25 years ago today Gerald Ratner, Chairman and Chief Executive of his family jewellery firm, made his now infamous speech in the Albert Hall in London. Speaking at a conference of the Institute of Directors to a group of 5000 business leaders, he mused on the reasons for his impressive record. As he had taken over the company in 1984 and grown it from 150 stores to over 2000 with annual sales of £1.2 billion, he had a captive audience, eager to hear the secret of his success. “We do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95,” he told the audience. “People say, ‘How can you sell this for such a low price?’ I say, because it’s total crap. ”
Cue a meltdown in the share price, not helped by his further asserting that earrings in his stores were “cheaper than an M&S prawn sandwich, but probably wouldn’t last as long”.
£500 million was wiped off the value of the company and within 18 months Ratner was out of a job. Worse was to come. “I spent seven years lying on the bed watching Countdown” he later admitted. Surely a lesson for entrepreneurs everywhere of the hellish consequences of such hubris.
In the quarter of a century that has passed since Ratner’s speech there have been many examples of otherwise stable and functioning businesses getting it so so wrong when it came to, arguably, their most important asset: their reputation. Take BP’s handling of the Deep Water Horizon oil rig disaster. An explosion on 20 April 2010 killed 11 people, sank the rig and pumped oil into the Gulf of Mexico for 87 days. The US government reckons the total spill was 4.9 million barrels of oil. BP estimates its total spill-related expenses at $37 billion.
At the height of the crisis response, BP’s Chief Executive, Tony Hayward, said “There’s no one who wants this over more than I do. I would like my life back“. After 11 deaths, such a crass comment seemed to exemplify BP’s mishandling of the crisis and general incompetence. The company nearly went bust.
Who advises these people? Or, if you’re worth a few million quid and believe your own press, do you start to think you know how to conduct your own reputation management? A head for figures and business models counts for nothing if there is not also an instinctive, antennae-twitching affinity with how fragile a reputation is.
Through the lens of social media that potential downside can be multiplied by a considerable degree. Too many companies think they can outsource their communication or reputation strategy. In February this year, as I’m sure you’ll remember, Kanye West released his new album and went online to rate it, ahem, ’30 out of 10′. In response, the official Twitter feed of Virgin Australia tweeted ‘@kanyewest EAD you douche’. Without translating the niceties of the message, take it from me this did not equate to ‘ Dear Mr West, bravo on the new album and we heartily agree with your objective assessment’.
It was taken down after 60 seconds, but the damage was done. Virgin Australia had to apologise, backtrack at some pace and try to repair a tarnished reputation. What’s worse: that Virgin Australia entrusted (or sub-contracted) their voice to an individual who thinks language like that is acceptable, or that the senior leadership of the company cared so little for their output they delegated or outsourced the task in the first place ?
After a crisis a company needs to be communicating (and Twitter will be inked into the team sheet for this task) immediately: minute five, minute 10, minute 30, and so on. There isn’t time to contact the CEO for cleared copy or lines-to-take. The individual empowered to press send on the tweet or chair a press conference needs to be in the mind of the Board and sufficiently grounded not to derail a response before its even up and running.
The Ratner Effect, as it became known, nearly destroyed the jewellery company. The same thing happened to BP. It will keep happening as long as Board members think PR-spin or a bluff, head-in-the-sand approach are effective reputation strategies. Happy anniversary Gerald.