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16 Nov 2013   12:18:04 PM   Saturday BdST E-mail this

Bloomberg’s Top 10 crises -2013

Rana Plaza Tragedy the Third

News Desk

DHAKA: Rana Plaza tragedy got the third position in list of the top ten Reputation Crises of 2013 published in Bloomberg on Saturday.

The story is as follows:

No. 1: The U.S. Government

The partial government shutdown this year, the debt limit debate, and the rabid partisanship driving both standoffs in Washington, D.C., has tested the patience of a weary U.S. public. The overall economic and social impact of the political struggle moves this issue to the top of this year’s list, says Diermeier. To understand how our government reached a crisis point, he turns to game theory. "With the debt ceiling and the government shutdown you had a complex game of bargaining and brinksmanship that was shaped and influenced by public opinion," says Diermeier. "At the end what mattered was who would be blamed more by the public. A war of attrition was decided by a battle over public opinion."
A Scandalous Year

What do Paula Deen, JPMorgan Chase & Co. and Tesla Motors Inc. have in common? They all suffered mishaps -- often of their own making -- that posed severe risks to their reputations. The notoriety won them spots on the annual Top Ten Reputational Crises list created by Daniel Diermeier, a professor at Northwestern`s Kellogg School of Management and author of Reputation Rules.

While the risk to reputations has soared with the advent of social media and the greater number of relationships in increasingly global supply chains, the ability of organizations to manage those risks hasn`t kept pace, says Diermeier. The result: "Crises that are more intense, more frequent and have a bigger impact on shareholder value." Here`s his list of 2013`s top reputational tangles.

No. 2: Big Data, Big Privacy

Privacy concerns around “Big Data” reached fever pitch this year with revelations about the National Security Agency`s online surveillance programs. Tech companies such as Google and Yahoo were caught in a bind, says Diermeier. On the one hand, standing up to the U.S. government on security issues is tough. On the other hand, governments including Germany, France and Brazil expressed anger that could lead to additional regulations for U.S. social media companies. Recent outrage from Google and and other tech companies over reports of alleged NSA tapping of overseas cables partially addresses those concerns, says Diermeier. U.S. companies` stated commitment to customer privacy may not overcome the perception that they don`t have full authority over the issue, he adds.

A Google spokeswoman declined to comment, and a Yahoo statement said the company "takes the security of our users very seriously." In an Oct. 31 statement, the U.S. Office of the Director of National Intelligence said recent articles have "mischaracterized NSA`s activities and drawn erroneous inferences," adding that the "NSA conducts all of its activities in accordance with applicable laws, regulations and policies."

No. 3: The Rana Plaza factory, Bangladesh

On April 24, the collapse of an eight-story warren of garment factories killed 1,127 workers in Bangladesh. Since then, coalitions of companies in North America and Europe have banded together, including Gap Inc., Macy`s and Wal-Mart Inc., which joined the Alliance for Bangladesh Worker Safety, to develop new safety and working codes for their suppliers. The Alliance has launched a five-year, nearly $50 million initiative to set new standards, according to a spokesperson. The undertaking "will lead to significant fire and building safety improvements for factory workers by creating common standards,” Wal-Mart spokesman Kevin Gardner wrote in an e-mail.

Private regulatory mechanisms such as these often spring up in response to pressure from the media or non-governmental organizations, says Diermeier, and are increasingly common in countries where traditional regulatory approaches are absent or ineffective.

No. 4: Paula Deen

Celebrity chef Paula Deen’s trouble started in one small corner of her business empire, but led to the collapse of almost the whole thing, including a Food Network show, books, and endorsements of kitchenware, mattresses and diabetes drugs. Allegations of racism and sexism at a restaurant she co-owned with her brother led to her admission of using racial slurs decades ago. Deen’s plunge demonstrates the problem of building a multi-million-dollar brand around one person, Diermeier says: “All is great, until it’s not. A problem with a person spills over to the brand.” Add in the “toxic” subject of race and “it’s very hard to come back,” he says. The company did not respond to requests for comment.

No. 5: Barilla Pasta

Guido Barilla, the non-executive chairman of Barilla Holding, never expected his remarks would be relayed all around the world when he told Italian radio: "We won`t do ads with homosexuals, because we like the traditional family." Offended consumers called for a boycott on social media, pasta-making rival Bertolli posted a pro-gay ad in response and Barilla soon apologized. Diermeier says the public relations problem demonstrates the difficulties of operating in a global environment. "What started as a small story in Italy became a big story in the U.S. due to the controversial nature of the topic in that market," he says. "It`s a textbook example of how a comment made in a local context can become a global crisis."

Barilla has since created a "diversity and inclusion board" of outside consultants and hired a chief diversity officer, says Luca Di Leo, Barilla`s head of media relations. A new CEO that came on a year ago was already making diversity a priority, he says, "and the incident only accelerated this whole process."

No. 6: Nasdaq OMX Group

Talk about a high-profile snafu. Last year, a software error at Nasdaq OMX delayed Facebook Inc.’s first day of trading on the exchange. Fifteen months later, on Aug. 22, a Nasdaq data feed malfunctioned, stopping the trading in thousands of stocks. On Oct. 29, another faulty feed halted the dissemination of index data for almost an hour. And then on Nov. 1, a Nasdaq error shut the sixth-largest options exchange for almost an entire day. Nasdaq’s problems are akin to a restaurant serving unsafe food, says Diermeier. “It’s a crisis about a core competency that absolutely must be addressed. Even if there`s limited direct business impact due to a company`s competitive positioning, the core attributes of a brand must be defended." A Nasdaq spokesman declined to comment.

No. 7: JPMorgan Chase and The London Whale

Last year’s $6.2 billion loss by the trader known as the London Whale kicked off JPMorgan Chase & Co.`s travails -- and the hits kept coming. A scathing March 2013 Senate report criticized Dimon and said the bank misled investors and dodged regulators as losses mounted. Then on Nov. 2, the bank said that the U.S. Department of Justice is conducting at least eight separate investigations into its activities. The steady drumbeat of difficulties and chance they could bring a higher level of regulatory action and enforcement convinced Diermeier to put the bank on his 2013 list. The London Whale incident raised broader concerns over risk management processes and culture, he says, and the concerns get more acute as problems multiply. JPMorgan Chase has a tentative $13 billion settlement with the Justice Department over the bank`s mortgage bonds. A company spokesman declined to comment.

No. 8: SAC Capital Advisors

When a $14-billion hedge fund becomes the center of an insider-trading probe, damage to its reputation is inevitable. SAC Capital Advisors LP made a bad situation worse by focusing almost exclusively on its legal liabilities and not enough on protecting its reputation with the public, says Diermeier, who cites expensive art purchases by founder Steven A. Cohen as a tone-deaf move. "If the company is viewed as the villain, that makes the prosecutor a hero," says Diermeier. SAC Capital was indicted in July, accused of fostering a culture of illegal trading. In early November the hedge fund agreed to plead guilty to securities fraud and wire fraud, pay a record $1.8 billion and shutter its investment advisory business. Diermeier notes that Cohen is now selling pieces from his art collection. An SAC spokesman declined to comment.

No. 9: American International Group

Most people don`t equate public outrage over executive bonuses in 2013 with lynchings in the Civil Rights era. In a Sept. 23 interview in the Wall Street Journal, AIG Chief Executive Officer Robert Benmosche did just that. Critics of AIG`s post-bailout bonuses tried to foment outrage, he said, "to get everybody out there with their pitch forks and their hangman nooses, and all that — sort of like what we did in the Deep South. And I think it was just as bad and just as wrong." To Diermeier, "those comments reignited a debate that was already dead by using particularly inflammatory language."

Rep. Elijah Cummings, the Maryland Democrat, called for Benmosche to resign; the CEO apologized for his "poor choice of words" on Sept. 24 and met with Cummings on Oct. 11. An AIG spokesman said the company wouldn`t comment beyond a statement put out after the meeting in which Benmosche apologized for how he "unintentionally trivialized a horrible legacy of our country."

No. 10: Tesla Motors

Tesla Motors Inc., the electric-car maker founded by billionaire Elon Musk, faced public relations trouble in February when an auto reviewer said its Model S sedan had problems with battery life in cold weather. On the Monday after the Feb. 8 review, Tesla shares closed down 2 percent. Musk went on the offensive, hitting Twitter and TV and writing a detailed blog post. Most companies can`t act quickly enough to limit the damage, says Diermeier: "Tesla was ready."

Musk went into damage control again in October, when a video of a Model S catching fire went viral, triggering a 6 percent share drop. He defended the car`s safety and included a supportive email from the car owner. By Nov. 7, two more fires had been reported. The National Highway Traffic Safety Administration is looking into whether to open a formal investigation into the latest fire. The Tesla blog entry about that incident was written by the car`s owner, who said he`d "buy another [Tesla car] in a heartbeat." Tesla, the best-performing stock in the Nasdaq 100, is down 29 percent since Sept. 30. Tesla didn`t respond to requests for comment.

BDST: 1208 HRS, NOV 16, 2013

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