There is perhaps no more vivid example in history of a gap between expectations and performance than the Titanic which, hailed as virtually unsinkable, took the lives of more than 1,500 passengers after hitting an iceberg on its maiden voyage in 1912.
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Its owner, White Star Line, lost another ship as well, the Britannic, in World War I, but the continued success of its Olympic-class ocean liners enabled the company to remain healthy and profitable long into the future.
The company did what it had to do: survived litigation and operating losses, learned from its mistakes, made changes to its remaining vessels, and moved on. Its board remained intact, although its chairman, J. Bruce Ismay, also a surviving Titanic passenger, did not fare as well and was personally reviled for the rest of his life.
Fast forward to 2019. An iconic American company, Boeing, with a stellar reputation for safety and innovation, faces a crisis after the grounding of its 737 Max aircraft, followed by the failure of a space mission for NASA.
The company’s President and CEO, Dennis A. Muilenburg, after retaining the support of his board for a period of time, is finally terminated. His successor, like Ismay’s more than a century ago, has a clear mission: persuade stakeholders that the company truly understands the nature and causes of its missteps and is taking action to improve operations and restore the safety-first culture it was previously known for.
New CEO David L. Calhoun has his work cut out for him. Recently, Fitch has downgraded Boeing’s credit rating; Boeing has begun offering huge discounts, bulk-buy deals and maintenance packages to airlines at new price-cutting levels; and just yesterday, the company halted shares trading after its stock plunged by almost 6 percent.
Boeing’s task is made even more challenging because of the times in which we live. We are in an age of instant information—sometimes accurate, sometimes false, sometimes intentionally false—and a generalized sense of anger. People’s trust in large institutions has disintegrated—we’ve seen big companies come and go and our faith in their enduring nature has been replaced by unease, disappointment and fear.
Boeing has a lot of explaining to do before it can regain the trust of stakeholders—politicians and regulators, airlines, passengers and flight crews alike. Its self-analysis cannot be superficial, nor can the solutions it employs. Marketing alone—without the essential benefits of operational improvement and comprehensive enterprise risk management—will only lead to disappointment and fuel skepticism about whether the company actually gets it.
The New York Times reported, for example, that Boeing’s recent survey of thousands of passengers around the world “found that 40 percent of regular fliers said they would be unwilling to fly on the Max.” To help airlines manage these passengers, Boeing recommends having “pilots talk to the concerned passenger or hand out 3-by-5-inch information cards detailing why the Max is safe.” If that fails and a passenger refuses to board, the airline could throw in the towel and “offer to rebook a flight.” And if the emotionally boosting chat and index card fails mid-flight after a passenger has reluctantly boarded, “Boeing suggests using ‘techniques related to an inflight medical emergency to de-escalate.”
It’s thinking like that that got Boeing into this situation in the first place. When a company builds its reputation over generations, as Boeing did, its collapse may appear sudden, but it is almost certainly part of a gradual disintegration that has now reached a tipping point. As Hemingway said, things happen gradually, then suddenly.
Boeing’s reputation once set the standard but now is gone. And it’s not only because it produced a plane with safety deficiencies. It’s because, knowing of those deficiencies, it still fudged the truth and skimped on costs.
One exception to safety protocols is made, an executive overrules a project engineer, a safety complaint is put aside to meet a deadline—one by one, individual decisions over a period of years add up to a change in culture. And eventually, they lead to a product so flawed it costs lives and generates headlines. In Boeing’s case, the cultural change was so significant that certain employees apparently felt free to discuss design flaws, as well as their disregard for regulators, in emails to each other
Boeing’s reputation once set the standard but now is gone. And it’s not only because it produced a plane with safety deficiencies. It’s because, knowing of those deficiencies, it still fudged the truth and skimped on costs. Then when crashes occurred, it blamed the airlines—and because of its reputation, initially, it got the benefit of the doubt. When the facts began to trickle out, Boeing tried to market its way out of it. And then, amidst of all this, at a time when failure was not an option, their NASA project failed. And the CEO didn’t get the news until after he sent out a tweet congratulating everyone.
Now, they need to take their lumps—willingly. The company’s stock price, initially buoyed by its reputation, has taken a hit and, with its credit downgraded, its cost of capital will rise. Revenues, supplier relationships and executive recruitment will also suffer. It will have to work harder than ever to regain trust and reputational value and that starts with rebuilding its culture, its governance and its operational checks and balances. Boeing needs to set the bar for safety higher than anyone has ever set it—regardless of cost or how long it takes. A reputation lost is much harder to restore than it was to build in the first place.
Good engineering, ethics, and governance are not sufficient once fear has taken hold. Tin-eared marketing strategies are arguably worse. Only when there is real risk management of engineering, ethics, and governance processes, can marketing be effective.
In fact, risk management itself can be a potent marketing tool. As far back as the 19th Century, when fear precipitated by the reputation of exploding steam locomotives and steamships threatened entire industries, risk management—validated by outside experts and backed up by insurance—told a persuasive story. After the Great Depression, with the reputation of banks at its nadir, FDIC insurance helped restore confidence by providing not only indemnification, but assurance that outside experts–regulators–were vetting banks’ operations and risk management. History is replete with examples of risk management providing a clear and compelling narrative that mitigated stakeholder fear.
Simply put, performance bonds, warranties and insurances tell a story of risk management. When it comes to strategic, emotionally-laden, reputational risks, marketing is a poor substitute for risk management. Risk management, however, can make for powerful marketing.
Nir Kossovsky is CEO of Steel City Re, which analyzes the reputational strength and resilience of companies and provides tools and insurances to protect those companies, their officers and directors against financial losses when reputational crises occur. Kossovsky is also the author of "Reputation, Stock Price and You" (Apress, 2012).