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

GuptaMckinsey

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.

Recycle Old News or Stick to Brand Values? How will firms deal with Trump?

trump-brands

Trump’s Twitter attacks have targeted a number of firms. His behavior may not change when he takes up the Presidency today.

Trust me, it’s happening. Today, Donald Trump will be sworn in as President of the United States. And, judging by the past couple of months, Trump will personally run his agenda of making America great again across the entire business community. Shel Holtz has written a fantastic piece about the impact that Trump has when he Tweets about a company which he feels isn’t doing enough to support his American vision.

Companies will have two basic strategies to deal with this new type of political risk; they can either recycle old news, or they can resist Trump’s attacks, and fight back (yes, you read that right, brands will go up against Trump).

We’re already seeing firms come out with a raft of job announcements. This week General Motors said it would invest US$1 billion in its U.S. manufacturing operations, which will lead to the creation or retention of 1,500 jobs, adding that it would also add another 5,000 American jobs “over the next few years” in finance and advanced technology. Fulfilling another Trump pledge, GM announced that around 450 jobs will be returned to the US as GM transfers back parts production from Mexico.

Other firms have also put out jobs announcements. Amazon, whose founder Jeff Bezos publicly rowed with Trump during the election campaign, announced that it’d hire over 100,000 staff over the next 18 months. “It’s a very powerful headline, and the timing certainly makes Trump look good,” Ivan Feinseth, an analyst at Tigress Financial Partners LLC, told Bloomberg. “It’s going to happen in the first year and half of his administration. Bezos couldn’t have set him up any better to look good — timing is everything.”

China’s Alibaba has sought to allay Trump’s Chinese angst by promoting job creation in the US. Last week, Alibaba chairman Jack Ma met with the president-elect to tell him that the Chinese Internet giant would create 1 million jobs for Americans by helping small domestic businesses sell to Asian markets via Alibaba.

Job creation in the US is a tactic that many firms will seek to copy over the coming months as Trump takes charge. How many of these announcements will stack up, who knows. We’ll only know for sure after the space of months or years. However, many brands will be tempted to win favor with Trump’s administration and stay out of his crosshairs by pushing job news. The questions many will ask are, is the news real (for example, will Alibaba really be able to create a million jobs for Americans?), and is the news old? It’s been alleged that the GM announcement was planned as far back as 2014.

The other approach that companies will take is to stand up to Trump. Speaking to the San Francisco Chronicle, Richard Levick, president and CEO of the Levick public relations and communications firm explained why.

“Other companies will realize that the king doesn’t have a lot of clothing here,” he said. “At some point in the not too -distant future, a company will realize that there is greater value in being courageous and standing up to the president.”

To date, the best example of a brand fighting back against Trump is Vanity Fair. The publication, whose editor Graydon Carter has long been a critic, ran a piece in December last year titled, “Trump Grill Could Be The Worst Restaurant In America”. Needless to say, it didn’t go down well with the President-Elect.

The magazine responded  instantly, running a headline banner ad across its own and other sites entitled “The Magazine Donald Trump Doesn’t Want You to Read.” The result was 40,000 new subscribers.

“Vanity Fair played that perfectly,” Scott Farrell, an expert in crisis management and the president of Golin Corporate Communications, told the New York Times. “‘This was the magazine that Trump doesn’t want you to read.’ I think their response was consistent with the brand’s DNA.”

Firms will either have to proactively plan to put out information that will appeal to the new administration. Or they’ll have to plan on how to respond to a potential attach. Whatever they do, brands will have to move with speed, to counter Trump’s use of Twitter. Whichever route brands take, crisis comms experts (and the rest of us) are going to have an interesting four years. Unless someone turns off the WiFi in Trump Towers, that is.

The Science of Reputation – What issues matter to stakeholders and why

As communicators, we’re often tasked with managing an organization’s reputation. While this may sound simple, the challenge is where do you start with an intangible concept? There are a number of frameworks around which one can begin measuring reputation. One is the RepTrak, a tool developed by the US-based Reputation Institute, which merges seven distinct organizational behaviours (called dimensions) with the behaviours that your stakeholders show towards your organization to create an emotional pulse. It’s an interesting look at how reputation is developed, which you can see below.

The RepTrak is a data-driven approach to understanding reputation based on a number of metrics

The RepTrak is a data-driven approach to understanding reputation based on a number of metrics

According to the Reputation Institute, organizational reputation is driven primarily by seven key rational dimensions of reputation: products and services, innovation, workplace, governance, citizenship, leadership, and performance. What this leads onto may be obvious; reputation matters in terms of business. And, the better the reputation, the more support an organization can count on.

Th Reputation Institute has also done a great deal of research here, including surveying hundred of thousands of different stakeholder groups in 40+ countries over a decade. Their studies underline why reputation matters when it comes to influencing stakeholder behaviour.

Reputation can both positively and negatively impact on stakeholder behaviour

Reputation can both positively and negatively impact on stakeholder behaviour

In the video below, Dr. Charles Fombrun, founder & chairman, Reputation Institute, explains the seven dimensions of reputation as defined in the RepTrak model for reputation measurement

While I have questions around these seven dimensions (do they remain constant for example, across geographies and stakeholder groups?), as well as the Reputation Institute’s global reach (it doesn’t monitor in the MENA region for example), it’s good to see one scientific model for measuring reputation and its impact. There are others in use, including those developed by Carma’s Tom Vesey. I’ll share more insights into reputation management and measurement as I have it.

The need for clear communications – Saudi’s drive to balance the books

lazy-saudis

Saudi’s social media scene has been on fire over the past week due to a number of controversial issues regarding government officials. This is a news story from the Times on a comment made by a minister regarding Saudi inefficiency.

This week has been an interesting one for Social Media watchers in the Kingdom. Thousands of Saudi nationals have taken part in online campaigns/used popular hashtags relating to three high-level government officials who have either made controversial statements or who have been accused of using their influence on behalf of family members (you can see media coverage on two of the issues from Saudi Gazette here and Arab News here). The campaigns follow a decision a month ago to cut benefits for Saudi government employees. The decree, which was made in light of low oil prices and a rising Saudi budget deficit, is biting hard; this week Reuters reported that the Saudi central bank had asked retail banks to reschedule property loans for those affected by the cuts.

One of the campaigns began after a government document was leaked online, with personal details including name, position and salary. It’s only logical to assume that many government officials in the Kingdom are angry at seeing their pay cheques shrink; they’ll become even more angry when they see what they feel to be others not doing the same. In this environment, it wouldn’t be hard to also imagine officials being able to take a picture via their smartphone of a document which may reveal an embarrassing situation and then sharing it via social media (or, more likely, dark social).

I had the pleasure of listening to a senior Saudi journalist this week. He made a pertinent point when he said, “We can spend billions on consultants. We could have spent millions on a PR agency to convey the message behind the cuts and why they were necessary.”

In times of hardship, good communications becomes even more important. Saudi’s citizens need to understand the logic behind government decisions. They need to feel that they are engaged and are part of the debate. And they need to see government’s leadership doing just that, namely leading by example (as I’ve said before, actions are much more powerful than words in shaping perception).

We may see more issues coming to light in the Kingdom over the coming months, and more skeletons being revealed in government closets. When it comes to the government’s engagement and communication with its people, the transparency, clarity and consistency (or lack of) will either help get many Saudi citizens on board, or it may alienate them further. I for one hope it’s the former, rather than the latter.

 

Saudi Telecom, Boycotts, Social Media (راح_نفلسكم#) and Stock Price Impact

Forgive my wordy headline, but there’s a lot to get into this story. Before anything else, let me spell out the context. Saudi and Saudis love social media, but they haven’t been enthused by the efforts of the telecommunication providers in the country to block free call apps or services offered by the likes of FaceTime, SnapChat and WhatsApp. To add insult to injury, consumers have claimed that the Kingdom’s three telcos (Mobily, Saudi Telecom and Zain) have rolled back unlimited data services.

So what have the country’s social media-crazy consumers done? Yes, you guessed right. They’ve taken to social media to call for a boycott. Under the hashtags (which basically means we’ll bankrupt you) and  (boycott telco companies), the idea is simple.

Starting from last weekend, Saudi users have begun to switch off their phones. The hashtag and others have gone viral, and users have taken to Twitter to demand action against the telcos, including physical boycotts of stores.

The ultimate mark of consumer sentiment is cartoons, and Saudi’s most prominent cartoonist Abdullah Jaber stepped in to pen his own thoughts on the issue (the below translates as the Telco company on the right, saying to the consumer, “why are you angry?”

Saudi Telecom in particular has been hit, both in terms of its social media following (the carrier has lost almost 150,000 followers on its Twitter account), as well as its share price which dropped by several percent on Sunday morning after trading opened on the Saudi bourse.

stc-followers

Saudi Telecom’s Twitter account @STC_KSA lost over 140,000 followers in the space of two days as boycott calls spread (source: Twitter Count).

stc-stock-price

Saudi Telecom’s stock price was also hit on Sunday, with an initial fall of 8% (source: Google Finance)

There’s a further dimension to this story, with some online accounts in the UAE calling for similar action to be taken against the two telco incumbents (see the hashtag  and ).

Is this type of online activism on a single economic issue going to become more common, particularly with the state of finances across the region? And what can communicators do about an issue that is about a product and a strategy that consumers don’t like?

As always, it’d be good to hear your thoughts.

The importance of reputation – the examples of Mubadala and IPIC


The concept of reputation, which can be defined as how much stakeholders trust organizations, is often difficult to measure. It’s an intangible, an idea which is often best understood at the most inappropriate time (in other words, during a crisis).

In Abu Dhabi last week news broke about a merger between two government-owned investment vehicles. The deal between Mubadala and IPIC would create a combined fund worth US$135 billion according to Reuters. At a time of budget tightening due to low oil prices, the merger promises to bring about significant cost savings according to media reports.

Reuters had another interesting take on the merger, which I’ll copy from the article.

IPIC is also in the midst of a row with 1MDB. The Abu Dhabi fund has asked a London court to arbitrate in a dispute with the Malaysian state fund over a debt restructuring in which IPIC is claiming about $6.5 billion.

While unlikely to impact these proceedings, the sovereign wealth fund analyst said the scandal had undermined IPIC’s reputation and so a tie-up with Mubadala, which is considered one of the better-run state investment funds in the region, would be beneficial.

The analyst that Reuters spoke to argued that IPIC’s reputation was hit by the issue in Malaysia. In addition, the departure of its previous CEO and dealings in its investments such as Arabtec have also contributed to reputation all issues. In contrast, Mubadala has a strong brand, helped in part to the leadership of its management and financial transparency.

It’s not only communicators who need to understand that every action will impact organizational reputation (leaders of listed companies know all too well what public sentiment can do to the stock price, and their jobs). The Mubadala-IPIC merger is an example of how much both good and not so good reputations can impact the business.

Keep Calm, Say Nothing – QNB’s response to the customer data hack crisis

Qatar National Bank's reputation has literally gone down like the Titanic according to this visual from a reader of Doha News (source: Doha News)

Qatar National Bank’s reputation has literally gone down like the Titanic according to this visual from a reader of Doha News (source: Doha News)

Like it or not, there will be times when the proverbial @#$% hits the fan. Each and every organization will go through a crisis. What matters is how an organization responds to the crisis and communicates this response.

Before I talk about the bank in question, I want to step to talk a little about crisis communications. Crisis comms is an artform, and some people (who get paid lots of money) do crisis comms for a full time living. When dealing with a crisis, communications theory states that there are three steps. The first is pre-crisis, which involves setting up a team and processes (the who and the how), and then practising for situations that are likely to occur. The second phase is the crisis itself, and the third is post-crisis and fixing the issue.

Last week someone allegedly released a huge amount of customer data which was hacked from Qatar National Bank. The 1.4 gigabyte file was put online for download. A data hack of customer information is one of the worst things that can happen to a retail bank. But it gets worse. To quote from Doha News.

The data included the financial and personal information of thousands people, many of them QNB customers, and is being spread widely on social media and file-sharing websites.

Cyber security experts said as many as 400,000 customers could be affected, in what is being called one of Qatar’s biggest data breaches.

Since yesterday, several customers have reported attempts to break into their bank accounts, although these appear to have been blocked before any transfers took place.

Others have said there have been attempts to access and even alter their social media accounts.

Yes, it was that bad. But instead of communicating and advising customers on what to do and how to keep themselves safe, QNB’s media team didn’t say a thing. Well, almost. Again, back to Doha News.

More than 24 hours after the data breach became public, QNB has not answered questions from Doha News on what actions customers should take to protect themselves and many customers say they have yet to be contacted by the bank.

Online, it has continued to respond to questions by pointing to yesterday’s statement that said it does not comment on “social media speculation,” even though the confidential information about thousands of its customers is online for anyone to access.

According to the reaction of dozens of customers, some of the information is correct. And yet, even QNB’s Call Center and retail branches are holding fast and not saying anything. One customer was allegedly told that the allegations were ‘propaganda’.

All credit to Doha News. The Qatar-based news website has covered the issue from its beginning with a level of thoroughness that should be a lesson for all local media outlets in the region. The last piece it ran was about a website which could help QNB customers check if they were hacked or not.

Doha News has also been doing much of the work which should have been done by QNB itself, namely advise customers on what is happening, tell them what action they should take and why. QNB’s silence on the issue is a classic example of how organizations in the region used to deal with a crisis prior to the advent of social media. You dig your head in the sand and hope it’ll go away. Well, this is what they’ve done and their reputation has gone down with the Titanic.

Instead, they should have been responding through all consumer-focused communications channels, including social media (a digital crisis consultant I respect greatly and ex-head of comms for the BBC, Donald Steel, advises that any online response should take no longer than 15 minutes). By acknowledging the problem, by explaining how their customers can keep safe, and by promising a review of their security setup, QNB would have helped to have turned a crisis into an opportunity to demonstrate both transparency and concern for customers and their well-being.

In their response (or lack thereof) QNB has looked archaic and they’ve compounded the damage by seeming not to care. I hope that others take stock of the online backlash and understand that when it comes to a crisis in the Gulf, silence is never golden.