It comes up in my consulting at least once a month. Something bad has happened on my client’s watch, and now the client has to own up to it. The key question (or at least one key question) is why it happened. And the principal contenders for best explanation are stupidity and evil. Either my client screwed up or my client screwed over the rest of us. Usually my client screwed up, but doesn’t want to say so. I find myself urging the stupidity defense.
Occasionally other defenses are possible. It didn’t really happen. Or it wasn’t really so bad. Or we’re a victim here too (the butler did it). Or we were just incredibly unlucky (who could have guessed?). But these are all problematic defenses, even when they are partly true. People are pretty convinced it did happen and it was bad. Blaming somebody else looks like scapegoating, and usually ends up making the public blame you both more – as when Jack-in-the-Box put the blame on its meat suppliers for a deadly West Coast E. coli epidemic. As for bad luck, it’s your job to predict and prevent disasters; if you can’t do it, we may be sympathetic but we won’t let you stay in business.
These alternative explanations won’t cut it. And yet some explanation will surely be needed. People demand reasons why bad things happen even to good companies. So it boils down to stupidity or evil.
Obviously the evil explanation hurts your reputation more. Arguably this shouldn’t be true; evil companies are safer than stupid ones. (Who would you rather have running the nearby nuclear power plant or the federal government, competent managers who sometimes lie to you or incompetents who don’t?) But most people are more preoccupied with good-versus-evil than with safe-versus-risky (a special case of “outrage” versus “hazard”). We forgive error far more readily than duplicity or intentional misbehavior.
Error, in fact, can actually nurture a corporate reputation. Two crucial components of reputation are competence and humanness. They tend to be inversely correlated, in image if not in reality: the arrogant achiever versus the likeable bumbler. Improving your reputation means shoring up your weak area. So those with a bumbling reputation need to demonstrate achievement; those known for arrogance need to bumble a little. Most (though not all) companies are in the latter group. This is not to say that a serious disaster is ever endearing or confidence-building. But a prompt and rueful apology for a screw-up that did little actual harm can do some reputational good. At a minimum, it does less reputational harm than the alternative hypothesis: You thought you could get away with it.
I am absolutely convinced that corporate stupidity is a lot more common than corporate evil. I grant that there is a lot of corporate conduct in the middle – most typically, talking yourself into a foolish policy that promises short-term gain at the expense of almost inevitable long-term reputational meltdown. But look at two recent highly publicized examples:
- Even as the genetically modified seed industry was insisting that labeling GM foods was impossible because the GM and non-GM product streams couldn’t be segregated, Aventis marketed a corn variant, StarLink, that was approved for animal consumption but not for human consumption. (Aventis didn’t dot the i’s on a possible allergenicity problem definitively enough to get regulatory approval for use in human food.) Sure enough, StarLink turned up in taco shells – costing Aventis millions and the industry, conceivably, billions. Do you imagine Aventis top managers decided to let StarLink into the human food chain, betting that no one would ever find out? Or is it likelier that they forgot to read their own literature on the impossibility of strict segregation?
- Among the many varieties of Firestone tires, a few particular models tended to self-destruct. It didn’t happen to all tires of those models, of course. Especially vulnerable were tires manufactured at one Firestone factory, then used on Ford Explorer SUVs – especially if they were run less than fully inflated in hot weather. As accident reports began to mount up, the data were there to show the problem. A recall would have been the obvious solution … and auto industry recalls are common and entail no significant reputational damage. But Firestone did nothing until an insurance executive, then plaintiffs’ lawyers, then regulators and the media and the public, discovered the problem. Now the entire Firestone brand is in deep trouble. Do you suppose Firestone top managers sifted through the company’s routine tire failure data until this non-routine accident cluster surfaced, then decided to ignore it in the hope that insurers, attorneys, accident victims, investigative reporters, and the rest of us would miss it? Or did they miss it themselves?
Once their stupidity was revealed, both of these companies did a poor job, in my judgment, of acknowledging it. Firestone did a far worse job, first denying that the problem was real, then denying that it was Firestone’s problem (as opposed to Ford’s), before ultimately making some concessions. Aventis, to its credit, apologized promptly and promised to make restitution for StarLink-contaminated corn that couldn’t be marketed. But neither company said anything like “I can’t believe how dumb we were!” – though I believe both said exactly that internally.
The problem is that the public doesn’t realize that corporate stupidity is far more common than corporate evil. I didn’t realize it either until I left academia and started working as a consultant. My clients, I learned, rarely twirl their mustaches while tying maidens to railroad tracks … but they do commit some incredible blunders!
Since the public has the wrong impression, the evil hypothesis will always prevail over the stupidity hypothesis unless the company claims stupidity aggressively. Even better than “I can’t believe how dumb we were!” is “I know it looks like we must have done this on purpose, but….” Cop to the lesser offense, the one you really committed.
How often do I succeed in persuading clients to claim stupidity aggressively? It happens. It happened recently, when a pharmaceutical manufacturer did a routine audit of one of its plants and found scores of air emissions that exceeded its permits. Aghast, the company investigated further. It learned that earlier corporate audits had revealed similar problems, which local managers had ignored; it also learned that some of the chemicals found in the most recent audit had never been tested for before (much less permitted), because the company’s environmental managers hadn’t realized they were byproducts of its manufacturing processes. Management promptly told the regulators, and soon after the community. The corporate environmental V.P. and the new plant manager were blunt. The previous local management was evil, they said (in different words). And we missed it. We were stupid.
But claiming stupidity aggressively is hard on corporate self-esteem. Unable to make themselves say the words, companies often fall back on less compelling explanations – it wasn’t really so bad; we’re the victim; we were unlucky; etc. When these defenses fail, as they usually do, the public ends up concluding that corporate evil is the best explanation. That conclusion is devastating to the bottom line – but it is paradoxically less devastating to the self-esteem of corporate managers than the alternative, stupidity. Maybe you can shrug off the public’s indictment of intentional misbehavior because you know you didn’t do it on purpose; stupidity, the truth, is harder to shrug off.
And so too often my clients would rather look evil than claim stupidity. I have a tough sell to convince them that they should endure the blow to self-esteem to protect the bottom line. Back in the 1960s, I thought the main thing wrong with corporate capitalism was excessive preoccupation with profit. I now think one of the main things wrong with corporate capitalism is insufficient preoccupation with profit. Most times, ego trumps profit hands down.
There is another paradox here worth emphasizing. I started this column by saying that “something bad has happened.” That doesn’t mean people got hurt. Usually nobody got hurt. (In the examples I’ve used, that was true for Aventis and my pharmaceutical client; not true for Jack-in-the-Box and Firestone.) When the actual damage is negligible, the company is tempted to claim that since nobody got hurt, it didn’t really do anything wrong. The public is drawn to a competing non sequitur: Since the company did something wrong, people must have gotten hurt.
In this battle between “harmless therefore innocent” and “guilty therefore harmful,” the latter always wins. Your best shot (usually your only shot) at persuading people that you didn’t actually hurt them is to disentangle whether you hurt them from whether you did anything wrong. “We screwed up but we got lucky,” you must insist. “This was a warning, a shot across our bow. There were no serious consequences. But it was still a serious mistake.”
This dynamic became very apparent with my pharmaceutical client. The company commissioned an external quantitative risk assessment, which concluded that the illegal air emissions were extremely low-risk (low-hazard, in my terminology). In its ongoing dialogues with local government, neighboring homeowners, and the media, the credibility of the QRA has depended chiefly on the vehemence of the company’s mea culpa. The more aggressively the company insists it was stupid, in short, the less inclined its stakeholders are to think it was evil … and the less inclined they are to think they were hurt.
Copyright © 2001 by Peter M. Sandman
