disclosures. Third, hiding suggests knowledge and an unwillingness to act upon that knowledge.³

This is underscored by the recent problems with Jeep Cherokee's inadvertent "rollaway in reverse" incidents, involving Grand Cherokees. According to an article in the Seattle Times, Jeeps jumping from park to reverse have been the cause of at least 359 crashes, 184 injuries, and 5 deaths.⁴ At first the company tried to deflect the problem by placing blame on the consumers. However, in newly revealed testimony, a Jeep engineer has indicated that the problem may be related to poor design. Lawsuits, negative media attention, government agency inquiry, and public ire are now focused on the company.

In the world of public opinion, the perception that a corporation might be hiding or withholding critical information is a clarion call for all media, it draws the ire of the public, and it is a potential trigger for liability and/or mass litigation.

Telling the truth is about making sure that your actions and messages are in alignment. It is about doing the right thing. What does this really mean? It means that you have to make sure that your front-line employees are trained and equipped with the proper tools to handle adverse situations. Listen to them. They should not be penalized for telling you that the "emperor has no clothes," or telling you that there are problems with certain products or services. Listening to negative information can be tough. But there could be gold nuggets that can assist in nurturing good corporate reputation and ultimately avoiding litigation.

Listen to the discussion over the Internet. There are very sophisticated tools that will help monitor and evaluate the tenor of discussion and the level of activity various attack or complaint sites are receiving.

If problems are identified, then act quickly. Maintaining goodwill among your key stakeholders requires that you act in the best interest of your customers. According to Kanazawa, "If litigation ends up in trial, jurors will look at three timeless factors: knowledge, power/ability, and intention/diligence." In an excerpt from his article, he says:

In the manufacturing context, if the manufacturer knew about a problem and did nothing about it, the manufacturer is "bad." If not, the manufacturer may not be "bad" and may not be liable because it could not have known about the risk at issue. If the manufacturer had the power/ability to correct the problem and did nothing, the manufacturer is "bad." If not, the manufacturer may not be "bad" because it could not have done anything differently. And if the manufacturer only focused on money or was not rigorous in its safety efforts, the manufacturer is "bad." If not, the manufacturer may not be "bad" because it tried its best under the circumstances.

Prior to the expansion of the Internet, corporations had a mystical, if not mythical, veil of secrecy that could cloud the scans of the public and legal counsel. Many corporate leaders have subscribed to the belief that internal secrets can be kept. Not true. If your employees, customers, or stakeholders know of a problem, the chances are that some information about its problems will be communicated via the Internet.

The Internet can turn a mouse into a lion in short order. Customers can be heard around the world, and risk managers need to realize those formerly acceptable practices of denial, diversion, or indigence will not work. In fact, this practice makes things worse. It presents a red flag to the media that could cause investigation and unfavorable press.

In the past, legal counsel had advised a policy of no comment and promoted a closed-door strategy. However, this presents problems for the corporation in the long term. The media can smell legal responses a mile away, and will dig even deeper to find a story. The public feels incensed at deflection, inaction, or denial. Traditional public relations strategy advises openness. However, openness has the potential to create more difficulty for lawyers trying to defend an organization should a lawsuit arise—but it also has the potential to show the public and the media that the corporation cares and is responsible. The impact of each approach is very clear.

Here are four steps that Risk managers can use to blend the two strategies to work together to defend the corporation, and make sure that reputation is managed.

1. Work with public relations professionals to identify and implement key actions and involve legal counsel in determining your key messages.
2. Work with public relations and legal counsel to make sure your communications accept an appropriate amount of responsibility.
3. Respond quickly to the media about the company's problems.
4. Avoid the appearance of hiding information.

The "three mantras" will not only provide risk managers and CEOs with intelligence about their company, it will provide them with the tools to mitigate damages, avoid costly litigation, maintain corporation reputation, and, ultimately, preserve profitability.

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¹Landow, George P., (1992). Hypertext The Convergence of Contemporary Critical Theory and Technology pp.70: Baltimore: John's Hopkins Press.

² www.StoriedLearning.com (2002).

³Sidney Kanazawa, Esq., A Common Sense Approach To Liability Avoidance, AMERICAN LAW INSTITUTE - PRACTICAL LAWYER. (Dec. 2000).

⁴Ricardo Alonso-Zaldiver, Company Blames Jeep Woes on Drivers; Autos Leap From Park To Reverse, Seattle Times, (Dec. 24, 2001).

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