Page 650 - Encyclopedia of Business and Finance

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Publicity

can hire external CMTs or develop and train in-house reported, “On November 8, Enron filed documents with
CMTs. the SEC revising its financial statements for the past five
A company or organization should avoid hesitation years to account for $586 million in losses.” The com-
in speaking with the press when a crisis occurs. Hesitation pany’s bankruptcy was the largest in history and the
may be perceived as callousness, incompetence, or a lack 21,000 employees with 401K pension plans invested in
of preparation. Obfuscation, or being unclear, leads the the company were left with worthless stock. Arthur
public to believe that the company is insensitive or is not Andersen waited too long to take responsibility for the
being honest. Retaliation can increase tension and tampered financial statements and this hesitation alone
heighten emotions, rather than reduce them. Prevarica- ruined the firm’s reputation just as badly as Enron’s.
tion, or making false statements, is the biggest mistake a
company can make because nothing should substitute for Firestone and Ford. In August 2000 Firestone tires found
the truth. The use of inflated language—pontification— itself in a major crisis. The event caused sales for the 100-
simply avoids the issue at hand. Confrontation will keep year-old brand to drop by 50 percent. Firestone tires could
the issue alive, and litigation eliminates all other viable be found on the Ford Explorer, the most popular sport-
solutions to the crisis. utility vehicle in the United States, and a tire defect had
To combat negative publicity during a crisis, commu- been linked to 88 road deaths in the United States and a
further 46 in Venezuela. After recalls in eighteen countries
nication lines must be opened. A company spokesperson
allegations surfaced that both companies had been aware
should be selected, and all employees should send any cri-
of the defect since 1997, but rather than warn consumers,
sis inquiries directly to this spokesperson. The media
the companies withheld important consumer safety infor-
should be supplied with information as quickly as possi-
mation. Initially, 70 percent of consumers believed Ford
ble. The company must be open to the media and tell the
full story so that reporters do not look to outsiders to fill and Firestone handled the crisis well. After only two
weeks, however, that number dropped to 17 percent,
in the gaps.
severely tarnishing both brands—and leading to the use of
The company must express its concern about the cri-
derogatory names, such as Gravestone and Tombstone, by
sis and should show empathy for all who are affected by
some consumers.
the problem. Most importantly, the company should tell
the public what it is going to do to resolve the crisis and
should have a company representative available twenty- Wal-Mart. In 2005, according to the Wal-Mart fact page
four hours a day so long as media interest exists. on the company’s Web site, there were six former female
employees who had a class-action suit against the com-
Once the crisis is over, the CMT should meet again
pany and were claiming the company discriminated
to summarize the crisis situation, review and evaluate how
against women. To proactively combat this negative pub-
the plan was implemented, and give open feedback and licity, Wal-Mart created a separate diversity office in
appropriate recommendations in order to determine November 2003. At that time, women made up 60 per-
where improvements can be made in the crisis-manage- cent of Wal-Mart associates, but held only 40 percent of
ment plan. management positions.
In addition to these suits, Wal-Mart had 40 pending
CASE STUDIES wage and hour cases in which employees claimed they
The crisis management methods used by four compa- were working without being paid. Wal-Mart’s Web site
nies—Enron, Firestone, Ford, and Wal-Mart—are exam- openly states, “These allegations go against our three basic
ined below. beliefs—respect for the individual, service to our cus-
tomers and strive for excellence—and we take these alle-
Enron. Nick Beams, author of Enron: The Real Face of the gations very seriously.” Wal-Mart, unlike Ford, Firestone,
“New Economy” wrote about the 2001 accounting scandal and Enron, was not hesitating to get their message out
surrounding Texas-based energy trading conglomerate into the public and was taking a proactive approach to the
Enron. Before its destruction, Enron had been included negative publicity; as a result, sales for the company were
six times on Fortune magazine’s annual list of “most inno- not being adversely affected.
vating companies.” Also destroyed by the scandal was the
company’s accounting firm Arthur Andersen. SUMMARY
Enron was formed in the late 1980s as a result of a Publicity is not advertising, public relations, or promo-
merger between two gas pipeline firms. By 2000 it had tions, because it is not controlled or paid for, but it has
accumulated $101 billion in revenue, but by October many advantages. If used correctly, companies can benefit
2001 the company reported a $638 million loss. Beams greatly from publicity. Careful planning, research, and

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 627