When a scandal breaks in any business, there needs to be a process to mitigate the damage preventing compounding damage to the organisation’s brand.
There are a few rules that are universally held: be honest, get ahead of the story, address the root causes of the problem, and take decisive action. How you actually go about that, however, can vary wildly based on the significance of the crisis you’re dealing with.
The abrupt departure of Westpac’s CEO is a timely demonstration of managing a crisis, and a significant one at that.
I wanted to know if the strategy that Westpac has employed is, so far, succeeding in managing the reputation of the brand. To answer that question, I reached out to several prominent crisis management firms and academics who study public relations and communication. Here’s what they had to say.
Should you fall on your sword?
One of the most common expectations by the public is that someone be held to account. In extreme cases, an apology and promise to do better are not enough, they expect blood. That’s pretty normal, says Andrea Obston, a crisis communications specialist and adjunct professor at Quinnipiac University. "Whenever there’s a crisis at this level, it’s very common for the company’s first move to be to get rid of everyone in the chain of command.”
At Westpac, the executive shakeup – including the CEO stepping down – and board members announcing retirement is a good start, says Obston. “Westpac’s initial idea of getting rid of people at the top of the chain of command makes sense. The statement that was issued is adequate, but they have to do more. They need to investigate the issue, find out how it happened and make systemic changes to prevent it from happening again.”
Dr Tim Coombs at Texas A&M says that it’s a common strategy but not optimal if used in isolation. “The problem is rarely a few people when you have this size of a problem. More likely the problem is systemic, created by a misguided culture that has been allowed to develop and thrive.”
Coombs agrees that top management do have to go, but the action is meaningless if there is no reform of the problems that lead to these behaviours becoming acceptable. “There must be specific changes that are outlined or a process for identifying then making the necessary changes.”
What are the next steps for Westpac?
University of Denver finance professor Maclyn Clouse says there is a lot of work yet to do. “One of the next steps is for Westpac to convince its stakeholders that they know how this happened, how at the operations level is responsible for allowing (or perhaps not knowing) that this was happening, what the bank will do to those responsible, and what the bank will do to have the control system necessary to make sure this does not happen again.”
Obston agrees, saying that the next step for the bank is to show they’ve learned from their mistakes. “It is important for them to explain to the public that they’ve looked at the issue enough to fully understand how it happened and make the changes necessary to prevent it from happening again. They can’t just react to the issue with empty gestures.”
How these changes are presented to the public matter. Making a promise can actually prove detrimental because it can seem inauthentic. “Instead, they should say something along the lines of ‘we’ve learned from this and have put systems in place to prevent it from happening again'”, says Obston.
In crisis communication, this is known as corrective action. This reassures stakeholders that the problem is unlikely to be repeated. “In this case, the crisis is also a scandal (what we term a scansis) because it is moral violation that generates outrage. In such cases, the organization also needs to recognize that it has violated moral principles its stakeholders support,” said Coombs.
“Management must say that it knows what it did wrong and why those actions are wrong.”
Westpac’s legal troubles currently come from regulators, there is the potential for future class action against the bank, something Coombs acknowledges complicates things. “Correctives and recognizing moral violations are more difficult when there is litigation because organizations worry about the lawsuits and not saying anything to add to the problem.”
Potential future litigation is not a problem for today, however. Coombs says Westpac has to address the challenges it already faces. “Things are so bad for Westpac; they really need to address the correctives and recognition of their moral violations.”
The future reputational challenges the bank will face need to be addressed now, says Obston. “Westpac will need to remember that once you get through a crisis, you’re not done. The public doesn’t forget. They’ve lost trust and that trust must be rebuilt.”