What to do when your brand gets burned

Brand risk management and crisis communication in the age of Twitter

By Michael S. Goldberg

On August 7, 2018, Tesla chief executive Elon Musk tweeted a proposal to take the electric car maker private, a surprise to his 22.3 million Twitter followers—and to financial markets. It would be the biggest buyout in history, Musk boasted. He even said he had “funding secured” for the move, at $420 per share, valuing Tesla at more than $70 billion, the Wall Street Journal reported.

This was news to investors. It was also false. As the Securities and Exchange Commission noted in a settlement of fraud charges against Tesla and its CEO, Musk’s “statements about the possible transaction lacked an adequate basis in fact.” Musk was forced to give up his chairmanship of the company for three years and both he and the company agreed to pay $20 million in fines. With the founder and company so closely tied, Musk’s tweeting robbed some luster from Tesla’s slick brand. “We are worried that this behavior is tainting the Tesla brand,” said Romit Shah, a senior analyst at brokerage firm Nomura Instinet, “which in terms of value is most important.” Musk has done plenty since to likely add to Shah’s worries.

Before the rise of social media, a company with a new strategy or product would unveil a carefully calibrated and choreographed marketing campaign. Invest in TV and print advertising, a series of radio spots. Then, analyze sales and survey customers to refine the marketing. Those days are gone.

“Organizations need to have systems in place to be monitoring the situation, evaluating it, assessing it, doing scenario planning, and developing proactive plans should things heat up.” Susan Fournier, Allen Questrom Professor and Dean

The ability to post a short text or video message to millions on a social media platform can mean real opportunities to build a brand identity that resonates with customers and the public like never before. Salesforce boss Marc Benioff—one of the most prolific CEO tweeters—even used his Twitter feed to spearhead a campaign that forced Georgia’s governor to veto a bill targeting same-sex couples. But as Musk learned, it can also represent risks to a brand and a company’s livelihood. After all, organizations and their leaders are not communicating in a vacuum. Their messages grab the public’s attention at a time of strong partisan divides in Washington, D.C., and on cable television and social media. And a post could land a company in the crosshairs of one of the nation’s most active Tweeters: the president.

When it comes to assessing risk in their corporate messaging—on social media and beyond—companies must weigh several factors, according to Questrom marketing and risk management experts. First the positive: business leaders can influence public debate. In fact, consumers appreciate socially engaged companies. But they also must understand that people are increasingly polarized in their beliefs and that corporate reputations can be strafed in political cross fire.

The bottom line: treat communications-related risks as seriously as threats from hackers or a jittery stock market.

“Organizations need to have systems in place to be monitoring the situation, evaluating it, assessing it, doing scenario planning, and developing proactive plans should things heat up, and knowing when to escalate this to the board,” says Susan Fournier, Allen Questrom Professor and Dean, who recently spoke about risk at the 2019 Brands and Brand Relationships conference, which was held at Questrom in May.

By approaching social media perils as they would more traditional corporate risks, spotting crises before they make headlines, and making sure every tweet, commercial, and public utterance is consistent with a company’s values, say Fournier and other Questrom experts, leaders can better mitigate the dangers to their brands—and turn risk into reward.

Elevate it to the C-Suite

Companies have always faced threats that could send investors and consumers fleeing: operational, legal, financial, and, more recently, cybersecurity risks. In his risk management classes, Mark Williams tells his students to add another to the list: social media.

“It’s really a brand-new category of risk that can quickly harm a company. And if you view it as an important risk to understand, you can then better manage and use it as a tool for a positive outcome and purpose,” says Williams, James E. Freeman Lecturer in Management and executive-in-residence.

With social media, Williams (MBA’93) points to two levels of risk to assess. The first is understanding potential uses and misuses of these communications tools before deciding whether and how to implement them. The second is determining what kinds of messages are worth communicating—and what are not. “Branding itself has traditionally been done in a very structured fashion. Branding and reputation are developed and earned over years by corporations,” he says, while “an ill-conceived tweet can undermine that brand and reputation in a matter of minutes.”

As Musk found, communications missteps can do more than dent your image—they can land you in big legal trouble, says Kabrina Chang (CAS’92), clinical associate professor of markets, public policy & law. Executives of public companies have a fiduciary duty to their shareholders and social media communications are just like any other public statements a corporate leader makes.

“You could imagine a situation where a CEO goes out there, makes a statement, and the stock price drops; shareholders are going to pay attention to that and will go over what the statement is, and did that cause the price of their stock to drop and is there recourse for that? There are some legal risks,” Chang says.

Lawyers for shareholders could examine an executive’s statements to question whether they were misleading or omitted relevant facts, and whether these statements and facts are related to the stock price change. This is an ongoing concern in the Tesla case. In addition to the CEO and company reaching a settlement with the SEC, Tesla faces a shareholder lawsuit by investors alleging they lost millions as a result of Musk’s tweet.

In the wake of the Tesla controversies, Williams argues, organizational leaders should put social media on a par with other important risks that can be analyzed as a probability of loss.

“It’s very similar to cybersecurity risk, which has grown dramatically,” says Williams, who is also a master lecturer in finance. “We are all aware of cybersecurity risk. Because it is costly, we also know that we need to improve controls, policies, and procedures around that. So, once social media risk is defined, you can measure it and then decide whether you want to take that risk or not.”

Fournier recommends that companies considering potential communications-related dangers to their brand—particularly those with a political or sociopolitical angle—take an enterprise-level risk management approach.

"Once social media risk is defined, you can measure it and then decide whether you want to take that risk or not." Mark Williams, James E. Freeman Lecturer in Management

“It’s not just having a social media team that responds to crises,” says Fournier, an expert on brand relationships whose recent research has examined communications risks, “but having someone in the C-suite, preferably the CMO, tracking these developments and assessing enterprise level risks, having a disciplined approach to managing risk.”

Many marketing professionals now have backgrounds in social sciences like psychology, sociology, and anthropology, Fournier says, allowing them to assess whether a topic is likely to continue dominating news feeds and for how long. At Questrom, undergraduates studying marketing take courses in consumer behavior. For those who make marketing a career, Fournier says, “we’re way more qualified to be having our finger on the pulse, interpreting it, gauging how hot it is, predicting if it’s going to really keep growing, and being able to then escalate and intervene.”

With Shuba Srinivasan, Norman and Adele Barron Professor in Management and chair of the marketing department, Fournier has created a framework to help executives decide whether to weigh in on a topic or event making headlines and leverage it for company gain (see “Speak Up or Stay Quiet?,” below). For example, says Srinivasan, the #MeToo movement is an enduring issue from a consumer marketplace perspective and a company’s leaders need to be clear in their communications about their stance on it. By contrast, when the CEO of Columbia Sportswear Company called for an end to the shutdown that paralyzed the government and closed National Parks at the beginning of the year, she says, it felt “underpowered and a bit contrived; conflating government workers with the outdoors is a stretch and we’d bet this effort is a one-off.”

Williams says companies could take draconian measures, such as banning Twitter and other social media communications, but he also suggests a more practical way of staying out of an online fracas: “Count to 10 before you tweet,” he says.

Don’t Ignore the Hiccups

Not every branding crisis occurs at the speed of a misfired tweet—some gestate for months. For many organizations, there were sure to be clues before a crisis made clear that something was dramatically wrong, says William Kahn, an organizational behavior professor.

Take Facebook, which in late 2018 faced renewed scrutiny for how it manages the privacy of users’ data as well as its handling of reported Russian meddling in US elections. “I would argue that what finally bubbled up around the Facebook issue is that there were murmurs, there were hiccups, there were moments that happened in the last six months to a year before it even emerged as a crisis in the public, in which someone said, ‘Hey, hang on a second, there’s a problem here.’ And someone suppressed it,” Kahn says.

This is a human impulse, Kahn says, and not nefarious in most cases. People see a problem and assume the organization is addressing it, or that customers don’t care about the issue, or it’s unimportant. “In every organization where there is a crisis, there were clues. There were moments where people turned away from those as opposed to [facing them] with curiosity and following those leads,” Kahn says.

What’s a company or leader to do? Kahn says an organization needs to develop resilience—not just handling a crisis as it happens, but also learning from near misses that have occurred in the past. The healthcare and aviation industries have developed systematic processes to study near misses in their operations. A plane losing control, for example, or two planes almost colliding; or a patient prescribed the wrong medication that could cause harm. Organizations in these industries create databases of incidents, what went wrong in the sequence of steps set up to maintain quality results, and lessons learned from the incident.

Best-practice organizations set up cross-disciplinary teams to conduct after-action reviews. The knowledge gained builds resiliency, Kahn says. People can spot a problem before it turns into a crisis. And if a crisis does occur, they will have experts in place to mitigate the damage. Kahn says the principles here apply when the problems result from incoming social media fire.

Keep your values in mind

Because there may be no choice in the matter, Fournier and Srinivasan say, it pays to be prepared for the potential fallout of incidents that impact a brand while also analyzing the landscape for opportunities to promote an organization’s strategy and values. Whether a company is preparing for a hypothetical crisis, being scorched by the flames of an ongoing one, or discussing broader marketing and advertising efforts, companies must look to their core values—what their brand stands for—when developing the messages that are important to them. The goal: to ensure that public statements match the company’s mission and ethics, and that they also benefit society at large.

This is important because when consumers evaluate brands, they are looking at more than benefits and value of a product or service, says Lou Aversano (BSBA’88), chief executive, Ogilvy USA. “They’re looking at those brands and also the enterprises that produce those brands for what their beliefs and values are in terms of what they stand for,” Aversano says. “And that can be an opportunity and also a threat depending upon the issue and the moment. And I think it comes down to what types of issues you take a position on. So, if it’s a political issue, you have to be very careful to represent the full spectrum of your constituency base.”

Aversano says he would advise companies to avoid divisive issues and focus on human values and social good. “If you talk about the environment, if you talk about the need for caring for people, and life, and inclusiveness and diversity, I think brands can take positions on those things for good. But when there are two sides debating an issue and both sides have different points of view, then you have to be very careful,” he says.

“When there are two sides debating an issue and both sides have different points of view, then you have to be very careful.” Lou Aversano

Aversano points to one of his firm’s clients, the Scandinavian furniture designer and retailer IKEA, as an example of what can work. Its advertising and branding materials, such as a holiday season TV ad, emphasize images of multicultural families gathering for celebrations around IKEA sofas and tables. A spot like this, which includes people from different racial, ethnic, and religious backgrounds, young and old, represents “a natural affinity between what the brand stands for and how the brand represents itself in communication. That’s where you see a sweet spot in terms of coming out on an issue,” Aversano says.

Others have issues thrust upon them, like Starbucks. On May 29, 2018, executives at the coffee chain closed 8,000 US stores for one day of racial-bias training after two African American men were arrested in one of its Philadelphia shops—despite not breaking any laws. The incident went viral. The fast follow-up to that April 2018 incident, says Chang, was an action that meshed with Starbucks’ history of openly discussing racial tolerance, even in the face of criticism in the past. “Their very public response to it was very brave, and it seemed authentic and consistent with Starbucks and what they’ve stood for outside of coffee for a long, long time,” she says.

Still others decide to take on an issue, stating a principle in doing so. Dick’s Sporting Goods CEO Ed Stack decided, after a gunman killed 17 people at a Parkland, Fla., high school in February 2018, to change his chain’s gun sales policy. Stack told the Wall Street Journal that he conferred with his CFO and board before announcing that the retailer would no longer sell assault-style rifles and end sales to buyers under 21. “I basically said, ‘I don’t really care what the financial implication is, but you’re right, we should look,’” Stack said. After a board meeting and a few days of deliberation, the directors took a unanimous vote. The CEO expected some employees would resign; of some 30,000, 62 did. “I think if we have to have different views, we just have to respect each other and have a civil conversation about it,” Stack said.

Although a recent survey of 324 marketing executives by Duke University found only 21 percent of CMOs believed it was appropriate for their brand to take a stance on politically charged issues, 86 percent of consumers believe that companies should advocate for issues important to them, and 64 percent say those stands influence their purchases, according to a 2018 report from the Shelton Group.

The upshot, according to Fournier, is that “companies risk turning off some customers with their silence.”

Which leads to Nike. Marketing and communications experts will be debating for some time the pros and cons of Nike’s decision in September 2018 to feature former NFL quarterback and activist Colin Kaepernick in its latest “Just Do It” advertising campaign. The pros: it yielded a great deal of attention and reenergized the brand. The cons: some consumers burned their Nike gear in protest, posting images and video snippets on Twitter.

Srinivasan says such a campaign would benefit from an analysis from multiple viewpoints—customers, investors, retailers, distributors, the public—to clarify the ramifications and risks. At the end of the day, she says, the Kaepernick decision fits with Nike’s history of taking calculated risks featuring athlete-spokespeople, ranging from basketball star Charles Barkley stating “I am not a role model” in 1993 to HIV-positive runner Ric Munoz, who appeared in a 1995 ad. “In the case of Nike, they took a calculated risk, but even though the stock price took a 4 percent hit in the immediate wake, it recovered to all-time highs because their message resonated culturally with the brand strategy, and brand image,” Srinivasan says.

Fournier says that educators need to give their students the tools to conduct these analyses as part of discussions about values-led leadership. “We have to teach students, undergrads and MBAs, how to create value in a politically risky world when they run organizations and contribute to them.”