CEO REPUTATION

CEO APOLOGIES

Chief Executive magazine published an article, "Want Better Performance? Say You're Sorry"(March/April 2009) that explains why CEOs need to be accountable for things that go wrong at their companies. One reason is that the companies of accountable CEOs outperform the companies of CEOs who are not accountable. CEOs who are willing to blame poor performance on controllable internal factors, rather than offering excuses outside their control, have higher stock prices.

Reuters ran an article about bankers needing to risk apologies in the wake of the 2008 financial crisis to revitalize confidence and trust. Daniel Diermeier, professor of regulation and competitive practice at Northwestern University's Kellogg Management School, argues that in a business which depends heavily on trust, an empathetic, transparent and open approach to the public, customers and shareholders can reap gains. "The more your dependence on trust the more it's important you understand its effect," said Diermeier. "There's much more of an understanding and awareness of reputational risk [in the financial services industry]." (October 20, 2008)

Some infamous apologies of 2008:

“The single highest-impact blog I wrote in the past year was when I apologized to a customer…We need to authentically engage with the community if we want them to trust us, or they won’t buy from us.” Sun Microsystems CEO Jonathan Schwartz, Fast Company, June 2007

In response to a nationwide pet-food recall, Procter & Gamble placed full-page ads in 59 daily newspapers with a letter from Iams and Eukanuba brands informing customers that the remaining food on the market is safe. Not only did the letter inform customers that they were "heartsick" that any of their products were involved, but also outlined their immediate response to the crisis and additional, ongoing efforts to ensure the safety of their products.

The ‘Sleeper Effect’. In a http://knowledge.wharton.upenn.edu/results.cfm?searchstring=Chris+Nelson article on apologies by Ketchum Vice President Chris Nelson, he cites Mary France Luce, a marketing profesor: "Issuing an apology as a strategy 'is not costless,' says marketing professor Mary Frances Luce. 'There are risks.' In the Safeway case [related to customer dissatisfaction], for example, if the store clearly states that managers made mistakes but that these mistakes won’t be repeated, then its apology can moderate customers’ anger and help reinstate their loyalty. 'But the apology might serve to strengthen the negative associations in the customers’ mind between the brand and the problem. Safeway could end up solidifying' the idea that it mismanaged the Genuardi’s acquisition.' In addition, there is the sleeper effect, Luce notes. This refers to a situation in which a person is given a piece of information, and is also told that this information is not true. 'When you test the person later about this information, however, he or she is more likely to rate the statement as true than if you had never told him anything.' Practically speaking, this means that a company can’t predict which 'aspect of their song and dance will be remembered over time,' Luce says. 'A customer might remember that Safeway screwed up and that it apologized. A month later that person might remember mainly that Safeway screwed up.' The point is, the company should 'apologize carefully, which means making sure that the most memorable part of its ad is something positive about the company, like it now has effective new procedures in place to make sure the screw-up won’t happen again.'"

In an article by Leslie Gaines-Ross, Chief Executive, May 2003, "It's (Not That) Hard to Say You're Sorry," she writes about the Goldman Sachs Hank Paulson apology:  "I'm sorry. Not easy words for anyone to say. Yet chief executives aresaying them more often than ever before even when they’re not required to do so. CEOs are the public faces of the companies they run, and an apology is often the best way to heal wounds and recover from even the most serious personal or corporate misstep. Henry Paulson, Jr., chairman and CEO of Goldman Sachs Group,recently demonstrated how an apology from the top can help repair the reputations of both a chief executive and his or her company. During a question-and-answer session at a Salomon Smith Barney conference in January, Paulson seemed to imply that between 80 and 85 percent of Goldman Sachs’s employees were irrelevant to the company’s success. I don’t want to sound heartless, the CEO said, but in almost every one of our businesses, there are 15 to 20 percent of the people who really add 80 percent of the value. I think we can cut a fair amount and not get into muscle and still be very well-positioned for the upturn. Paulson’s comments drew an immediate and overwhelmingly negative reaction. Rather than wallow in explanations as to what he really intended, or suggest that the comment was taken out of context, Paulson faced the music. In a voice mail to all of Goldman’s 20,000 employees, he acknowledged that his remarks were insensitive and glib. In other words, he apologized. Paulson’s apology was not a sign of weakness, but an act of strength. It serves as an example to a new generation of humbler CEOs who view themselves as subject to the same ethical standards as everyone else.  Within Paulson’s apology are several lessons for CEOs:

Paulson’s apology modeled a refreshingly high standard of corporate and personal character, which will enhance Goldman’s external reputation as well. As Roberto Goizueta, the late chairman and CEO of Coca-Cola, once said, The only way you can measure character is by reputation. Its corollary is equally true: The only way you can measure reputation is by character. In apologizing as he did, Paulson turned what could have been a disaster into an advantage.

USA Today's Marilyn Adams writes the right way for CEOs to apologize by using several examples over the past several years: "When United Airlines Chief Executive Jim Goodwin stepped up to the camera in a TV spot last month, he apologized for United's summer of disruptions. In shirtsleeves, straight face and solemn tone, the chief of the world's biggest airline tried to reach out to thousands of angry United customers. Goodwin hasn't been the only CEO eating humble pie. While Goodwin was offering to 'apologize personally' for his airline's cancellations and delays, Ford Motor CEO Jacques Nasser also went on the air, pledging that Ford owners riding on recalled Firestone tires would get free replacements soon. Bridgestone/Firestone CEO Masatoshi Ono told a congressional hearing Wednesday: 'I come before you to apologize to you, the American people ...' Although their messages differ, all three CEOs follow in a growing tradition of corporate contrition.

United's decision to go on the air with the apology followed weeks of dizzying cancellation numbers and traveler horror stories. United pilots and mechanics were refusing to work overtime in protest of labor issues. 'We felt like we had to communicate with passengers, and we wanted to reach of lot of people,' explains Julie Thompson, spokeswoman for Fallon Worldwide, United's advertising agency. United has since reached a tentative contract with its pilots, and flight operations have improved. Although apologies on the scale of United's are rare, the fine art of organizational apology is the focus of entire college courses, dissertations and books. There have been several high-profile examples in the last 20 years.

In one of the most memorable displays, Toshiba publicly apologized in 1987 for secretly selling to the USSR equipment designed to make its submarines harder to detect. In 1994, Intel apologized for faulty computer chips, and the same year, Coors ran full-page ads under the headline "We goofed" after selling a bad batch of beer. Last year, the CEO of herbal tea-maker Celestial Seasonings issued a letter to the editor apologizing for poisoning prairie dogs on its property.

Communication professor Bill Benoit of the University of Missouri, author of Accounts, Excuses and Apologies, says such expressions can be "very effective or fall flat on their face."

'At the university, we've done research on this: People want to hear apologies' when companies make mistakes, he says. 'Next, they want you to fix the problem, to clean up the mess or make sure it never happens again.' An apology without some kind of solution doesn't fly with the public, he says. But taking responsibility when things fall apart isn't a decision made lightly.'Very often in a crisis, a high-level group of people are pulled together as a crisis committee," says Dennis Cesa, senior vice president at Cohn & Wolfe Public Relations. 'Usually there's great debate as to the benefits and detriments' of an apology, "and the CEO listens to arguments on all sides.'

Lawyers representing the company often discourage it for fear of lawsuits from consumers. Fear of business repercussions can inspire a circle-the-wagons reaction rather than remorse. And then, there's human nature: Most people, especially leaders accustomed to power and success, hate to apologize. 'It's the Clinton thing: 'I didn't do it,' says consultant Andrea Grant, president of Environmental Communications Associates in Boulder, Colo. 'All these leaders have grown up in our culture. It takes a huge amount of courage to tell the truth in this country.'

Still, communications professor Keith Hearit of Western Michigan University, who's writing his own book on corporate apologies, thinks they are on the rise. He traces their origins to religious beliefs about morality, and even to Japanese custom. He points out that after Toshiba's technology sale to the USSR, the Japanese company's executives not only apologized, they resigned.

But rather than fall on their swords, chiefs of U.S.-based companies generally have copied only the first part.











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