Huawei, Boeing and McKinsey – When Internal Cultures Cause Reputational Crises

How much are reputational crises related to internal cultures, and an ability (or inability) to take into account a variety of diverse viewpoints?

I’ve watched over the past couple of weeks as the crisis around the Boeing 737 MAX has grown. Before that, it was Huawei and the suspicion in many Western capitals that the Chinese telecommunications firm was in a position to either spy on or act in favor of the Chinese government through sharing data collected through its network equipment. Before that, there was the McKinsey sagas in South Africa and Saudi Arabia respectively.

As a communications professional, it’s been fascinating (and painful) to watch events unfold. But one thought is stuck in my mind – is there a common thread to all of these events? And is that common thread an internal culture which is neither diverse or inclusive enough to understand and tackle issues before they become crises?

Let’s take Huawei, whose story has been covered in depth by a number of exceptional writers and features (check out Arun Sudhaman’s 4,000 word piece on the Holmes Report website). Huawei is a typical Chinese-headquartered multinational, with senior management being predominantly Chinese nationals. This has proved problematic for Huawei’s understanding of markets such as the US.

“There was always a fundamental lack of trust in non-Chinese. You offer guidance, and are regularly second-guessed,” Huawei’s former US public and government relations department, William Plummer, told the Financial Times. Plummer published a book last September in which he explained how senior local staff in foreign markets were regularly excluded from key decisions whilst Chinese executives second-guessed senior management in local markets out of fear of the company’s founder, throwing into turmoil into the company’s handling of PR and lobbying outside of China.

While McKinsey’s management is more diverse in nature, it could be argued that a an over-aggressive culture and a lack of local understanding resulted in the consultancy giant making one of its biggest ever mistakes. To quote from the New York Times:

McKinsey admits errors in judgment while denying any illegality. Two senior partners, the firm says, bear most of the blame for what went wrong. But an investigation by The New York Times, including interviews with 16 current and former partners, found that the roots of the problem go deeper — to a changing corporate culture that opened the way for an aggressive push into more government consulting, as well as new methods of compensation. While the changes helped McKinsey nearly double in size over the last decade, they introduced more reputational risk.


The firm also missed warning signs about the possible involvement of the Guptas, and only belatedly realized the insufficiency of its risk management for state-owned companies. Supervisors who might have vetoed or modified the contract were not South African and lacked the local knowledge to sense trouble ahead. And having poorly vetted its subcontractor, McKinsey was less than forthcoming when asked to explain its role in the emerging scandal.

McKinsey’s former managing partner told the New York Times that the firm had a “bit of a tin ear” when it came to the initial response. David Lewis, executive director of Corruption Watch, a South African advocacy group, told the NYT that: “For the scale of the fee, they were prepared to throw caution to the wind, and maybe because they thought they couldn’t be touched.” For me, there’s the feeling that the internal culture led McKinsey to make the wrong decision and down a path that would become the biggest crisis in the firm’s history.

Finally, there’s Boeing. The airline manufacturer is struggling with a crisis that has grounded worldwide its latest jet, the 737 MAX, after two crashes which share a number of similarities. The first crash happened in Indonesia last October, with the loss of 189 passengers. Following the second crash, this time in Ethiopia in March, Boeing was asked why more wasn’t done to fix the faults found to be responsible for the first crash?

In crisis communications, the most important action is post-crisis, and communicators are told to work with the organization to ensure that lessons are learned, solutions are found, and trust is re-built. This didn’t happen with Boeing – the software fix for the plane’s flight system has yet to be completed, and relatives of those who died in the first accident have questioned Boeing’s response.

Vini Wulandari, sister of one of the ill-fated Lion Air flight’s co-pilots, said that the Ethiopian crash confirmed the suspicions that she and many of the victims’ relatives had about the MAX 8 being a “defective product”.

“The [Ethiopian] crash shows that 737 MAX 8 is a manufacturing fail from the beginning,” Vini Wulandari, sister of one of the ill-fated Indonesian airline Lion Air flight’s co-pilots, told the South China Morning Post. “When I first heard about [the Ethiopian crash] I was sad because I am familiar with the sadness that the victims’ families must feel and I was also sad because the 737 MAX 8 should have been grounded after the Lion Air crash. Maybe because it was only one accident, so a lot of people thought there was no need for immediate [action].”

Was Boeing’s internal culture to blame, in particular Boeing’s urgent desire to come up with a new airplane that would compete head on with rival Airbus’ new models? It’s hard not to be convinced that Boeing rushed the 737 MAX’s design after reading a bombshell report in the New York Times.

It’s hard not to be swayed by the argument that uncompromising internal cultures are to blame for poor decision-making; too many similar voices, too few diverse views and an inability to listen have been a cause in each of these crises. That’s why proper inclusion matters, at all levels, as well as an ability to seek out differing viewpoints, especially from outside the organization. As communicators, we have to play a role in promoting both in our workplaces.

I’d love to hear your views on these crises. What’s your view? Message me, or leave a comment.


Lessons from McKinsey on the importance of being seen to be ethical

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McKinsey’s reputation has been heavily impacted by its work in South Africa. Could the same happen in Saudi? (image credit: Ingram Pinn)

McKinsey is a household name, at least in Saudi and South Africa. And not for the right reasons either.

The firm, which consults for governments and businesses the world over, hasn’t had a good time of it lately in these two markets. In South Africa, McKinsey has been embroiled in the Gupta family scandals through its work with the state energy firm Eskom and Trillian, a local company linked to the Gupta family.

In Saudi, McKinsey has been working with the government for years. The company hasn’t always been popular, and has often been blamed by the Saudi public for the austerity measures the Kingdom has enacted. Recent events have shone even more light on McKinsey. An article in the Wall Street Journal looked at the consultancy’s habit of hiring from the elites. To quote:

“The consulting company has employed, among others, at least two children of the man who serves as the Saudi energy minister and head of the state oil company, a son of the finance minister and a son of the CEO of government-controlled Saudi Arabian Mining Co.”

The Wall Street Journal piece describes in detail McKinsey’s company’s hiring practices in the Kingdom, and also notes that there is no allegation of wrongdoing by the firm.

The issue that McKinsey faces isn’t dissimilar to tens of thousands of other firms. It’s the choice between reputation and profit. However, few other firms are as prominent as the consultancy, partly owing to its clients (primarily government in emerging markets) and the quality of McKinsey’s people. To quote the response to the Wall Street Journal article, a McKinsey spokesperson explained that:

“McKinsey is a meritocracy. We hire exceptional people and are confident in the robust policies and practices that underpin our recruiting and development both globally and locally.”

How many exceptional people would it take to understand that working with the Gupta family in South Africa wouldn’t be good for business. Five minutes of due diligence would have thrown up the links between Eskom, Trillian and the Gupta family.

Last year I wrote about Caroline Sapriel’s masterclass on crisis communications. There’s one chart I want to re-share, which should be a guide for all of us.

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CS&A’s crisis management culture ladder maps out where organizations are in terms of their ability to manage and learn from a crisis. At the bottom are organizations who essentially don’t care as long as they’re not caught; at the top are organizations who thrive on and grow with every crisis they encounter. Where are you at?

The question that I have for McKinsey (and every other business leader) is what price would you put on reputation? Even if the firm did work in a legally appropriate fashion, which McKinsey has claimed it did in South Africa, the spirit and the letter of the law are two different things. This question could also be asked of KPMG and SAP, who have also found themselves in the thick of it in South Africa.

If you’re unsure as to where you are on the culture ladder, here’s a stress test you can use to understand how your firm fares. Can your executives answer the following questions relating to any business engagement?

  1. Have they done a due diligence test, including listening to the communications team on possible reputational risks and stakeholder reactions?
  2. Are the executives able to clearly explain their actions? Is their reasoning believable and authentic?
  3. When viewed from the outside, would an action seem to be ethically dubious at best, or illegal at worst?
  4. What are you doing in general when it comes to corporate social responsibility? How do you engage others in conversation?
Writing in the Financial Times in September of this year, John Gapper shared his thoughts on McKinsey’s activities in South Africa:
The firm has a brisk defence to accusations from South African politicians and Corruption Watch that it facilitated state capture by helping Trillian to gain money from Eskom. It says that its own inquiry into its behaviour has not uncovered wrongdoing, nor anything that would require it to report itself to the US authorities under anti-corruption laws. This seems to be setting the reputational bar rather low.
Being willing to charge an entrenched institution in a fractured country so much money looks awfully like rent seeking, especially when payments of up to $700m were to be split with what it should have known was a dubious consulting partner. McKinsey is full of superior intellects but sometimes you only need to open your eyes. None of this occurred in a vacuum.
The group Business Unity South Africa this month bemoaned the “scourge of corruption that is stifling the country” and called for an end to a “culture of immunity”. Each time that a consultant or accountant fails to take a decisive stand, the scourge worsens. KPMG has recognised it but McKinsey is still learning. It could start by confessing that it was wrong and promising not to repeat its failure.
The firm still maintains that it behaved correctly and is walking the tightrope of self-justification. I am intrigued to see how long it will take to fall off.
I wonder if the same will be said of McKinsey’s activities in Saudi Arabia. What price is McKinsey willing to put on its reputation? You tell me.

Lessons for the PR Industry from the Dubai Lynx

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The Dubai Lynx highlighted the issues that communicators (and their marketing colleagues) will need to face up to. But is anyone listening?

It was an early morning, but the 6.30am start from Abu Dhabi was certainly worth it. The Dubai Lynx is always worth a visit for anyone working in marketing and communications. The Festival, which is organized by the people behind the Cannes Lions, has been going for over a decade. And, as the two disciplines of marketing and communications coverge, the Dubai Lynx (which billed itself this year as the MENA region’s biggest celebration of creative communications) is becoming a must-attend for communications professionals.

For me, there were two basic takeaways from the Dubai Lynx:

  1. It’s all about data, data, data: Every other word seemed to be data. The push to incorporate data – big, small or something in-between – is understandable; the marcomms industry has always struggled with the question of ROI, and data measurement, when used wisely, should help answer the question of what are organizations getting for their money’s worth. When analyzed well, data will also help marcomms professionals better understand both their audience and their impact. However, what wasn’t mentioned was ‘creativity’. Have we swung too far over to talking about data, rather than marrying data with creativity? While I’m sure there are computers and algorithms that are far smarter than me, I doubt there’s any machine which understands the human mind better than we can. Could a computer have understood why the ice bucket challenge would have gone viral? Or the success of the Chewbacca mom? I doubt it.
  2. Agency Convergence gathers steam: There’s no marketing or communications in our industry anymore, as the list of agencies offering everything under the sun grows longer. Those marketing agencies who were already one-stop shops are going further, and breaking down the internal silos to promote better integration between the various disciplines. Some PR firms are creating new roles, such as creative leads and digital heads. And then there’s the big consultancy firms, the data goliaths such as Accenture, IBM and McKinsey, using their IT know-how and their understanding of strategy to break into the marcomms industry (we’ve already seen this with Accenture and IBM, and expect to see it with McKinsey in this region following their acquisition of marketing firm Elixir). For an industry which used to be mainly focused on media relations about a decade or so ago, this is a seismic shift. Expect to see the gap between those offer an ever-expanding range of services (think creative, digital, public affairs, technology) and those who stick to old-school offerings such as media relations to grow significantly over the coming year.
  3. Marketeers are doing PR (and some of their work is exceptional): One of the best PR executions I’ve seen in a long time was from last week. It was the ‘Fearless Girl’, a statue commissioned by State Street Global Advisors and executed by McCann New York. The concept, which was timed to coincide with International Women’s Day, saw the ‘Fearless Girl’ face off against the famous Wall Street Charging Bull. The stunt symbolized the power of women in leadership and emphasized that companies with women in top positions perform better financially. Ask anyone in the business and they’ll tell you that McCann isn’t a PR agency, but rather a creative. However, much of the work which has been winning plaudits at Cannes recently has essentially been PR work executed by creative agencies.

The PR industry has gone through some remarkable change over the past decade. However, we’re going to see much more disruption over the short and medium term as creatives and consultancies move into new disciplines. Are PR firms ready to both embrace data and expand their own offerings? Or are we about to see another wave of industry consolidation over the coming five years? Time will tell.

Guest Blog – How To Meet Your Customers Changing Expectations

We've gone from digital natives to mobile natives. As consumer expectations change, how can we communicators remain relevant? (image source: www.mirror.co.uk)

We’ve gone from digital natives to mobile natives. As consumer expectations change, how can we communicators remain relevant? (image source: http://www.mirror.co.uk)

I’ve asked a number of prominent communicators to talk about the importance of communications and design when it comes to customers. Julio Romo (on Twitter as @twofourseven and on LinkedIn here), an International Communication Consultant and Digital and Innovation Strategist, shares his insights on how communications is changing and how customer experiences are impacting our jobs as communicators. Julio, over to you.

How To Meet Your Customers Changing Expectations

People around the world are today more connected than ever before. Let it be through social media, smartphones or both. The way we are now connected has influenced and changed the way in which our beliefs and expectations are shaped.

Let me give you some facts. There are over 2.3 billion social media accounts worldwide – Facebook has 1.79 billion monthly active users (92% access via mobile), Twitter has 313 million active monthly users and Instagram has 400 million monthly active users. These are very top line numbers. They are Impressive, but missing some context.

Now the context, one in every six minutes that is spent online is spent on Facebook, 2.5 billion comments are made on Facebook Pages, 6,000 Tweets are sent every second. The more content that is out there the quicker that we must be to filter out what we think is not relevant to what we want to learn.

Research by Microsoft also tells us that our attention span is now down to 8 seconds, that is shorter than that of a goldfish. The speed at which we make decisions has also shortened to what Adobe calls, the last millisecond. We live in extraordinary and highly competitive times.

People have changed how they make decisions. Today it is the experience that they get from their engagement that shapes their perceptions and decisions-making. Get the experience right and in a fraction of a second you keep and possibly convert an individual. Get it wrong and you risk loosing your customer, possibly for good.

Think about it this way:

And the benefits? Well, insight from Bain & Co tells us that increasing customer retention rates by 5% increases profits by 25% to 95%. Not bad at all.

Experience that your audiences receive matters. Design and the way in which they interact with you certainly matters. And today, the customer matters more, and they know this.

The customer journey has to be simple and rewarding. It has to deliver an experience that not just converts them, but gets them to return and amplify the positive engagement that they’ve had. And it is in this connected world that reputations are built and broken.

A McKinsey report states, ‘Consumers now have much more control over where they will focus their attention, so companies need to craft a compelling customer experience in which all interactions are expressly tailored to a customer’s stage in his or her decision journey.

So how do we secure better engagement from our target market and audiences? That is simple, yet not very straightforward. Organisation must become agile and nimble. They must become better at listening and learning. And their communications and marketing must be always-on and responsive – be ready to respond to customer service issues. Our digital touch points need to be built around the personas of our audiences, yet bearing in mind that like technology, peoples behaviour and expectations changes fast, especially when start-ups come into play disrupting business as usual.

Some companies have already embarked on a journey of change to ensure that they remain relevant. In 2005 the former FT US Technology Correspondent and Columnist Tom Foremski coined the term ‘Every Company is a Media Company.’ A term that still to this day is alien to many. Yet some organisations have changed their PR and communications teams into modern day brand newsrooms that monitor news, deliver content and engage through social channels.

Having and understanding of the audience and designing for them will give companies access to a global market that in 2014 McKinsey thought this year could have been worth $2 trillion in potential sales. Being nimble and agile is a must. Having your communications, marketing and customer service teams working together is what will help your businesses grow in a competitive market.

After all, bad news travels fast on social media. According to Zendesk, bad experiences are shared with more people than good experiences, and more customers share bad experiences than good through social networks like Twitter and Facebook.

Today, people who complain are the ones that you know about. People expect and we must deliver, we must be what they expect, more customer centric. Because it matters to our reputation, our business and in competing markets it gives us competitive advantage.

The building of successful businesses today depends on the gaining of more insight about audiences. Understanding their behaviour and decision-making and roadmappiing their journey so that they find what they want on platforms relevant to them.

Now more than ever we have to move towards acting on insight and data in order to secure attention and engagement from people.