All posts by Justin Doherty

  • KPMG Reputation Crisis

    The KPMG insider trading scandal is a big deal that has huge implications.

    The accountancy profession has been under scrutiny over its performance during the financial crisis, and since the failure of Arthur Andersen in the wake of Enron.

    KPMG has issued a statement condemning the partner’s ‘rogue actions’.

    Honest Accountants

    Honest Accountants

    Journalists will look for the newsworthy angles – to whom was the information passed, what was the information, did it lead to buying or shorting stock, and who else was involved?

    But the big issue here is actually the reputation of KPMG, the broader accountancy profession, and the ability to deliver accurate, impartial and confidential assessments of companies’ financial positions.

    The most damaging sort of reputational crisis is that where the core business of an organisation is called into question.

    The business model of the accountancy profession is built upon partners acting with discretion and impartiality, in a position of trust.

    The violation of those principles by a partner, however ‘rogue’, is something KPMG and the profession will now have to grapple with.

    The accountancy firm’s culture, practices, oversight, and controls will be subject to a great deal of scrutiny in the coming days.

  • Apple Apology

    Apple CEO Tim Cook has issued a rare and full apology in response to accusations by Chinese state-controlled media of ‘arrogance’ and ‘greed’. The attacks related to Apple’s after sales policy of repairing not replacing defective products, unlike the rest of the world.

    Apple in China

    Apple in China

    Apple rarely apologises. (Last year’s apology by Tim Cook over the Apple Maps debacle was highly unusual for the company.)

    This time however the stakes may be even higher.

    China is Apple’s third biggest market, its fastest growing market, and Cook has said he expects China to replace North America as its largest source of revenue in the foreseeable future. Apple made sales of $6.8 billion in China in the last quarter of 2012.

    So, in a statement issued last week, Tim Cook said:

    “We recognize that we have much to learn about operating and communicating in China, but we want to assure everyone that we bring the same deep commitment and passion to China as we do to any other part of the world. This commitment, a desire to delight all of our customers and provide them with an extremely high-quality experience, is deeply rooted in the culture of our company. And we will not rest until we achieve this goal.”

    What is going on here?

    Firstly Apple products benefit from Chinese manufacturing – and the Chinese want their pound of flesh. Any sense that they are getting second best, from an iconic global brand such as Apple is not going to be acceptable.

    Secondly the speed and power of the Chinese state controlled media, carefully coordinated and unleashed with tremendous force is not to be underestimated. Near-daily media assaults over the period of a fortnight, and the threat of penalties from two Chinese government bureaus, left Apple reeling.

    Thirdly the impact of a brewing fight with the government was felt almost immediately as Apple’s largest active shareholder, Fidelity Contrafund, reduced its holding by 10pc. Apple shares lost 2pc in New York on the news and have fallen significantly this year.

    Foreign companies who are adept at managing reputations at home find it much tougher to navigate China where state media outlets often have opaque agendas and intentions.

    Tim Cook, unlike Steve Jobs who never set foot inside China, understands the region well, having been responsible for building Apple’s supply chain in Asia. So he knows a thing or two about how things operate there.

    Other brands have been targeted in a similar way over recent months – and include Yum Brands (KFC and Pizza Hut), Volkswagen, McDonalds and Carrefour. Hewlett-Packard was famously targeted in 2010 and apologised for faulty laptops.

    But…

    In a curious twist the attacks backfired almost as soon as they began.

    The attacks were mocked by increasingly sophisticated Chinese consumers who saw through what might appear a rather basic attempt at economic nationalism.

    Apple and its products command tremendous loyalty in China, as they do elsewhere in the world.

    And this furore has inadvertently revived complaints over shoddy service by Chinese companies, the very companies the government is presumably attempting to protect.

  • Distasteful Advertising

    Ford and WPP Group, together, find themselves in damage control mode.

    An Indian subsidiary of JWT, Ford’s advertising agency, released some (not very good) advertisements that depicted women tied up in the boot of a car driven by ex Italian Prime Minister Silvio Berlusconi.

    Ford Ad

    Ford Ad

    “We deeply regret the publishing of posters that were distasteful and contrary to the standards of professionalism and decency at JWT,” a company statement said.

    This was the result of individuals acting without proper oversight and appropriate actions have been taken within the agency where they work to deal with the situation,” WPP said.

    The perpetrators have now been fired, we learn.

    So what does this episode tell us?

    Staff and suppliers pose some of the biggest risks to hard won reputations – in this case the actions of a creative team within a subsidiary of one of Ford’s suppliers (one the world’s leading ad agencies).

    As brands encourage ever more public and staff generated content, the potential for inappropriate content associated with their brands will increase.

    In a well-disciplined organisation the risks posed by staff or supplier generated content can be mitigated but not prevented through management, culture, training and social media policies.

    In the case of user generated content it is almost impossible to control and even apparently benign campaigns can backfire (Why I Shop At Waitrose).

    Once an issue has erupted decisive action is required to identify, analyse, address, explain and repair any damage that may have been done.

    This is a particular challenge for those involved in the production of content. The core business of advertising agencies, TV companies, newspapers and magazines is to produce and distribute content, and particularly content that generates attention.

    Lessons?  Robust reputation risk planning is a must – with the people and processes in place to deal swiftly with an uproar that might occur.   Then again the most effective form of damage control is prevention.

  • Tesco Apology

    The challenges faced by the processed food industry are being extensively covered elsewhere. Reputations of major supermarkets have been challenged (they are supposed to be our trusted purveyors of food and they ought to ensure that we get what we think we are buying).

    Food brands have been caught out and will suffer – news last night was that frozen burger sales are 40% down.

    The apology by Tesco last month was swift and decisive.

    Full-page ads in newspapers, and posters by checkouts. Many of the hallmarks of an effective corporate apology were followed:

    • swift action to acknowledge of the problem
    • plan to do something about it
    • commitment to keep people aware of developments
    • avoid any attempt to ‘spin’ into a sales message

    Compare this with some of the banks’ recent travails – in the case of Goldman Sachs this embarrassing climbdown on bonus payments.

    Terry Leahy, the ex CEO of Tesco, left a legacy which still runs strong. Here on BBC Desert Island Disks he talks about his straightforward approach to building one of the UK’s most successful businesses.

    Third Largest Retailer in the World

    Third Largest Retailer in the World

    Somebody give him a bank to run.

  • Simplicity

    I’m reading Ken Segall’s insider account about working with Steve Jobs, Insanely Simple.

    It was recommended to me by a colleague and friend of Steve (Jobs), whom I found lurking at Babington House the other morning.

    The Secret to Apple Success

    The Secret to Apple Success

    This book is an inspiration to anybody who finds corporate technobabble and management speak a smoke screen for weak and woolly thinking.

    The premise is that Apple’s success under Jobs was due to:

    • Exceptionally high standards
    • Ruthless obsession with keeping things simple
    • Small focused teams, trusted to be creative and get on with the job
    • Eternal vigilance towards simplicity’s evil twin, complexity

    In a memorable visual metaphor Segall describes Steve wielding his ‘simplicity stick’ amongst colleagues.

    And refreshingly Segall doesn’t pull his punches laying into the failures of big corporations such as Dell, Microsoft and Intel, their internal divisions (literally), and their obsession with complexity.

    Apple is a big corporation that behaves like a start up and resists what it calls ‘big company behaviour’.

    Apple’s reputation is built on its ability to minimize, deliver beautiful, innovative products, designed for customers as people.

    Now you can digest some of the secrets of Apple’s success.  And perhaps sharpen your simplicity stick.

     

  • People – staff, suppliers and reputation

    Amazon security staff in one of its warehouses in Germany have allegedly been intimidating low wage staff, whilst wearing neo-Nazi uniforms.

    Camp Amazon

    Camp Amazon

    In any large organisation people represent one the greatest areas of risk to its reputation.  Never more so than now – staff behaviour, photos, tweets, Facebook-ing all have the potential to draw the attention of millions of global eyeballs – scrutinising your organisation and how it operates

    Outsourced functions (in this case security) can be even more challenging to manage and control.  How do you ensure your supply chain doesn’t damage your reputation?

    Amazon’s difficulty here is what this incident indicates about its broader approach – its treatment of its workers, and the conditions in which they operate.  At the moment Amazon scores highly on surveys of well respected brands.

    But people will think twice if they believe they are supporting a company whose values are at odds with society.  This applies not just to customers, but regulators, governments and tax authorities.

    It was announced that Amazon has terminated its contract with the security firm involved.

    Amazon is reviewing its approach to corporate reputation management, and it would be well advised to consider specifically the implications of supplier selection and behaviour.

    This has profound implications for its business.

  • Huawei – actions louder than words

    China’s Huawei is now the world’s largest telecom maker, having overtaken Ericsson last year.  It is a $32-billion business with 140,000 employees, and customers in 140 countries. It has a reputation for delivering high-quality telecoms equipment at low prices.

    It is also believed – by some – to be a puppet of the Chinese military.

    Hidden dragon

    Hidden dragon

    Huawei’s founder Ren Zhengfei served as an engineer in the People’s Liberation Army (PLA).  And governments are highly anxious of the rapidly evolving cyber threat.

    The FT reports that Huawei now plans to disclose detailed financial and shareholding information in attempt to allay fears over suspected ties to the Chinese military which have hampered its global expansion.

    A report last August in The Economist described the efforts Huawei have gone to to convince the world of its peaceful intentions.  The fear is that the company is are building networks that allow eavesdropping during peacetime, and which could be shut down suddenly during wartime.

    Could the firm be another weapon within China’s cyber-arsenal?

    Intriguingly in the UK Huawei has established a unit run in close co-operation with GCHQ (Britain’s signals-intelligence agency) with security-cleared personnel, including former employees of GCHQ, to vet gear from China before it is installed.

    Which would seem to be a very tangible way to address some of the reputation issues that Huawei is facing.  Actions, after all, speak louder than words.