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Restoring Your Company’s Reputation Following a Crisis Is No Carnival, but It Can Be Done
“A floating toilet, a floating Petri dish, a floating hell.” These are hardly the words you want to see associated with your company. But today, those are just some of the phrases Carnival Cruise Lines is seeing linked to its brand in the wake of the debacle caused by an engine room fire aboard the cruise ship Triumph, which crippled the 100-ton vessel and sent 4,000 passengers and crew on a slow and trying journey to Mobile, Ala.
For some of us who kept continuous cable news coverage rolling in the background, the sight of the leaning Triumph conjured up the image of some mythical Hell Ship on which people drift for centuries without showers, bathrooms, air conditioning, heat or a fresh TicTac, a shortcoming made worse by a menu comprising nothing but onion sandwiches, until it is decided by Satan himself which of the unlucky passengers should ultimately hang fireproof curtains for all eternity. Unfortunately, that isn’t too far from how the first lawsuit against Carnival reads.
Compared to CEOs of other catastrophes, it would seem that the Carnival Cruise Lines CEO handled the situation with the appropriate amounts of professionalism, compassion and accountability. ABC News® reported that “Carnival president and CEO Gerry Cahill praised the ship’s crew and told reporters that he was headed on board to apologize directly to its passengers shortly before the Carnival Triumph arrived in Mobile.”
“I know the conditions on board were very poor,” Cahill said. “I know it was very difficult, and I want to apologize again for subjecting our guests to that. ... Clearly, we failed in this particular case.” There were no mentions of his personal inconvenience. There were plenty of mentions of regret, misfortune and promises to make things right. Refunds and free trips were offered. Even some of the crew, at least according to passengers talking by cell phones to Wolf Blitzer or anyone who would listen, did a yeoman’s job of tending to the passengers. Some seemed in relatively good cheer, despite the fact that their vacations, Valentine’s Day celebrations and bachelorette parties fell a tick short of expectations. For some people, forgetting their favorite hair brush could suck the joy out of the experience. In this case, such a person may have tried to swim for the Yucatan, unbrushed hair be damned.
Others were not so cheerful, referring to the unspeakable stench and dour conditions one can only describe as gross. In some cases, passengers are using phrases like “life threatening.” Television legal analysts and others are predicting waves of lawsuits.
Carnival Cruise Lines is in classic reputation management mode. And it will be costly. Carnival reportedly expects its earnings per share for the first six months of 2013 to fall by as much as 10 cents. CNNMoney® says that could mean as much as $80 million in total net income. And competitors will be more than happy to fill in the void. If this follows other patterns, this will be something that bounces back, but a lot depends on how the company handles things from here.
There is some fresh information on how to measure the value of your reputation and how to protect it. With support from Aon Corporation, analysts at Oxford Metrica, in their report titled Reputation Review 2012, came up with guidance for companies who must protect the value of their brand. They have been studying the relationship between reputation and a company's value for nearly two decades. The 2012 report examines the impact of the top 10 reputation events from 2011.
For example, Oxford Metrica noted that two companies suffered nearly 90% reduction in value following catastrophic events. TEPCO took an 89.6% hit, a reduction of more than $37 billion, following the Japanese earthquake. Following its exposure to the Greek debt crisis, Dexia suffered an 87.3% hit, dropping its value by almost $4 billion. In sheer monetary terms, Sony took the second biggest hit, dropping $10.7 billion in value after its computer hacking event, an almost 36% drop. Despite all of the hand-wringing and negativity around News Corp.’s News of the World phone-hacking scandal, Rupert Murdoch’s much-maligned company came out of the crisis with a 3.2% increase in value. As you will recall, Murdoch took perhaps the ultimate step a CEO can take after a crisis. He folded the operation.
“Managing the restoration and rebuilding of reputation equity is an essential part of the value- recovery process following a crisis,” the Oxford Metrica report says. “Reputation equity is a significant source of value for many companies and a coherent reputation strategy can be the difference between recovery and failure. The evidence suggests that the incidence of a reputation crisis may be more prevalent than generally is assumed.” The Oxford Metrica analysts concluded that “when the triggers behind these drops in value were analyzed, it was found that 72% of them were strategic in nature, defined as those risk exposures unable to be hedged away via derivative contracts or insured away through traditional commercial insurance policies.”
Know What You Are Protecting
They say the “guardians of reputation equity” at any company should take the following steps:
Evaluate reputation equity. “This will measure the size of the asset and facilitate benchmarking of different aspects of reputation performance both over time and against selected peer groups.”
Analyze the drivers of reputation. “By identifying and ranking the drivers of reputation for a company, it becomes possible to allocate resources more effectively and invest in reputation activities wisely and confidently.”
Develop a reputation recovery strategy. “Effective preparation and evidence-based remedial action planning will generate the best chance of recovery.”
Monitor reputation equity. “Ongoing monitoring of reputation performance provides senior management with crucial and timely feedback, enabling confident decision making and rapid responses to emerging risks.”
Oxford Metrica―whose client list includes BP, AIG, Deutsche Bank and UBS―believes that, for a reputation strategy to be successful, it should be grounded on real data and linked firmly to financial performance. This way, the report says, “decision making is informed and the objective of creating sustainable shareholder value is always in focus.” The full report is available for download at: http://www.aon.com/attachments/risk-services/Aon-OM-Reputation-Review-2012.pdf
As for Carnival Cruise Lines, this is only the beginning of its reputation protection and revival path. Time will tell whether or when the company’s reputation equity will return to pre-Triumph levels.