Crisis Plans Incomplete Without A Social Media Component

By Richard E. Nicolazzo

Let’s be realistic: Crisis communications contingency planning is always a moving target.
The way we communicate has evolved for thousands of years and will continue to change. New forms of communications are unstoppable.

Social media has become a powerful influence in virtually every form and aspect of communications in today’s world.  In the early days of this new medium, public relations executives and crisis planners could adapt existing crisis contingency plans to address the basic needs of social media.

That day has passed. Social media’s enormous impact on our daily lives has transformed how we communicate. Need convincing? Consider these statistics:

• 800 million active Facebook users (one of every nine people on the planet)

• Over 500 million unique users who visit YouTube every month

• Over 200 million average tweets per day on Twitter

• More than 100 million LinkedIn users

• 62 million Google+ users (estimated to be 100 million by February 2012)

• 3,000 images uploaded to Flickr every minute

And, as social media rockets ahead, acceptance levels are exploding exponentially. When Facebook started, it took 852 days to reach 10 million users. For Twitter, it took 780 days. When Google+ launched in June 2011, it only took 16 days to reach 10 million users. More “net speed” records will be broken.

Social Media Crises on the Rise

Altimeter Group, a San Mateo, California, research-based advisory firm that helps companies manage disruptive technologies, recently reported a rise in social media crises. In a survey of 144 companies, it found that while most organizations are quick to deploy the latest social media technology, few have prepared for a major social media crisis and the potential long-term effects on their businesses.

When analyzing actual social media crises, Altimeter found that in more than three-fourths (76%) of the cases, reputational damage would have diminished or been averted had the companies invested in internal planning.

According to the same research, the top three reasons for the crises were:

1. Lack of internal social media education;

2. Absence of professional staff to monitor and manage social media issues; and

3. Lack of an emergency strategy and plan.

Without advance preparation, fallout from a social media crisis can be painful and swift. It’s easy to find a few good examples when looking back at 2011.

When Anthony Weiner tweeted a photo of his private parts to a Seattle woman, he first claimed his account was hacked. However, the unrelenting scrutiny of social media nailed him in a matter of days, forcing him to admit he was the one who sent the photo. A successful 12-year career in Congress was finished.

Gilbert Gottfried lost his job as the voice of the Aflac duck when he posted jokes about the Japanese tsunami on his Twitter account.

The Kenneth Cole brand took a reputational hit when it tried to ride the coattails of the Arab Spring uprising in Egypt. Cole decided to capitalize on the resulting press momentum with a thoughtless tweet that said, “Millions are in uproar in #Cairo. Rumor is they heard our new spring collection is now available online.”  Cole apologized in a hurry.

And consider what happened to Chrysler when an employee from their new media agency dropped an F-bomb in a tweet from @ChryslerAutos. The auto company had just launched a Super Bowl ad and a new “Imported from Detroit” campaign. The fallout didn’t hurt sales, but was embarrassing for a brand on the rebound.

How a company or individual deals with a social media crisis is fundamentally an outgrowth of general crisis communications contingency planning. However, when one factors in the speed with which information is circulated, some processes and procedures must be rethought.  In my view, institutions and individuals should think about three levels of social media crises.

Level I, the least serious, might involve minor exposure from flare-ups, such as customer complaints, poor customer service, misguided tweets, or website malfunctions. These incidents can be managed by a direct social media response. For example, FedEx might deliver a package with contents damaged or destroyed. The recipient might tweet about the problem. If FedEx is properly monitoring social media feeds, it can quickly reply with an apology and commitment to solve the problem. This prevents other tweeters from piling on. Additionally, this can turn a potential pitfall into a positive event by delivering exemplary customer service.

Level II occurs when the initial problem crosses into mainstream media and impacts the individual or company’s reputation. An example of this is what happened when two rogue Domino’s Pizza employees posted a revolting YouTube video that went viral. The company was slow in responding and suffered major damage to its reputation. A post-incident study conducted by HCD Research revealed that 65% of respondents who would previously visit or order Domino’s were less likely to do so after viewing the offensive video.

In a Level III crisis, an enterprise loses business or the individual loses his/her job. In the case of an individual, what happened to Anthony Weiner is an excellent example. He’s gone and so are his hopes for future political office. A good corporate example is what happened to Netflix when it announced a plan to spin off its DVD-rental service into a new entity called Qwikster. Not only did Netflix mis-gauge customer attitude, but it failed to acquire the Qwikster Twitter account ahead of its announcement, confusing consumers that were looking for a venue for Qwikster. After a series of nasty tweets, the story hit every major TV, radio and newspaper outlet in the U.S. Netflix killed the new service, but not before losing some 800,000 subscribers. Their management’s reputation, stock price, and customer base all plunged.

10-Point Checklist

What can be done? Here’s a 10-point checklist to help senior management and communications executives prepare for the worst:

1. Obtain all the facts before responding and, in particular, before making any statement online or on a mobile device. An Internet posting cannot be retrieved.
2. Control the message before it controls you. Audit previously scheduled tweets or posts, and remove those that could be misinterpreted if they are published during a crisis.
3. Take whatever steps are appropriate to maintain the institution’s brand and the integrity of its management, board and products/services.
4. If there is a problem, acknowledge it and begin remedial action. Social media is unforgiving. The issue will not fade away.
5. Scale responses to appropriately reflect the importance of the problem and the audience of the questioner. Many bloggers and power users of Twitter or Facebook have small armies of followers that should be considered when responding.
6. Ensure that someone on the social media crisis communications team is available 24/7.
7. Calculate the appropriate degree of response and determine whether a high-level, medium-level or low-level response is in the institution’s best interest. Important responses should be posted or reposted at high-traffic times.
8. If the disruptive entity or perpetrator is known, communicate via the proper medium (i.e., don’t call a blogger; rather, leave a comment so other readers can understand your side of the story).
9. Avoid posting negative comments that could start a “flame war” by people who intentionally post inflammatory comments to generate a huge response from other commenters; this could lead you to say something harmful about your company or yourself.
10. If someone has a legitimate gripe, respond quickly and appropriately while respecting other person’s feelings.  Start with, “I understand and appreciate your thoughts on this matter”…”I hear what you are saying”.  If, for example, it’s a minor complaint posted to Twitter, ask for the complainer to send a “direct message” describing the problem, then escalate from there to email or phone contact if necessary.

The simple rule of thumb is:  Don’t underestimate the power of social media. At times, the social media crowd can influence public opinion just as effectively as mainstream media.

And remember: In most cases, it’s not the crisis itself that causes damage, but the response.

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Richard E. Nicolazzo is Managing Partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, Partner at Nicolazzo & Associates, contributed to this blog.

Strategic Communications is Always a Force in the "Art of the Deal"

 

          Despite market fluctuations, the pace of mergers and acquisitions has been frenetic in the U.S. for nearly two decades.

          Whether it’s private equity, financial services, the food industry, healthcare, industrials, telecommunications, oil and gas, utilities, high-tech, Internet, or social media, consolidation in most major market sectors continues at a torrid pace.

          For 2010, the last full year measured, Thomson Reuters reported a 14.2 percent gain in U.S. M&A activity for a dollar value of $822 billion. Recently, USA Today reported that U.S. activity is running at a $1.6 trillion pace this year. This is still below the peak of $2.6 trillion in 2007, but still qualifies as an active market.

          In my view, one of the biggest factors in the success of M&A deals is the execution of a strategic communications plan that describes and positions the transaction appropriately. Without this roadmap, it’s extremely difficult to articulate the deal to critical audiences -- employees, shareholders, the general public, and the diverse audiences associated with a corporate merger.  Therefore, it is critically important that the business rationale supporting the transaction be concise and cohesively communicated. 

          To strengthen a successful M&A deal, the parties involved need to make strategic communications a driving force. Senior managers, lawyers, investment bankers and consultants involved in deal-making should formulate a 10-step process to ensure the adoption of a strategic communications plan before the deal is announced.

Here’s a checklist:

          Step 1: Evaluate the corporate reputations.  Components include ethics, workplace environment, financial performance, leadership, management, social responsibility, customer focus, quality, reliability, and emotional appeal. Develop a matrix and rank each component on a scale of 1 to 10.

          Step 2: Investigate major issues/concerns. Conduct Internet searches going back five years and review news media coverage for major corporate events involving both parties. This ensures that when the transaction is communicated, senior management will be prepared to address any negative issues that surface.

          Step 3: Establish communications goals.  Define and establish the goals of your strategic communications efforts.  Determine what you are trying to accomplish and agree on the three or four most important communications goals in the process.  Without these agreed-upon goals, each entity may move in opposing directions, which will add confusion to the deal.

          Step 4: Define relevant audiences. During the early planning stages, it’s critical that every audience affected by the deal be defined. This list typically includes employees, Wall Street analysts, institutional investors, stockholders, customers, business partners, distributors, political leaders, regulators, and trade associations.

          Step 5: Establish positioning strategy. Any way you look at it, two different organizations are joining forces. Whether it’s a friendly merger or a hostile acquisition, the new entity will need to create a positioning strategy, clearly defining how the combined entity will be perceived by its audiences and how it will execute its business strategy and plan for growth.

          Step 6: Agree on messages. Building off the positioning strategy, agree on three to five key messages to be incorporated into all internal and external documents. If, for example, the merger of company X and company Y is going to create the largest player in its industry, you need to emphasize this in all communications. It sounds simple, but agreeing on key messages can be difficult.  If the M&A activity involves a hostile takeover, specific strategies should be developed to address potential issues in the public domain. 

          Step 7: Select and train spokespeople. This area often breaks down. Once the deal is done, too many people tend to communicate different and inconsistent messages. Today, audiences quickly assimilate information from multiple sources and form immediate opinions.  Keep the circle of spokespeople small, and make sure they stay “on message”.  Appoint and train specific individuals to disseminate messages internally and externally.

          Step 8: Utilize social media. It’s unrealistic to announce a deal today without using social media. Gone are the days when dealmakers could rely on the print and broadcast news media to announce M&A activity. At the time of an announcement, the organizations joining forces need to use (at a minimum) Facebook, Twitter, YouTube, and Linked-In. These are the modern channels that feed news to key audiences. In addition, a social media crisis communications plan needs to be developed if events don’t go as planned on the social media front.

          Step 9: Synchronize communications. Devise a detailed blueprint and timetable to implement your communications strategies. This requires well-defined plans with specific communications responsibilities assigned to the appropriate individuals. Both sides need agreed-upon documents to guide the process, such as key messages, talking points, and a Q&A. There must be a coordinated game plan in place to anticipate and answer every possible question. In today’s high-stakes communications environment, there is no margin for error.

          Step 10: Plan Immediate Measurement. Once deal communications are launched, the parties need to implement qualitative and quantitative measurement. New software tools can analyze news media coverage and social media channels. Research can also be conducted among employees to determine if the correct messages are being transmitted.  Don’t rely on anecdotal evidence.

          In conclusion, senior executives involved in M&A activity must understand that announcing the deal is the beginning of a long-term communications challenge. If a well-conceived and executed strategic communications plan is undervalued and underestimated by the parties involved, it will have a detrimental impact on a successful transaction announcement and subsequent communications initiatives.

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Richard E. Nicolazzo is management partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, a partner at Nicolazzo & Associates, contributed to this blog.

Bartz Firing Mess Breaks New Ground for Crisis Pros

September 6, 2011 may go down in history as a day when the rules for crisis communications management changed forever.

In making one blunt statement, “I’ve just been fired,” former Yahoo CEO Carol A. Bartz has likely re-written the rules for successfully managing a change in corporate protocol and leadership.

In a move that should send shockwaves to anyone involved in crisis management and strategic communications, Ms. Bartz blasted an email to Yahoo’s 13,400 employees shortly after she got the axe.

As the story was reported, this bizarre episode began to unfold when Yahoo board chairman, Roy Bostock, called Ms. Bartz and told her she was fired while she was on vacation on the East Coast, flying from Maine to New York.

Yahoo, a company already under fire on Wall Street for losing its way in the Internet space and underperforming financially, made numerous serious missteps in this process.

First, even if the CEO expects it, being fired by telephone is poor policy. Likely, this is a case of an out-of-control board that does not respect its CEO and, concurrently, does not value effective communications management. I would be hard-pressed to believe that any senior communications executive would agree with Yahoo’s strategy.

Where were the company’s lawyers in all this?  It’s obvious that Ms. Bartz had a contract, and when contracts are going to be dissolved, skilled lawyers guide the process, non-disparagement clauses get written, and press releases approved by both sides are generated. There should be no substitute for this process.

It’s also astonishing that Ms. Bartz was allowed to send her email. Any company the size of Yahoo, even one that is dysfunctional, has an MIS director who can instantly delete anyone from the email system, thereby preventing widespread distribution of an email like the one that Ms. Bartz authored.

Not taking control of the technology before she was fired was a critical error. When it comes to controlling communications, no employee – from the custodian to the CEO - should have an opportunity to send emails from the corporate server after they have been terminated. Instant communications has changed the rules.

Clearly, Ms. Bartz had a rocky tenure at Yahoo. Didn’t anyone on the board consider that the reportedly high-strung CEO would do something dramatic?  

Reckless Action

Some have argued that Ms. Bartz is a pioneer in that she told the truth and didn’t fall in line with the “corporate-speak” that accompanies most CEO dismissals. Others have said her action provides increased transparency and insight into how corporate America’s upper echelons really operate. 

In a statement in The New York Times, Jeffrey Pfeffer, a Stanford professor in organizational behavior, says, “The truth helps you improve. When people lose their jobs and there’s no acknowledgement, the potential for learning is lost…Ms. Bartz’s comments also served her own cause. She’s acting as if this is not her fault. She’s controlling the message.”

Homa Bahrami, a senior lecturer at Berkeley, said in published reports, “I would say this is going to become much more of a trend…the chief executive picks up the phone and tells the investors exactly what happened.”

I believe this is academic nonsense.

It’s no secret that Ms. Bartz and the board did not see eye-to-eye during her nearly two years at the helm. In fact, in an interview with Fortune magazine, Ms. Bartz described Yahoo’s board members as “doofuses.”

That is no excuse for what I believe is reckless behavior. While her actions may seem in vogue and fit her shoot-from-the-hip style, they have further damaged Yahoo’s reputation and negatively impacted the stock. That translates into real value taken out of investors’ pockets.

It appears that Ms. Bartz never fully grasped that a publicly-traded company is owned by the “stockholders,” not the CEO or its senior management. What about her fiduciary responsibility to investors? That responsibility includes how and when she communicates, not just matters involving the balance sheet.

Want proof that Ms. Bartz’s actions were selfish and misguided?

Just three days after her email blast, Daniel Loeb, a prominent hedge fund manager, revealed that he had become one of the company’s largest shareholders and called for a major board shakeup. Reports have now surfaced that an investment bank was retained to brief the board on various scenarios that could break up the company or put it up for sale.

As a result, the people on the board who are charged with trying to save the company are under even more intense scrutiny. How could anyone argue that this is helpful to shareholders?

Teaching Moments

This messy and unpleasant episode should put senior communications counselors on notice that the rules are changing when it comes executive departures. For the most part, CEO departures have been “sugar-coated” in how they are communicated. Either the CEO resigns, talks about spending more time with the family, or states that he/she is stepping aside to assure a smooth transition.

Email, the Internet, and social networking have their upsides. In fact, an entire new industry has been created to aid and expand the communications process. But there’s also a downside that should be addressed.

A company can inform and engage its employees through blast emails and social networking in an organized and controlled fashion, but that does not prevent a rogue employee, even a CEO, from turning the tables and embarrassing the board, thus causing concern in the marketplace and potential harm to the organization.

In-house public relations executives and outside counselors need to design and implement stronger contingency communications plans with their bosses and clients. When it comes to change in upper management, every possibility should be considered…including detaching the deposed executive from the corporate email system before it’s too late. No more courtesies to shoot off emails to former colleagues and wish them well.

In the end, part of being a CEO is knowing how to act professionally, both in good times and bad. It will be interesting to see where Ms. Bartz finds herself. I’m betting that no major corporation will want her as “captain” of their ship.

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Richard E. Nicolazzo is managing partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, a partner at N&A, contributed to this blog.

Apple Stands Alone In PR Savvy

iPhone. iPad. iPod. iMac. iTunes.

Simple product names that have come to define the best technology company on the planet and embody the spirit of Steven P. Jobs, a man whose brilliant vision and personal touch with consumers has made him a living legend.

Most of the plaudits about Jobs focus on Apple - the value of the company’s stock, the insanely successful products, the constant innovation, the billions of dollars of cash in the bank, and the company’s ability to figure out where consumer markets are headed.  I believe the organization also stands alone in one other critical category: Strategic communications.

In my view, never in the history of American business has such a pivotal CEO faced a life-threatening illness that has been so linked to company valuation. For what seems like an eternity, Apple has been Steve Jobs, and Steve Jobs has been Apple.

On Wednesday, August 24, 2011, all that changed when Jobs told Apple’s board of directors he was stepping down as chief executive. Using one of the oldest forms of communications in today’s universe of tools, he sent a straightforward letter to the board with no news media interviews granted. This is controlled strategic communications at its best. The dispatch is carried universally with key messages imbedded throughout the text.

The actual 143 words in Jobs’ letter are worth noting:

“I have always said that if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come. I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee. As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple. I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role. I have made some of the best friends in my life at Apple, and I thank you all for the many years of being able to work alongside you.”

Jobs’ style of tightly-managed communications is part of a pattern that has been criticized at times, but is still effective in protecting his privacy and not creating a media circus surrounding his health. Many will recall his first major announcement in early 2009, when he said his dramatic weight loss was caused by a hormone imbalance. Just a week later, he announced a medical leave of absence for several months. In June of that year, a Tennessee hospital confirmed that Jobs had received a liver transplant. Once again, these communications were all written statements, with no interviews either from Jobs or the company.

  

This pattern of communications continued in January of 2011, when Apple announced Jobs was taking a medical leave of absence…this time not specifying a reason or how long he would be away. Questions were raised about the severity of Jobs’ health issues and its potential impact on the company’s stock, product development and business operations, but the company did not miss a beat. Some may have been frustrated with the lack of specificity and transparency, but there were no Apple missteps in the process.

Apple and Jobs also deserve praise for the way the transition to a new CEO has been handled. John Dvorak, noted tech columnist for MarketWatch, likely has it right: Lots of companies in Silicon Valley would love to hire Tim Cook. Given that Jobs is considered to be critically ill, handing over the title to Cook had to be done sooner rather than later. If something happened to Jobs while Cook was “acting CEO,” the job may have been up for grabs. This approach is crisp, clean, and clear-cut. Cook is the new CEO and Jobs has the new title of “Chairman.”

Keeping it Simple

Internally, Apple, which has more than 46,000 employees, also kept it simple. In an email to all employees, Cook’s 225-word message was a blend of cheerleading and a tribute to Jobs. The entire email is instructive in its carefully crafted composition:

“I am looking forward to the amazing opportunity of serving as CEO of the most innovative company in the world. Joining Apple was the best decision I’ve ever made and it’s been the privilege of a lifetime to work for Apple and Steve for over 13 years. I share Steve’s optimism for Apple’s bright future. Steve has been an incredible leader and mentor to me, as well as to the entire executive team and our amazing employees. We are really looking forward to Steve’s ongoing guidance and inspiration as our chairman. I want you to be confident that Apple is not going to change. I cherish and celebrate Apple’s unique principles and values. Steve built a company and culture that is unlike any other in the world and we are going to stay true to that — it is in our DNA. We are going to continue to make the best products in the world that delight our customers and make our employees incredibly proud of what they do. I love Apple and I am looking forward to diving into my new role. All of the incredible support from the board, the executive team and many of you has been inspiring. I am confident our best years lie ahead of us and that together we will continue to make Apple the magical place that it is.”

The orchestration of Jobs’ announcement is a perfect example of how to execute crisis management and general strategic communications by:

·         Controlling the message

·         Ensuring accurate and timely material news to all audiences simultaneously

·         Maintaining brand, management, and corporate credibility

·         Minimizing any damage to reputations of individuals involved

·         Reducing the risk of future business problems

·         Focusing on the future

This may appear easy, but in practice things can rapidly get out of control. Just look at what happened to Hewlett-Packard when it announced (simultaneously) that it was exploring “strategic alternatives” and might sell its dominant personal computer business, it was scrapping its new, much ballyhooed TouchPad tablet computer, and it was acquiring a British software concern for more than $10 billion. The stock plunged 20%.

This communications fiasco came about a year after CEO Mark Hurd was forced to resign in the midst of allegations of sexual harassment and expense account irregularities. The one-year decline in H-P’s stock price is more than 45%, while S&P’s 500-stock index gained about 3% over the same period.

On September 16, 1997, when Jobs rejoined Apple, the stock price that day closed at $5.48. Recently, it was trading at about $390.

Last week, London book makers offered odds on where Apple stock will end the year now that Jobs has resigned as CEO. If you’re curious, the odds are 5-1 that the price will be $400 or more. My view is that even if something happens to Jobs, nothing drastic will happen to the stock. The company is like an aircraft carrier. Even major competitors like H-P surrender if a rival product to Apple doesn’t sell. Although it might be difficult to imagine, Jobs’ DNA may be so ingrained in Apple that the company could get even better!

Jobs or no Jobs, it’s hard to foresee anything stopping a company that seems to have the best of everything…including a strategic communications team that knows exactly what it’s doing.

Joe M. Grillo, a partner at Nicolazzo & Associates, also contributed to this blog.

Buffett Flunks Crisis Management 101

Candor is one thing, but appearing out of touch with the fact set is another.

How else to explain the reputational hit that Warren E. Buffett’s Berkshire Hathaway company has suffered in recent weeks?

Buffett, known as the “Oracle of Omaha” and one of the richest men on the planet, may be a brilliant investor, but when it comes to crisis management skills, he probably needs a serious refresher course.

By now, the story is well-documented. On March 30, David L. Sokol, 54, long considered a leading candidate to succeed Mr. Buffett, suddenly resigned from Berkshire Hathaway.

It seems that Mr. Sokol purchased thousands of shares in Lubrizol, a lubricant company, two months before Berkshire announced a $9 billion deal to acquire the outfit. As one might expect, when the Berkshire deal was announced, the shares shot up 27 percent over a two-week period. Mr. Sokol made a cool $3 million on paper.

Like most alleged insider cases, the circumstances of the stock purchases remain murky. If we’ve learned one thing from all the Wall Street shenanigans, it’s that it takes time and research to unravel the timeline and understand what really happened.

This emerging crisis should have immediately set off an alarm for Mr. Buffett to “hold his fire” when the news stories about the resignation began to break. In my view, that is crisis management 101.

Instead, what happened? In a statement the same day, Mr. Buffett said, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign.” Mr. Buffett went on to say that Mr. Sokol’s “contributions have been extraordinary.”

For a man with such acclaimed business acumen and successful track record of strategic investment decisions, this unfortunate episode was an unfathomable rookie mistake for Mr. Buffett. How could someone with his stature simply accept Mr. Sokol’s word that there was no self-dealing involved? Did Mr. Buffett really think that Mr. Sokol would say he was guilty of insider trading?

If he was practicing disciplined crisis management, what Mr. Buffett should have said was: “Mr. Sokol has resigned from Berkshire Hathaway. We will immediately begin a comprehensive review of the circumstances surrounding his resignation, including recent stock trades, and report our findings to the public and authorities as soon as possible. We will also cooperate with any regulatory investigation that might ensue.”

Mr. Buffett has since explained himself, but I’m not buying it. In a business column on May 3 in The New York Times, Mr. Buffett was quoted as saying, “I felt that if I’m laying out a whole bunch of facts that are going to create lots of problems for him for years to come, that I also list his side of the equation in terms of what he’d done for Berkshire.”

The Times column also quoted Mario Gabelli, a nationally-acclaimed investor and major shareholder in Berkshire, as saying the Sokol episode was “irrelevant” and derided it as “a good story for the media.” Mr. Gabelli also said he, like Mr. Buffett, simply cares about the company’s cold, hard numbers.

While I agree that financials are always paramount, I disagree that this episode means nothing to the reputation of Mr. Buffett and his company. What Mr. Sokol did may not ultimately be proven to be “technically” wrong, but anyone with a sense of fair play realizes that it does not pass the smell test.

New Legs to the Story
Unfortunately for Berkshire, the Sokol mess erupted just a month before the annual meeting, a time when senior executives at any company are most exposed. Instead of quieting down, negative media coverage ticked up several notches, with both sides contradicting each other.

On April 27, a report issued by the audit committee of the Berkshire Board accused Mr. Sokol of misleading the company about his personal stake in Lubrizol. “His misleading incomplete disclosures to Berkshire Hathaway senior management violated the duty of candor he owed the company…Mr. Sokol may have failed his fiduciary duty under the law of Delaware.”

What a stark turnaround from Mr. Buffett’s initial comments.

Things got even uglier when Mr. Sokol’s lawyer, Barry W. Levine, got involved and disputed many major assertions in the audit report. “…Mr. Sokol had told Mr. Buffett ‘twice, not once’ about his ownership of Lubrizol shares before Mr. Buffett began discussions with the company.”

A more stunning revelation was the audit report stating that, “Mr. Buffett and the company did not have the full story in March.” This begs the question: Why would Mr. Buffett make the statements he made without knowing all the facts?

I believe Mr. Buffett’s apparent knee-jerk reaction to this issue and the subsequent fallout has tarnished his pristine reputation.

I continue to be shocked at the apparent lack of crisis management planning in some of the world’s largest companies. It wasn’t that long ago that Tony Hayward, the disgraced BP chief, said publicly, “The company’s contingency plans were inadequate and we were making it up day-to-day.”

Berkshire Hathaway, a company that generated nearly $18 billion in cash from operations last year and currently has more than $38 billion to spend on future acquisitions, erred badly in communicating its reaction to what has become a major scandal.

What happens next isn’t clear, but according to published reports, the Securities and Exchange Commission is already investigating Mr. Sokol’s trading. In fact, we now know that Mr. Buffett called the SEC himself and laid out the pattern of trading.

Berkshire Hathaway may face lawsuits from shareholders who want Mr. Sokol to forfeit his trading profits because of the negative publicity and damage to the company’s reputation. And the audit report said the company is considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits.”

In the final analysis, the lack of a coherent and well-planned crisis communications strategy is what’s most surprising.

Mr. Buffett is fond of saying: “Lose money for my firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

Still, even in his latest interview with the Times, Mr. Buffett has not publicly taken Mr. Sokol to the woodshed. It may be the only way to truly end this chapter and move on.

Betrayal cannot go unanswered.

Joe M. Grillo, partner at Nicolazzo & Associates, contributed to this blog.

Time for BP's Hayward to Fade Away

So now he’s back.

Tony Hayward, former disgraced BP chief, agreed to be interviewed for a BBC2 documentary that aired on Nov. 9. And to think we thought we had heard the last of one of the biggest corporate punching bags in the past 20 years.

Check out these gems from his first major interview since the Gulf debacle: “…I’d have done better with an acting degree.” “You know it’s difficult to hate a company, it’s much easier to hate an individual.” “…the company’s contingency plans were inadequate and we were making it up day-to-day.” “BP was not prepared to deal with the intensity of the media scrutiny it faced.”

These fresh quotes from the man who botched Crisis Management 101 with earlier comments like: “I want my life back” and “The amount of oil which leaked into the Gulf was relatively tiny compared with the very big ocean.”

Maybe it was the relative comfort of speaking to a London journalist that prompted Hayward to get back into the fray. After all, he was demonized and vilified in the United States and abroad until he resigned back in July. So why speak to any reporter? It just relives a very ugly chapter in BP’s corporate history.

Personally, I find Hayward’s latest remarks about as off-the-wall as his earlier statements. Does he really think “acting lessons” are necessary to manage a crisis or that a company can’t be hated as much as an individual? He is living on another planet.

Even worse, admitting that the company was unprepared for a disaster is outrageous for an organization the size of BP that explores and drills for oil and gas in some of the most adverse environments on the planet.

Once again, this points out the need for contingency crisis communications planning. Remarkably, despite all the environmental catastrophes in recent years, major companies around the world seem completely unprepared to effectively plan for and manage a significant crisis. They spend most of their time and energy focusing on financial performance and operating results, which is what they get paid for.

However, in my view, fiduciary responsibility goes far beyond the numbers. A company has a moral obligation to ensure that its top executives use best practices in corporate governance…and that includes crisis management.

Top communications executives (and even trusted outside counselors) need to be part of the senior decision-making process. From many years of experience, I have come to realize that the strategic communications team often “gets its marching orders” after major corporate decisions have been made. This thinking is fundamentally and strategically flawed.

Questionable Communications Skills

A geologist by training, the former BP CEO has a strange knack for off-the-cuff quotes. At his last board meeting, he reportedly said his experience “…was like stepping out from the pavement and being hit by a bus.”

At the time, he also described BP’s response to the oil spill as a “model of what corporate social responsibility is all about.” Tell that to the people of the Gulf who suffer the consequences of this massive leak and will continue to find oil in their vast ecosystem for decades.

One has to wonder if BP has ever heard of presentation and media training. For years, this training has been widely available for CEOs and senior executives willing to invest the time and energy in the process. Communications skills “can” and “should” be taught to executives at companies, both large and small. It’s not rocket science.

Ever since the Deepwater Horizon killed 11 workers, knocked billions in value off BP’s share price, and brutalized a corporate reputation already tarnished from previous accidents in the U.S., hundreds of thousands of words have been written to scrutinize and analyze the company’s crisis response.

Some of the best minds in communications and academia have argued that, because of the nature of the calamity, no crisis plan could have saved BP. Having practiced crisis management for more than three decades, I disagree.

One needs to remember that BP already had a questionable industry track record, including a deadly 2005 explosion at its refinery in Texas City (15 dead), the near-sinking of one of its flagship rigs a few months later, and the huge oil spill from a ruptured pipe in Alaska in 2009. If these problems at the operating level had been appropriately addressed, the Gulf incident may have never occurred.

The Gulf disaster also sits juxtaposed against BP’s decade-long rebranding campaign to position itself as a public-spirited, environmentally sensitive, green energy enterprise. Hayward, who took over as head of exploration and production for BP in 2003, stated in earlier interviews that he “promised to refocus the company and change the culture, emphasizing safety.” In more recent years, many ads depicted BP as “safe and competent.”

BP simply blew it. The company was unprepared to communicate effectively in today’s frenzied media environment. As a spokesperson, Hayward failed the basic tests of crisis management. He did not take responsibility (not to be confused with blame) for the company’s actions. He then magnified the continuing onslaught by developing the communications strategy on the fly and allowing the crisis communications process to manage him instead of taking charge, developing an agenda, establishing goals, and bringing the situation under control.

In my mind, there is no legitimate excuse for Hayward’s poor performance. If you’re an international oil company, you must have a CEO and senior management team that can effectively manage a disaster and steer the company’s public comments in a direction designed to mitigate the inevitable negative consequences. This is not acting or reacting, but working from a disciplined approach to strategic communications and crisis management that can and will make a difference in protecting an entity’s brand and reputation before irreparable damage occurs.

Management Expertise is Key

Why is it that Bob Dudley, the American who took over for Hayward, had much better luck in implementing a communications strategy and has at least been able to calm the waters? Part of the reason is that he does not shoot from the hip or try to be flippant and cute. Instead, he’s taken a more thoughtful, measured, and strategic approach.

Even before he officially took over, Dudley was quoted as saying, “If we continue to meet our obligations, then over time people will say this was a good corporate citizen responding to an accident that has been a wake-up call to the entire oil and gas industry. If we ensure this does not happen again, then maybe we can restore our reputation in the U.S.”

In an October 2010 story on the guardian.co.uk website, Dudley was described as “….intelligent and unflappable. Nothing, nobody could get him angry. He never said anything bad about anybody. Bob can keep focused on the issue at hand when mayhem is breaking out all around.”

Sounds like a new tune from a distinctly different breed of corporate executive. Perhaps BP should have let Dudley manage communications in the U.S. from the beginning instead of parachuting Hayward in.

It will likely take years before we can accurately assess the true damage done to BP’s brand and reputation. Earnings have suffered and the long-cherished dividend has been suspended. But these are financial benchmarks. Only time will tell if the damage, mostly self-inflicted, will heal so that BP is once again viewed as a responsible company practicing good corporate governance and citizenship.

BP’s ongoing nightmare began with its decision to put the wrong person out front from the beginning. It is clear that, by his own admission, Hayward was simply unprepared. His latest interview proves once again that hubris and unbridled arrogance will continue to cost BP dearly, both on and off the balance sheet.

In my view, if Tony Hayward is prudent, he should quietly fade into the sunset.

Richard E. Nicolazzo is Managing Partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Massachusetts.
Joe Grillo, Partner, and Linda Harvey, Director-Client Services, contributed to this blog.

Toyota Needs to Find Communications “Throttle”

By Richard E. Nicolazzo

Remember that old Toyota corporate advertising theme: “Oh, What a Feeling?” I’ve got a new theme for the company: “Oh, What a Fiasco!”

There must have been long faces in Toyota’s executive suites when a California man held a press conference to tell the world that his Prius accelerated out of control on a freeway. From the air, it looked like a bad “OJ” moment.

To make matters worse, the California “runaway” occurred only 12 miles from where a deadly crash last year sparked the initial scrutiny into Toyotas. That incident, which keeps finding its way into the national media along with the 911 call, resulted in the death of a former California highway patrol officer and three members of his family.

Just a day later, the crash of another Toyota Prius in New York caught the attention of federal regulators after the driver said the car accelerated on its own, lurched down a driveway, across a road and into a stone wall. Ouch.

When you add it all up, with more than 50 deaths apparently linked to deadly accidents, the Toyota situation has turned into the tsunami of all product recalls.

The numbers prove it: 745,000 Priuses built from 2004 to 2009 recalled; six million other Toyotas in the U.S. and some eight million worldwide recalled; 85,000 lost sales over the past two months.

On top of that, a report in the Wall Street Journal said that the financial impact on Toyota from the global recall could total more than $5 billion over the next year because of increased incentive campaigns, litigation costs and big marketing dollars.

One could certainly make the case that Toyota took its time addressing the issue. In the past decade, at least 3,306 Toyota and Lexus drivers nationwide have reported instances of sudden acceleration, according to the latest numbers from Safety Research & Strategies, Inc., a Rehoboth, Mass. company that monitors safety issues for attorneys and plaintiffs in civil complaints, government agencies, and other clients.

To put it bluntly: The smoking gun was there for a long time.

Catch 22 Situation

What makes the Toyota crisis particularly challenging is the never-ending onslaught of bad news.

When you look at the crisis playbook, what Toyota has done deserves general praise: The company stood up and took responsibility for the vehicle defects.

First, Toyota took the extraordinary step of suspending the manufacture and sale of eight of its most popular models because of the unresolved mechanical flaw in the gas pedal assembly. The lines were not restarted until all the defective parts were destroyed and more testing took place. Additionally, dealers could not sell these models on lots until repairs were made.

To Toyota’s credit, this was a big step in beginning to align itself with consumers rather than protecting its corporate image.

In rapid order, Toyota issued official recalls, brought its senior executives to testify before Congress, placed full-page ads in major metro newspapers, made its top U.S. executive available for interviews, communicated with its dealers, gave those dealers cash to repair vehicles as soon as possible, and even staged a press conference in California to refute an ABC story that showed a tachometer near its red-line when the car was in “Park.”

On the sales side, the company has been aggressive in supporting its dealer network. New Camrys are on sale for as little as $179 a month; the Lexus brand is promoting discounted lease offers; and zero-percent loans are commonplace.

The real Catch 22 is how Toyota moves on from what can only be described as a product and reputational nightmare.

With its long-term credibility and brand at stake, I believe the company needs to continually assess its “communications throttle.”

For example, on the same day the Prius went out of control in California, Toyota was running customer testimonial ads in major markets that talked about the “safety and reliability” of the brand.

In my view, this is pushing the throttle too hard at a time when it remains unclear if Toyota truly has the fix for defective vehicles. Here in the Boston market, I saw a video news clip of the runaway Prius on the California highway followed by a commercial about Toyota’s reliability. The juxtaposition does not work for Toyota.

For the time being, the company should provide customers with relevant information about how to deal with an unexpected event or acceleration of a vehicle they manufactured. They should also consider providing customers with hands-on training about how to deal with a problem when it surfaces. For example, they should consider conducting seminars and distributing instructional videos depicting how a consumer should manage these related problems when they surface.

If Toyota wants to address safety and reliability, it might be better off sending a letter directly to the homes of vehicle owners. This would avoid the clutter on TV, radio and the Internet that continues to sting the company.

Adding to its operational and communications woes, Toyota is now being victimized by people who crash their cars and blame it on unintended acceleration. Although expensive and time consuming, Toyota should inspect every vehicle involved in a crash and extract data from the “black box” installed in vehicles to record the condition of the engine, brakes, accelerator and other components at the time of an accident. Otherwise, it risks being blamed for hundreds of accidents that likely have nothing to do with gas pedal or floor mat problems.

Some Brands Come Back

What happens to a brand in a crisis is always hard to predict. Audi, the last major car company to deal with unintended acceleration, was moribund in the U.S. for nearly a decade, but has made a great comeback. Better engineering and slick marketing have rejuvenated the brand, and it’s now stronger than ever.

About a year ago, Domino’s Pizza was the target of a disgusting video prank that looked like it would seriously damage the brand. But the company recently announced solid 2009 results and an increase in same store sales for the 64th consecutive quarter.

In other cases, such as Arthur Anderson, Lehman Brothers and Bear Stearns, the enterprises collapsed.

Despite negative media coverage since late January, there may be some early signs that Toyota can weather the storm. In February, the company’s U.S. market share slipped to 12.7% from just above 14% the previous month. All-in-all, not that significant a drop. Despite the equally negative press about the Lexus brand, sales are up 5% so far in 2010.

Analysts have predicted Toyota will report a profit of more than $800 million when it announces year-end results at the end of March, reversing a loss for 2008.

What next year holds is anybody’s guess.

In the final analysis, the pressure to get this issue behind the company falls on Toyota’s engineers. It doesn’t take a rocket scientist to see that, despite the floor mat and pedal recalls, there is likely something else wrong with the inner workings of Toyota vehicles.

If the problem is in the electronics, Toyota has backed itself into a corner by publicly announcing that either the floor mats or pedal assembly are defective. Admitting an electronics problem is probably unthinkable because it could mean replacing the entire car…a scenario that could create a major financial crisis for even a company this size.

Like most major recalls, the problem seems to emanate from poor product design, engineering flaws, sloppy manufacturing, problems in distribution, or a host of other factors unrelated to strategic communications.

At Toyota, the crisis management team is left to deal with the fallout, somehow rebuild brand integrity and loyalty, and continue to drive sales for its massive dealer network. This is a Herculean task.

Meanwhile, anybody driving one of these vehicles would be well served to take it slow, learn how to put the vehicle in neutral at highway speeds, and shut the engine off in sequence.

It could save their lives.

Joe Grillo, partner, contributed to this blog.

PRESIDENT VIOLATED CRISIS MANAGEMENT RULE #1

By Richard E. Nicolazzo

Rarely does a news story cause a crisis for three separate entities at the same time, but that’s just what happened when Harvard professor Henry Louis Gates Jr. was handcuffed in his home and hauled off to the Cambridge, Massachusetts city police department.

The events of July 16, while still a bit fuzzy, have nevertheless sparked another national debate on race relations in America, even involving (or should I say entrapping) President Obama.

At first, the incident wasn’t much of a story, only appearing four days after the arrest as an item on the Harvard Crimson website. It didn’t take long for the local, regional, national and international news media to uncover the nasty details of the tête-à-tête between Gates and Cambridge police Sergeant James Crowley, the officer who made the decision to arrest the professor on disorderly conduct charges.

Given Gates’ lofty status, the viral nature of the story immediately engulfed the police department and the professor in a crisis situation…both parties talking way too much and, at least initially, digging themselves in deeper.

As if that wasn’t bad enough, President Obama fanned the flames when, at the end of a press conference on health care reform, he said police “acted stupidly” in arresting Gates, and noted that black and Hispanic men are still arrested disproportionately.

Report Cards

Breaking things down, what’s almost inconceivable is that the President would finish last of the three parties in managing the crisis.

Cambridge police deserve a solid “B+” for the way they responded. First, Sergeant Crowley stood up and logically explained the events and protocol that was followed before he took out his cuffs.

He received solid support from Cambridge Police Commissioner Robert Haas and the police union. In each case, this group responded only after learning and digesting the facts.

The city made another excellent decision when it reached out to convene a group of nationally recognized experts to help determine what lessons officials can learn from the arrest.

Gates, accustomed to the spotlight, apparently couldn’t resist responding to media inquiries. Not only did he respond by phone and email, he made himself available to cameras while vacationing at his Martha’s Vineyard summer home.

I’d grade him no better than a “C-“ because he let his emotions get the best of him. Not only did he criticize the police, he quickly let it be known that he might bring suit. He also went for Sergeant Crowley’s jugular, accusing him of making up the facts in the police report. Even at this point, Gates and Crowley disagree about what happened.

In my view, the Gates angle of the story could have evaporated rapidly if the professor had released one written statement and ended it at that. It may take some time to sort out, but in the end his contentious remarks may damage his reputation.

Low Mark for the President

The big surprise in all this is President Obama. How can you grade him anything but a “D-.”

When a reporter asked him about the incident, instead of declining comment on an arrest that had nothing to do with a major healthcare policy initiative, he stepped right into the fray, uttering the stupidity remark that caused an instant firestorm.

Sorry Mr. President, but this can’t be chalked up to a rookie mistake. You’ve been immersed in a high stakes media environment for nearly two years. You’re surrounded by a top-flight team of advisers and confidants who are supposed to be guiding you in managing communications.

Surely, given the race card issue that was being played out across the country, someone on your staff must have cautioned you to be aware of a trick question and not fall into a trap? Not so, it appears.

For a man who prides himself on self-discipline, President Obama has seemingly caught “slip-of-the-tongue disease.”

In recent months, he had to apologize after joking that his bad bowling skills might qualify him for the Special Olympics. A joke about Nancy Reagan holding séances forced him to call her and make amends.

He sparked more debate when he said college football should adopt a playoff system, picked North Carolina to win the NCCA basketball tournament, and said he liked Michael Jordan over Kobe Bryant.

In the Gates incident, Obama, to his credit, made a conciliatory gesture to help mitigate the crisis when he invited the Harvard scholar and the police officer to share a beer with him at the White House.

Nevertheless, the President still violated the number one rule in crisis management: Never speak before you have the facts.

While we can only speculate about Obama’s future comments, I sense moving forward we may see a more guarded Commander in Chief.

Richard E. Nicolazzo is managing partner of Nicolazzo & Associates, a strategic communications, crisis mangement and public relations firm headquartered in Boston, Massachusetts. Joe Grillo, a partner in the firm, contributed to this commentary.

# # #

THE “CSMO’s” TIME HAS COME

By Richard E. Nicolazzo

Welcome to the world of social networking and social media, where the numbers are staggering.

MySpace, 263 million users. Facebook, 200 million. Tagged.com, 70 million. Flixster, 70 million. Classmates.com, 50 million. Twitter, 25 million. LinkedIn, 40 million.

And that doesn’t take into account YouTube, which although not technically a social networking site, can attract upwards of 100 million hits on a single video.

Years ago, public relations executives focused on major newspapers that had circulations of hundreds of thousands and network TV news broadcasts that had millions of viewers. Nowadays, those numbers seem like they’re from the Jurassic age.

Things have moved at such a warp speed that major corporations (both public and private), the government, and organizations of all shapes and sizes cannot afford to be passive about how stories play out in print or broadcast media.

For better or worse, the action has moved online.

New Breed of Communications Executive

While the social networking craze now dominates strategic communications discussions and educational workshops, it’s actually not a new phenomenon.

Many believe social networking began to flourish as a component of business Internet strategy in early 2005 when Yahoo launched “Yahoo! 360°”. Later that year, News Corporation bought MySpace. Since then, various social networking sites have sprung up catering to different languages and countries. Wikipedia now estimates there are 200 sites on the global scene.

During the past 20 years, we’ve seen a litany of executive titles at the top of the communications ladder. On the corporate side, we’ve migrated from director of communications, to senior VP, to VP of corporate communications, to chief communications officer, to executive vice president. In the agency business, the top officer is now commonly known as managing partner.

In my view, we have now clearly reached the point where a new communications title should be established: “Chief Social Media Officer (CSMO).”

The words “social media” are critically important in this title because that is where a new generation of “reader-viewers” is headed. It’s no secret that newspaper and magazine readership is plummeting and other traditional forms of media such as TV and radio are reducing editorial staffs, thus potentially compromising their coverage.

We have suddenly entered a new universe where the meaning of “media” is being re-engineered. Are you skeptical?

CyberAlert, Inc., a fully-automated news monitoring and tracking service in Stratford, Conn., offers these products: CyberAlert 4.0, Blog Squirrel, CyberAlert VDO, and Netpinions. Collectively, they monitor 35,000 online news sources, 5 million daily blog entries, 200 online video sharing and news sites, and 100,000 online message boards, forums, and news groups.

And just recently, PR Newswire unveiled a social media monitoring tool to measure discussions and mentions across blogs and message boards. The service claims to track more than 20 million blogs, millions of forum posts and 30,000 online news sources, including videos.

Journalism is Evolving

In past decades, journalists served as the filter between information flowing from an organization and what ended up in print or on the air. While laudable in its purest form, this dynamic is changing at lightning speed.

In its last survey on media relations practices, Bulldog Reporter/TEKgroup International reported that about two-thirds of journalists use social media to research stories.

Almost 38 percent of journalists now say they visit a social media site at least once a week as part of their reporting. And approximately 20 percent receive five or more RSS feeds of news services, blogs, podcasts or videocasts every week.

Anyway you look at it, the “CSMO” needs to create alerts for negative mentions that could provide critically valuable time if a response is needed before a situation spirals out of control.

One recent example comes to mind.

In April, Domino’s Pizza was caught somewhat flat-footed when a disgusting YouTube video prank depicted two employees in North Carolina putting nasal mucus on sandwiches and putting cheese up their noses.

While the company had some early indications that the video was spreading on websites and blogs, the corporate PR group was likely not prepared nor empowered to move quickly and fight back. At the time, a spokesperson for Domino’s said, “…Right now, it (the video) is on web sites and blogs. It’s not on ABC, CNN or USA Today.”

Two days later, when the company posted its own YouTube video and apology on its website, an estimated 1 million people had already seen the original. The damage was done. In this case, one can only imagine how much business was lost over the 48-hour period, not to mention the impact on brand integrity and customer loyalty.

Given the inherent viral nature of social networking and social media, it’s not likely that anyone can totally predict or control future abuses. What can be controlled is early detection and immediate response. That’s why any company that does not have the proper safeguards, monitoring systems and response teams in place to deal with the blazing speed of the Internet may find themselves “Internet lightning victims.”

As time has proven, more often than not it’s not the crisis itself that does the damage, but how management is prepared to respond.

Richard E. Nicolazzo is managing partner of Nicolazzo & Associates, a strategic communications, crisis management and public relations firm headquartered in Boston, Mass. Joe Grillo, a partner in the firm, contributed to this commentary.

# # #

Message to Domino’s: Contingency Planning Still Rules the Roost

Just over a century ago, The Boy Scouts of American adopted a motto that is as poignant as ever: “Be Prepared.”

It may sound old-fashioned, but the disgusting video prank that damaged the Domino’s Pizza brand once again proves that major companies are not spending enough time on contingency crisis communications planning.

How else can you explain the comments of the company’s spokesperson when asked about a YouTube video that depicted two employees in a North Carolina store putting nasal mucus on sandwiches and putting cheese up their noses?

The spokesperson, Tim McIntyre, told the website ragan.com, “…Right now, it (the video) is on web sites and blogs. It’s not on ABC, CNN or USA Today.”

So what? The damage had already been done.

By the time Domino’s posted its own YouTube video and apology on its corporate web site, an estimated 1 million people had already seen the original.

Worse than that, the social media phenomenon Twitter helped spread the YouTube video like wildfire. Things got so bad that Domino’s (once again about 48 hours after the first video appeared) had to create its own Twitter account.

Like it or not, social media explosions like this one can quickly cause real loss of business. BrandIndex, a daily online consumer brand perception service, reported that Domino’s “buzz score” had dropped significantly from April 10 to April 14.

While it may be too early to assess the long-term damage to the Domino’s brand, one could imagine a scenario whereby hundreds of thousands of consumers call Pizza Hut instead of Domino’s. The lost revenue in just a few days could amount to millions, or even hundreds of millions.

Some Things Never Change

Having practiced crisis communications for more than 30 years, I continue to be astounded at the lack of real, in-your-face contingency communications planning.

I’m not talking about the kind of planning that results in a binder on a shelf containing the names of top company executives who should be contacted in a crisis. Or a boiler-plate crisis communications checklist posted on a company’s Intranet. Or even the availability of a company spokesperson who can speak to the media.

In case after case, it’s not what is said when the house is burning, but what has been done to prevent the fire in the first place.

The Domino’s flap is particularly troubling in that the company had not likely prepared for a YouTube or Twitter scenario. If it had, the responding video from the president would have been posted on day one, not 48 hours later. Similarly, the Twitter account could have gone live within hours of the YouTube video.

Even more puzzling is a New York Times story that indicated the company learned about the original video the day after it appeared, but decided not to respond aggressively, hoping the controversy would subside. “What we missed was the perpetual mushroom effect of viral sensations,” said the Domino’s spokesperson.

This is another indication that Domino’s – and likely hundreds of other major companies – have not adequately addressed contingency communications planning as it relates to social media flare-ups.

While online media will continue to evolve, moving faster and faster in the weeks, months and years ahead, nothing is likely to replace the need for contingency planning that stays ahead of the curve.

As I have been espousing for years, a company’s best communications talent (and outside counsel whenever necessary) needs to have a seat at the table right next to the CEO. Still, in too many cases, the crisis is handed to the spokesperson without the benefit of a rock-solid crisis communications contingency plan in place.

Old School is New School

Companies should not let new mediums like YouTube, Facebook, Twitter, MySpace, and other yet-to-be-invented services intimidate them. Instead, they need to focus on the fundamentals of sophisticated contingency communications planning. Here’s a checklist of processes to consider:

As part of the risk management process, appoint a “brand-threat” team charged with the responsibility of monitoring online sites, broadcast and print media 24-7. Have a system in place to direct problems right to the CEO.

Explore organizational vulnerabilities. Get the company’s top five executives in a room and discuss three to five worst-case scenarios. Hold nothing back.

Develop a written plan, one with situation analyses, objectives, strategies, key audience definition, key messages, implementation tactics, and social media protocols.

Establish a crisis team that includes senior management, communications and legal counsel (inside and outside), marketing, customer service and other key executives.

Maintain transparency. We are long beyond the days when a company in crisis can say “no comment.” Your customers and others demand answers. What is said should have its roots in the crisis communications plan.

Invest in training. There is still no real substitute for media training and presentation training. Top executives and spokespersons need constant refresher courses. In a crisis, the CEO might need to post a YouTube video within hours.

Stay current. Today’s lightning-fast information environment demands a mix of young, mid-seasoned, and veteran communicators. There’s nothing like a “20-something” to know what’s hot.

Pay for measurement. Don’t assume that your message is getting through and mitigating brand damage. There is no shortcut to quantitative analysis. The nation’s top polling firms can deliver results in 24 hours.

As time has proven, no company is fully immune to a crisis. But remember, more often than not it’s not the crisis itself that does the damage, but how well management responds.

Truth be told, in our free-speech online society there is no way to truly stop people from pulling stupid stunts like the one that bashed Domino’s.

A better plan, though, might have averted what amounted to a lynching by social media.

Joe M. Grillo, senior vice president, contributed to this blog.

President, Congress Must Call for a 90-Day Subprime Loan Moratorium

By Richard E. Nicolazzo

Whatever the country is doing to solve the subprime loan mess just isn’t working. I believe the time has come to start thinking outside the box.

The crisis, born from the bursting of the U.S. housing bubble, has passed through various stages exposing poor regulatory framework, unscrupulous lending, and a pervasive weakness in the global financial system.

Despite the July 2008 passage of the Housing and Economic Recovery Act and recent actions by lending giants such as Citi, JPMorgan Chase, and Bank of America to modify billions of dollars in mortgages, the housing meltdown appears to be worsening.

The Congressional Budget Office had projected during the summer that the so-called “Hope for Homeowners” legislation would allow about 400,000 troubled homeowners to switch their risky loans for conventional 30-year fixed rates with much better terms.

Early results have been troubling. The government received only 42 applications in the program’s first two weeks and, according to the Federal Housing Administration, only 20,000 applications are expected by a year from now.

Consider some other sobering statistics recently compiled by First American CoreLogic, a market research firm quoted widely on the subject:

• Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth.
• About 7.63 million properties, or 18 percent, had negative equity in the previous month.
• Seven hard-hit states (Arizona, California, Florida, Georgia, Michigan, Nevada, and Ohio) had 64 percent of all "underwater" borrowers.

To make matters worse, the Bush administration, Treasury Secretary Paulson, Fed Chairman Bernanke, and the FDIC continue to squabble about how to get direct aid to homeowners. You might call it political “analysis paralysis.”

The FDIC has a plan to provide a federal guarantee to share in any losses on modified mortgage loans, but the White House has opposed it. The FDIC estimates the plan could help prevent some 1.5 million foreclosures.

Sheila Bair, FDIC chair, was blunt in recent comments: “Today, the stakes are too high to rely exclusively on industry commitments to apply more streamlined loan modification.”

Bold Action Needed Now

While definitive statistics are hard to come by, most estimate the value of U.S. subprime mortgages at more than $1 trillion, with approximately 16 percent of this amount in the adjustable rate mortgage (ARM) category.

Why haven’t regulatory and Congressional efforts begun to turn the tide?

My sense is that the whole system needs time. When you dissect the residential mortgage lending industry, you find a complex web of regulations, paperwork, federal guidelines and other impediments that prevent the process from working smoothly. Anyone who has ever applied for a home mortgage can appreciate the challenge.

The time for more bold action is now.

Immediately, the president and Congressional leaders should call for a voluntary 90-day subprime loan moratorium. Lenders holding the mortgages would be asked to grant borrowers the three-month reprieve and stop all foreclosure actions. If voluntary actions don’t work, Congress should step in and enact legislation.

Designed to work as a cooling-off period, the moratorium would address the immediate need for homeowners to “catch their breath” and work with lenders to restructure their loans.

Eligibility would follow along the lines already established by Congress for the Housing and Economic Recovery Act:

• The loan must be on an owner-occupied principal residence.
• The homeowner must have a monthly payment greater than at least 31 percent of the borrower’s total monthly income, as of November 1, 2008.
• The Borrowers must certify that they have not intentionally defaulted on an existing mortgage, and did not get the loan in the first place by fraudulent means.
• No one with a criminal record could take part in the moratorium.

The moratorium would not be intended as a bailout or as a reward for families who bought homes they couldn’t afford. Instead, it would keep people in their homes.

Rescues Can Work

While the problem is massive and highly complex, history proves radical thinking can work. The 1975 rescue of New York City comes to mind.

With the city $12 billion in debt, financier Felix Rohatyn was brought in by the mayor to set up an entity called the Municipal Assistance Corporation. It raised money selling bonds backed by sales of tax receipts and stock transfer taxes. The goal was to revive the city’s economy while balancing the budget. It worked.

Although no silver bullet exists to solve the subprime loan mess and general downturn in housing, a 90-day moratorium on subprime mortgages is something homeowners and the country desperately need.

While policy makers in Washington continue their debate, homeowners continue to suffer.

Richard E. Nicolazzo is president and CEO of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Massachusetts. Joe M. Grillo, senior vice president, contributed to this commentary.