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Restoring Damaged Brands    [Date Added : 09/21/2005 ]
Following a corporate scandal, managers who acknowledge they have problems and launch communication programs to repair their tarnished reputations stand the best chance of rehabilitating a tainted brand or corporate image, according to the Wharton School of Business and branding consultants.

Martha Stewart, accounting firm KPMG, insurance broker Marsh & McLennan and Merck, the manufacturer of the troubled painkiller Vioxx, are among the most recent examples of companies that face the challenge of restoring damaged reputations.

Depending on the nature of the scandal, says Wharton marketing professor Barbara Kahn, companies can take a slow and steady approach to brand repair, or a swift "silver bullet" solution. McDonald's, she says, could take the slow road in addressing charges that its fast food contributes to the America's rising obesity. She says: "What you would do is associate McDonald's with more nutritious offerings and slowly move the image in a believable way."

Marsh & McLennan is taking a quick, clean-sweep approach to restoring its corporate image after running afoul of New York's attorney general Elliot Spitzer. In January 2005, the firm agreed to pay US $850 million to settle charges that it took kickbacks to recommend insurance providers to clients. Meanwhile, the company has tapped former prosecutor Michael Cherkasky, head of its Kroll investigative firm, as chief executive. Cherkasky is now restructuring the company to de-emphasize its insurance business and boost other divisions, such as Mercer Consulting and Kroll. After bringing "in a person with 'the right image,' the message is, 'Now we have new management. We are a new company,'" says Bruce T. Blythe, chief executive of Crisis Management International in Atlanta and author of Blindsided: A Manager's Guide to Catastrophic Incidents in the Workplace.

Kahn points to Johnson & Johnson's rapid response to its Tylenol tampering incidents as the gold standard in addressing a corporate problem openly without taking on blame. "J&J came out and said it cared about its customers. That's what you do. You don't want to be defending yourself. You want to put forth the values that are critical to your company," says Kahn, adding that the situation differs from Merck's current problem with Vioxx because J&J was reacting to a problem that was created externally. If Merck says too much about allegations that it withheld critical information, it could damage its position in pending lawsuits.

As a result, Kahn says Merck might choose not to address Vioxx in the mass media, but instead communicate with doctors who are an intermediate channel in marketing prescription drugs. She notes that Wyeth focused on marketing hormone replacement treatments through doctors after questions were raised about the safety of such therapies. "The good news about brands is that people know who you are. The bad news is that if something goes wrong, everyone knows."

Wharton management professor Katherine Klein suggests that in the process of designing a rehabilitation strategy, corporate executives should first consider the nature and severity of the offense. When people think about a corporate crisis or scandal they are likely to ask two questions, she says. The first is: What is the nature of the scandal? More specifically, who was hurt and how badly? The second question is: Who is at fault and why did they do it?

"If the public's response to the first question is that few people got hurt, they weren't hurt badly, and the people who were hurt had a lot of resources, then the potential damage to the brand is relatively small," says Klein. Martha Stewart, who is openly addressing her past with television ads about how she learned to make crème brule in a prison microwave, represents an example of a brand that may not suffer greatly following its founder's prison sentence for insider trading, Klein suggests.

Turning to the second question, if only one or a few people were at fault, the potential damage to the brand is limited and can be addressed by getting rid of the person or people who are to blame, says Klein. "KPMG looks as if it might fall into this category." Eight former KPMG partners and a lawyer have been charged with helping wealthy clients avoid at least US $2.5 billion in taxes, and more indictments are expected. However, last month a federal judge approved a US $456 million settlement that allowed the firm itself to escape indictment.

On the other hand, if numerous people are at fault in a corporate scandal because the company does not hire or train people well or operates with excessive greed, then that indicates a more systemic problem that cannot be addressed with a few strategic firings, says Klein. "The worst damage to a brand occurs when the public concludes that many defenseless people have been, or could have been, harmed and believes that many people in the organization are at fault because they, and the company as a whole, are incompetent or immoral."

According to Wharton marketing professor Josh Eliashberg, Merck may be facing this situation with Vioxx, the arthritis drug which has been linked to heart attacks. "Essentially Merck instructed its sales force not to disclose all the information they had about the efficacy and the safety of Vioxx," Eliashberg says, suggesting that Merck should begin the process of restoring its brand by settling outstanding lawsuits with people who took the drug.

Another company that Lou Rubin, managing director of DPrime Consulting, a unit of Omnicom Group, says has effectively weathered scandal is Boeing. In the past year the company's chief financial officer was sentenced to prison for recruiting a Pentagon official responsible for billions in Air Force contracts, and its chief executive was dismissed after having an affair with another Boeing executive. "The company has never stopped telling people what it does, which is invent the most incredible flying machines in the world," says Rubin. Companies that are already communicating a solid message when scandal hits should not retreat. Rubin adds. "Stay the course. Don't pull back. If you pull back, that says, 'We didn't believe what we said before.'"

With myriad choices of how to communicate, Rubin says traditional media, such as newspaper and television, are the best places to come clean after scandal. "The traditional media tend to be broader than what you might normally use, but that's a way to make sure you are acknowledging the issue as opposed to appealing to special interests," he says. "You don't want to be perceived as communicating only to special interests."

The rise of the Internet poses new problems for post-scandal communications, adds Blythe. "Blogging can kill you. Before, when we had a problem, it was addressed in the public media. Now the Internet is many times faster, more unforgiving and out of control." Increasingly, Blythe's firm is helping companies monitor statements about them on the Internet and generate their own blogs.

The most important new development in scandal management, however, is the passage of the Sarbanes-Oxley Act, which holds executives personally liable for accounting irregularities and is likely to prevent scandals before they happen, Blythe notes. "There is no excuse now for unethical behavior. The consequences are grave. Senior managers are looking at this with deep concern and making sure that they are doing the right thing."

(extract of "Brand Rehab: How Companies Can Restore a Tarnished Image," Knowledge@Wharton, September 7-20, 2005. Copyright 2005 The Wharton School of the University of Pennsylvania.)
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