Thursday 27 October 2016

Crafty work: VW gets caught in a spin

What do top crisis communications experts think of how the emissions scandal is being handled - and are there lessons for Irish firms

Simon Rowe

Published 27/09/2015 | 02:30

A VW Golf in the Autostadt theme park, next door to the Volkswagen plant in Wolfsburg, Germany
A VW Golf in the Autostadt theme park, next door to the Volkswagen plant in Wolfsburg, Germany

As the crisis over Volkswagen's emissions fraud scandal continues to deepen this weekend, one of Ireland's top PR gurus has advised the firm to take a leaf out of Machiavelli's book, The Prince.

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"Injuries ought to be done all at one time, so that, being tasted less, they offend less; benefits ought to be given little by little, so that the flavour of them may last longer," wrote the political schemer in his famous work.

Referencing the unofficial handbook of the dark arts of PR, this well-known crisis communications expert explained: "The key thing to remember in the first few hours of a crisis is to get as much bad news out as possible.

"Once you've done that, the next thing is to outline how you're going to fix the problem, and then you can start to drip-feed positive stories over time."

When asked if the VW scandal is recoverable in PR terms, the industry insider offered a qualified yes: "Probably, but only if it's handled well from now on."

Another top PR expert with experience of managing corporate crises is David O'Brien, a reputation consultant who's previously worked for Nissan, McDonald's and Procter & Gamble. He says the VW emissions rigging scandal is potentially devastating for the carmaker as it strikes at the heart of the firm's brand values.

"Volkswagen was named Ireland's most trusted brand last year. It has clearly suffered a major - but hopefully not devastating - blow," he said.

"What matters now for Volkswagen is staying in front of the story and being as transparent as possible. It's equally important that the results of its ongoing investigation are known quickly, the scale of the story revealed in its entirety - even if there are other unpalatable aspects to emerge - and systems put in place to ensure that this does not happen in the future.

"Any alleged wrongdoing by Volkswagen staff in relation to this story also need to be addressed firmly and product recalls implemented as appropriate."

However, unlike a food scare scandal such as the Irish pork dioxin crisis of 2008 when more than 30,000 tonnes of pig meat was recalled and 175,000 pigs and cows were slaughtered, the Volkswagen scandal is not about consumer safety, said O'Brien. And this is a vital difference in terms of how to massage public opinion and allay fears.

"As of now our current understanding is that it is not one concerning consumer safety. That said, European and other continental markets will need re-assurance that this is not an issue for them and will need clarification on that point. Separately, it's vital that reputation fallout from this issue does not spread to other brands in the VW portfolio including Skoda, Seat, Audi, Bentley and Porsche."

Irish communications guru Eoghan McDermott, who works with PR veterans Tom Savage and Terry Prone advising government departments, political parties, financial institutions and sports stars, says the apparent absence of public safety concerns is crucial.

The fact that there was a breach of trust but no safety breaches will help VW to restore customer confidence more quickly, he said.

"The one saving grace for VW is that the customer element of the scandal is not a safety piece. Yes, it's a big scandal but it may not have a big impact."

"The big thing for VW is that this scandal doesn't appear to threaten the safety of any of its customers. Once customers heard that, they would have felt a loss of trust, of course, but is that going to stop them buying Volkswagens? Probably not. The fact is that the emissions scandal is a little obtuse and a little confusing, so that might mitigate the PR fallout."

Volkswagen Group's status as a publicly quoted company meant its board of directors had to act fast to shore up market confidence, said O'Brien.

"Anyone who has ever doubted why reputation matters only need look at the $13bn wiped off the VW share price," he said.

McDermott agrees: "When the markets begin to question an organisation's corporate governance and trust, what they are actually demanding is a dramatic show of remorse. Typically that means a big head has to be removed. And that is what happened with the departure of VW chief executive Martin Winterkorn on Thursday."

But McDermott says it was unwise of Volkswagen's US boss Michael Horn to use the phrase "we screwed up" when the scandal broke.

"This is more than a screw up. It would appear that this is something that has been going on for some time. So there may be an issue about corporate culture here. That is probably where VW will struggle to regain trust and it will have to be done over a very long period of time."

McDermott likens the fallout from the VW scandal to the loss of trust in Irish banks over revelations of warehousing of loans and so-called 'bed and breakfast loans'.

"Before the crash, Irish consumers would have looked at Anglo Irish Bank and Irish Nationwide and thought there is very strong corporate governance there but when the tide went out, people thought, 'Gosh, is that what was really happening?'"

Another major Irish brand that has suffered reputational damage from an international incident is fashion chain Primark.

The retailer, which launched its first US stores earlier this month, has been in damage limitation mode since the 2013 Rana Plaza garment factory collapse in Bangladesh that killed at least 1,100 factory workers and left 2,500 injured.

The Rana Plaza building housed several factories which manufactured garments for around 28 global clothes brands. One of these factories was supplying Primark.

Primark was quick to react and paid out millions in compensation in victims. To date the retailer has made compensation payments totalling $14m (€12.4m). The firm's ethical trade director Katherine Stewart visited Ireland last week to speak to business leaders about Primark's efforts to work with local partners in Bangladesh and countries where its garments are produced to improve the lives and working conditions of its outsourced staff.

Primark has won praise for its PR response and transparency in engaging with the public through its website and social media channels.

Primark's proactive response to the crisis also heaped pressure on other high-street brands embroiled in the tragedy to admit their responsibility and compensate victims.

But sometimes even the best crisis corporate communications strategy can be undone by sheer bad luck.

It was a case of Sod's Law perhaps but at the precise moment VW's emissions scandal was engulfing German carmaker Volkswagen last week, millions of American TV viewers were glued to the Emmys where show sponsor Audi - part of the VW group - aired a four-minute advert featuring Kermit the Frog extolling the carmaker's eco-friendly diesel engines with the punchline: 'It's not easy being green'.

It wasn't long before Twitter and Facebook went into overdrive with jokes about VW's green credentials. Gags about Audi's corporate tagline 'Truth in Engineering' never got so many 'likes' as they did last week.

In one fell swoop, the mighty 'Made in Germany' brand was severely damaged with incalculable results for Volkswagen and its affiliates.

The cost to Kermit the Frog's tarnished brand image is a little less certain, however.

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