Boards dealing with a crisis – Fonterra

Julien Leys is the managing director of PR Partners, a full service, strategic public relations agency in Auckland.   Previously, Julien was the legal and communications advisor to the Minister of Local Government in New Zealand’s first MMP Parliament.

Henri Eliot talks to Julien Leys about the public perception of Fonterra not having managed the crisis well initially.  I also asked him from his perspective, what are the key steps a board should do publicly and privately in dealing with a similar crisis in the future.

The key steps a board should do publicly and privately in dealing with a similar crisis:

They need to act quickly to front the issue publicly – In Fonterra’s case two mistakes were made. In the absence of CEO Theo Spierings, the critical role of spokesperson was left to Head of Fonterra’s NZ Milk Products Gary Romano. Unfortunately Mr. Romano was completely ill prepared and out of his depth to deal with the botulism crisis. However, he should never have been the one left to explain to media when the crisis broke. It took almost a week before Fonterra’s Chairman John Wilson fronted media and trying to pass it off as an “operational matter” was not credible.

With the benefit of hindsight and Fonterra’s own review, it is clear that the issue should have been elevated to CEO and Board level much sooner than it was – instead the $360,000 batch of falsely contaminated whey was allowed to become a multi-million dollar national and global crisis.

Fonterra should have learnt from the Sanlu experience but didn’t. The damage could also have been mitigated by acting quickly to involve all stakeholders including Government agencies such as the Ministry of Primary Industries. For global customers Fonterra is synonymous with the100% Pure brand values that underpin every product that New Zealand exports – that alone means there was a responsibility at Board level to involve key stakeholders.

Act quickly to prevent issues from becoming crises– a similar crisis happened in 2006 when GlaxoSmithKline’s internal systems failed so that the concerns of two school girls whose science test had showed there was less Vitamin C than advertised in Ribena turned into a $20 Million crisis. By all accounts, like Fonterra, the issue was ignored and never escalated to CEO or Board level until it was too late.  There is an old PR axiom that Fonterra may have well heeded which says that in public relations it is important to get caught doing the right things. But when things go wrong, it is important to disclose them.

Protecting reputation is paramount

In time of crisis the line between operational and governance matters becomes irrelevant as it is a matter of first and foremost protecting the corporate reputation. The Board is as responsible for protecting the company’s reputation as its employees and any Board member who can’t see that should never be appointed. Thus, most companies should ensure that as part of their crisis communications preparedness that the Board is just as ready to respond as the CEO.  Typically the Chairman of the Board should be media trained, be familiar with the crisis communications plan, and engaged early on to mitigate a significant crisis.

Perspective and independent comment

Fonterra should also have brought in other scientists and independent experts to look at the test results.   Rather than panic and hope the issue would go away, at an operational and Board level the decision could have been made to bring in external expertise. This may have allowed early identification of the false test but more importantly also provided independent comment for media that would have put the issue in context – i.e. it was 38 tons of whey isolated to a particular production line and Fonterra may have been the only dairy company to even test for botulism. Unfortunately, the botulism crisis was rarely, if ever, put into perspective in any of the communications – at a senior Board level, a more responsive and active Chairman could and should have acted in conjunction with his CEO to explain why and how the issue was being contained. Why this PR advice was never given, or if it was, never accepted is puzzling.

Prepare, prepare, prepare!

Finally, its important to always be prepared for a crisis – Fonterra’s example showed that even with a large internal marketing/communications team as well as having a sizeable PR agency, it was ill-equipped and constantly on the back foot.  Fonterra claimed that changes, including renegotiating a contract with their PR agency Baldwin Boyle, all contributed to the dire way that the crisis was handled. This seems disingenuous especially as Baldwin Boyle had a seven year relationship with Fonterra so every risk, every contingency and crisis consequence should have been mapped out and a communications system put in place as soon as the issue first identified itself.

The absence of an effective response from Fonterra is a lesson for every company and an important reminder for those without external PR support to get in touch with an experienced agency that can provide timely and effective crisis communications advice.

Julien Leys interview on Fonterra Sunday Star Times Henri Eliot Nov 17 2013 > NZ Herald

Henri Eliot is chief executive of Board Dynamics – which gives independent advice to Chairmen and directors on the effectiveness of the board and its committees.