By Garrett Boyce
Major corporations face a lot of public pressure. From Facebook to Volkswagen, understanding how large companies navigate bad press is important to people from diverse perspectives, including consumers, employees, and future industry leaders. There are lessons to be learned about which companies are worthy of one’s patronage, which are worthy of one’s work, and how to lead one that’s worthy of both. Judging a company’s handling of a PR scandal is a vital method of assessing the savviness of its CEO, the longevity of its brand, and its commitment to social responsibility. Hence, optics are essential to maintaining a healthy and successful business.
Considering that public opinion has led to the downfall of countless companies, it’s no surprise that optics should be viewed as a vital KPI. Purdue Pharma went bankrupt over a PR scandal (Associated Press) and will close as a result (Isidore, C.). Volkswagen had their stock drop ~40% after their infamous 2015 emissions scandal (Chu, B.). Clearly, bad press is a major risk to corporations, but why is it that “problem companies” like Facebook are still in the public eye, and thriving in it (Newton, C.)?
According to Forbes, proven ways of handling bad press include responding as a team, owning up to the issue at hand, being transparent, and following the “four R’s”: regret, responsibility, reform, and restitution (Forbes Agency Council). Facebook did some, but not all, of that. Rather than responding as a team, CEO Mark Zuckerberg put the blame mostly on himself, expressed regret, took responsibility (Wiener-Bronner, D.), and pledged reform (Lee, D.). Given the Cambridge Analytica scandal was highly technical and impossible to make reparations for (having one’s data sold isn’t tangible or very quantifiable), restitution and transparency could not be achieved. This led to a loss of $134 billion, and yet Facebook was able to recover all of it in roughly two months (Mirhaydari, A.).
Volkswagen also saw a rapid recovery immediately following their 2015 emissions scandal, increasing revenue by almost 20% from 2016 to 2018 (Macrotrends). Now they’re the second largest auto manufacturer in the world, and almost tied for first (Johnston, M.). Their path to revenue growth involved layoffs, wide-scale restructuring, and a commitment to the future of electric vehicles (Campbell, M., Rauwald, C., & Reiter, C.).
As a final example, management consulting firm McKinsey & Company’s recent involvement in the same scandal as Purdue Pharma (Forsythe, M., & Bogdanich, W.) would lead any reader to imagine they would be in serious trouble too. However, this was not the case―McKinsey suffered a mere $600 million in losses, less than one month’s revenue (Forbes Staff). Even after this scandal, according to Forbes they are still one of “America’s Best Employers” this year (Forbes Staff). Their recourse involved a rare apology and an acceptance of responsibility, but frankly, not much more than that (Bogdanich, W., & Forsythe, M.). So how did McKinsey and the other aforementioned companies chart their path to normalcy, and how can they serve as examples to future industry leaders? The answer is twofold: distance and deflection.
Client services and large tech companies benefit from distance. In McKinsey’s case, their role is merely an advisory one. Oftentimes their options are restricted by their clients’ intended goals. As a result, they are burdened with far less responsibility should things go south, since the advisee is the one directly causing the trouble. McKinsey advised Purdue Pharma on how to evade bad PR and increase OxyContin sales during the opioid crisis, but ultimately it was Purdue that expressed interest and went through with it. Oftentimes this leads to companies like these being one step removed from the issue at hand, hence explaining why they are far more resilient when faced with bad optics.
Facebook and other large tech companies are different. Facebook benefits from having large subsidiaries like Instagram that feel less of the effects of scandals involving Facebook or CEO Mark Zuckerberg. When consumers think of Zuckerberg, they think of Facebook. Most don’t necessarily think of Instagram (Google Trends). Similarly, even less think of VR manufacturer Oculus. While Facebook faces backlash for privacy issues, Instagram, Oculus, and the many other companies owned by Facebook feel next to nothing. Instagram in particular is projected to reach 1.2 billion users by 2023 despite public opinion (Tankovska, H.). Facebook would be in significantly more trouble if these companies were Facebook-branded, and named “Facebook Photo” and “Facebook VR.” The system also works the other way, meaning controversies involving Instagram or Oculus will not necessarily damage Facebook.
Subsidiaries and corporate strategy also offer the ability to deflect the public eye. If Instagram was to be part of a scandal, more often than not that scandal will be localized to Instagram. Facebook would then be able to keep their reparations localized as well, suffering less damages than they would have if Facebook had been included too. Hypothetically, if Facebook is receiving backlash, they can use the “isolated issue” defense, pinning the blame on a subsidiary and protecting the overall brand image of Facebook. This method works for any company with subsidiaries, serving as a necessary way for CEOs to divert attention. CEOs can utilize smart corporate strategy too: while CEOs are in essence the “face” of a corporation, controversies can be attributed to a few “bad apples” which can be excised from the organization, saving face and allowing CEOs to once again protect their company’s brand image. This strategy is similar to the one employed by Volkswagen (Campbell, M., Rauwald, C., & Reiter, C.). They made layoffs, changed CEOs, restructured, and created a sweeping, ambitious plan for the future of the company. The change of management and new long-term strategy gave Volkswagen an exciting new face, leading to the success they are experiencing today.
These tactics and more are crucial to the success of a large business. How well they are implemented can determine the longevity of a brand, the stability of a workplace, and likely also a CEO’s career. Therefore, it’s vital to take heed of how companies handle damage control in order to make more informed decisions as a consumer, prospective employee, or future industry leader. □
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- Associated Press. (2019, September 16). Opioid maker Purdue Pharma files for bankruptcy as part of settlement. Retrieved March 17, 2021, from https://www.marketwatch.com/story/opioid-maker-purdue-pharma-files-for-bankruptcy-as-part-of-settlement-2019-09-15
- Bogdanich, W., & Forsythe, M. (2020, December 08). Mckinsey issues a rare apology for its role in oxycontin sales. Retrieved March 17, 2021, from https://www.nytimes.com/2020/12/08/business/mckinsey-opioids-oxycontin.html
- Campbell, M., Rauwald, C., & Reiter, C. (2018, March 29). How Volkswagen walked away from a Near-fatal Crash. Retrieved March 17, 2021, from https://www.bloomberg.com/news/features/2018-03-29/how-volkswagen-walked-away-from-a-near-fatal-crash
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