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September 22, 2016

PR Advice For CEOs Under Fire

ceo-crisis-wellsfargoWhen the stuff hits the fan, what’s an embattled CEO to do? It helps to hire a top PR firm, but even the best advice may not salvage a reputation. That’s the case for two chief executives who found themselves facing congressional investigations this week. What can PR and reputation experts take away from the resulting media coverage?

In a statement before his testimony in front of the Senate Banking Committee, Wells Fargo CEO John Stumpf did what reputation experts generally counsel clients to do in the case of a breach of public trust. He apologized.

Stumpf expressed profound regret for the millions of fake accounts set up by Well Fargo staff to pad their sales figures. He said he accepted full responsibility for the situation. Pledging to prevent future fraud by alerting all customers to new accounts, Stumpf maintained that the Wells Fargo board “has the tools” to hold senior management accountable. All good, at least in theory. The “apology PR triad” includes a sincere mea culpa, acceptance of responsibility and a commitment to a fix.

True Accountability Helps Defuse A Crisis

Yet Stump’s apology fell short. First, it was eclipsed by a fire-and-brimstone invective from Elizabeth Warren, who demanded that he resign and called for jail sentences for senior executives who cross ethical lines. Warren accused the CEO of pushing the blame “to your low-level employees who don’t have the money for a fancy P.R. firm to defend themselves.” Guess whose statement played in cable news primetime?

The second reason Stumpf faltered was the weak accountability conveyed in his testimony.  Thousands of Wells Fargo employees lost their jobs, but Stumpf and his senior executives have not been penalized for the fraud. The mea culpa is hollow because there’s no real teeth to either the penalty (a $185 million fine, which is pocket change for Wells Fargo) or even to his guarantee of future oversight.

Finally, Stumpf’s main point – that there was no “orchestrated” fraud at the company – wasn’t very credible when 5300 people have been let go for creating the fake accounts.

Even When A Company Is Right, Optics Matter

The PR prescription for Mylan’s Heather Bresch was both more proactive and more innovative than that of Wells Fargo. After public outrage over Mylan’s steep price increases for its EpiPen, Bresch launched a counteroffensive. She blamed the price increase on a “broken” healthcare system where middlemen all take a cut, and Mylan quickly offered rebates that would cut EpiPen’s price for those without insurance or with high deductibles. As the pressure built, it even announced it will develop a generic version of EpiPen for less than half the cost of the current product.

Bresch’s explanation for the price rise wasn’t totally convincing, but it did provide cover in a year where soaring drug costs are a big problem. The aggressive steps to help customers get EpiPens at reduced prices were very appropriate moves for deflecting media attention and defusing public anger. And in any other year they might have worked to quell controversy and recover its reputation.

But this is election season. Bresch was called to testify before a House oversight committee, and she didn’t fare well. Congress itself suffers from a serious reputation problem, so the opportunity to be seen scolding a highly paid pharma CEO is irresistible. There’s also the Martin Shkreli factor.  The former CEO of Turing Pharmaceuticals triggered public fury and became the poster boy for industry greed after Turing raised the price of an obscure drug 4000 percent. The pitchforks are out, and Mylan surely knew it.

Yet Mylan never stopped pushing for sales growth while continuing to raise prices. It lobbied hard to require schools to stock EpiPens, which looks suspect after reports that Bresch’s mother, as head of the National Association of State Boards of Education in 2012, led an effort to mandate that schools carry the product.

And the tactic that might have otherwise been seen as brilliant – a proposal to have EpiPen included on the federal preventive drug list, eliminating the user co-pay – has also become controversial. Inclusion on the preventive list would eliminate cost pressure for consumers while letting Mylan keep the EpiPen at the current price, or even keep raising it. It’s a smart idea. But in the current environment the optics are bad.

At the hearing Bresch was even criticized for taking a private jet from Pennsylvania to the capital. While not exactly scandalous, the trip evoked the truly terrible optics of the CEOS of the top automakers when they flew private planes to Washington to ask for a taxpayer bailout. It’s just another sign that small details can communicate corporate values, and the top executive needs to pay attention.

The scandals besetting Wells Fargo and Mylan are very different; one broke the rules, while the other was merely aggressive. In each case a company pushed conventional boundaries in a drive for growth and profits. Both were tone-deaf to public anger: Wells Fargo, in thinking its fix would be enough, and Mylan in maneuvering to keep its prices above market rates despite public concern.

The learning for communicators is a simple one: public perception counts. Optics matter. Corporations must consider the legal and ethical ramifications of their business practices, but also how those practices look to ordinary people and legislators. Those who don’t are likely to pay a steep price, even when they’re technically on the right side of the rules.

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