The Journal The Authority on Global Business in Japan

It may be a self-evident fact of business life, but crises happen.

A corporate crisis may be the result of unavoidable outside factors or it may be a blow that has been self-inflicted. In either case, the way in which the fallout is handled determines the organization’s immediate—and potentially long-term—future.

Because social media plays such an important part in forming public attitudes toward companies and their products or services, the response to an issue can, analysts say, literally make or break the future of a corporation.

“There is an expression that sums the danger up perfectly,” said Jonathan Kushner, managing partner for the Asia operations of strategic communications agency Kreab.

“‘A brand is built over time, but it can be destroyed overnight’—and that’s absolutely true,” he told The Journal. “If a company loses the trust of its customers, its investors, its partners, and its staff, because it mismanages a situation and fails to take the appropriate steps to do the right thing, then its brand can be damaged very, very quickly.”

LASTING IMPACT
Yoko Kato, director of the Crisis and Risk Division at Edelman Japan, goes further and warns that “mishandling a crisis does more damage than the crisis itself.”

“A thoughtless comment can ruin reputations and consumer loyalty for the long term,” she said.

While none of the communications specialists interviewed for this story would comment on individual examples of corporate ineptitude made worse by fumbled attempts to rectify the situation, one does not have to look too hard to find representative cases.

Hisao Tanaka, CEO of Toshiba Corporation, described in late 2015 the accounting scandal that saw profits being inflated by ¥224.8 billion over seven years as “the most damaging event for our brand in the company’s 140-year history.”

A panel of three lawyers concluded in a report that five former executives should be held responsible for negligence and pay damages; but also declared that “it will be difficult” for the company to fully regain the public’s trust. The markets agreed, and the company reported a group operating loss of ¥90.49 billion for the first half of the subsequent fiscal year—the first time it has ever recorded a group operating loss for the April–September period.

And Toshiba is far from alone.

In October 2015, Asahi Kasei Construction Materials Corp. admitted falsifying information at 266 construction projects over the previous decade, including apartment complexes, schools, and hospitals. Six months prior, Toyo Tire & Rubber Co. Ltd., one of the leading Japanese manufacturers of seismic shock absorbers designed to enable large structures to withstand earthquakes, admitted that 145 buildings had been fitted with sub-standard equipment.

And in a case with major implications for the Japanese auto sector in the United States, the president of Takata Corporation resigned in December 2014 over a scandal involving faulty air bags for vehicles that were blamed for at least seven deaths in the United States. More than 34 million cars there were fitted with the air bags, which were found to explode and send shrapnel into some passengers’ bodies in the event of an accident.

Kushner says there is a long list of things that can go wrong at a company, from regulatory and legal issues that mean it may have broken the law, to operational problems, inappropriate behavior by staff, a product recall due to potential damage or injury, or cybersecurity failures that lead to the leaking of personal information.

“Because of the rapid growth of social media,” he said, “we have seen in recent years, that a crisis can escalate and go viral extremely quickly, simply because that is the way that social media works.”

Fortunately, he adds, the vast majority of companies have recognized that they can be vulnerable to situations and have taken steps to be ready for the worst.

RESPONSE
“We all know bad news travels fast,” said Robert Heldt, president of Custom Media KK, publisher of The Journal. “This can be further compounded with the rise in fake news—especially in social media. Therefore, it is crucial to take control of the situation very early and keep the communication channels open so that consumers can hear directly from the company versus what is being said about them.

Dan Underwood of Ashton Consulting in Tokyo says: “A crisis response plan is essential. This plan should define the communication hierarchy and clearly describe the roles of each officer—whether that be C-suite, corporate communications, or legal—while explaining how they fit into the communication plan.”

He went on to explain that the plan “should identify key stakeholder groups and provide guidance on how to communicate with them. A response timeline is essential for managing the flow of information, both externally and internally, and standardized templates will save time and ensure consistency.”

Heldt added, “The strategy should clearly outline the various scenarios and appropriate responses to each.”

It is critical, Underwood emphasized, to explain what is happening, why it is happening, how it is being addressed, and the steps that will be taken to ensure that the same problem does not happen again.

“Social media teams should be given a set of response guidelines that explain how to identify and engage with fans, neutrals, and the angry, and how and to whom they can escalate unresolved issues,” he added. “These guidelines should clearly define content publishing restrictions, such as the type and tenor of content that can be shared.”

It is also imperative that a company’s social media does not simply go silent.

“Stop broadcasting marketing and other frivolous content and focus on keeping audiences informed, answering questions, and directing stakeholders to essential information,” Underwood recommends. “Staff your social channels around the clock to monitor conversations and manage contingencies. Crises are 24/7, not nine-to-five.

“And finally, if the company is active in multiple markets, the crisis response plan should provide for global alignment to ensure consistency of response and messaging.”

Because Japanese consumers are highly-demanding, Custom Media’s Heldt said that “it is all the more important for international businesses operating in Japan to be sensitive to the local sentiment and at all times communicate the situation in a transparent and timely manner.”

In the same way that companies can be prepared by drawing up a “playlist” of proactive reactions to a crisis, there is also a checklist of what not to do, said Sayako Suetsugu, marketing and communications manager for Meltwater Japan.

“When crisis strikes, you shouldn’t wait for it to pass or hide what has happened,” she said. “The faster it can be handled, and the more efficient and effective the communication is, the more likely that the crisis will be resolved sooner.”

“Most of the time, consumers want to know what the current situation is and what the company is doing to resolve it,” she continued. “Social media demands authenticity, and consumers want to see that. I find that people are more understanding when they are given an explanation and an action plan, even if the situation has not been resolved.”

Kushner concurs: “One thing you absolutely don’t want to do is to lie.”

“You need to be as transparent as possible and, if your understanding of the issue is incomplete, then you need to say that an investigation is ongoing and that you are cooperating with the relevant authorities,” he said. “This shows that you are making a proactive effort to resolve the problem.”

Fundamentally, the problems experienced by Toshiba, Takata, Toyo Tire & Rubber, and others can be dramatically reduced by having procedures in place, said Edelman’s Kato.

“A crisis plan is as important as an insurance policy,” she said. “If you have a house, you get fire insurance. If you don’t, you are vulnerable to risk. A crisis plan is a must for every organization.”

TOP TIPS

  • Have a crisis plan in place for as many scenarios as possible
  • Once a crisis strikes, deal with it in a timely fashion—being neither hasty nor tardy
  • Seek third-party advice and act on the most appropriate elements of that advice
  • Engage with your fan base to ensure they have all the facts and to prevent the crisis from further escalating
  • Don’t lie or be “economical with the truth.” When the full truth emerges, and the company has been caught out for a second time, the fallout undoubtedly will be worse
  • Be in control of the facts. Stating guesses and presumptions can be damaging
  • Constantly assess the crisis level
  • Communicate the company’s actions to your own staff. They have a major stake in making sure the problem does not snowball and need to be kept informed
  • Whenever possible, to minimize conflicting comments, have a single spokesperson communicate the company’s message in response to a crisis
Julian Ryall is Tokyo correspondent for The Daily Telegraph