Category Archives: Reputation Risk

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Pixar Rides the Waves of SeaWorld Backlash

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SeaWorld ExhibitA small documentary released this summer has created a reputational riptide for SeaWorld. Blackfish, directed by Gabriela Cowperthwaite, combines park footage and interviews with trainers and scientists to explore the impact of keeping killer whales for entertainment – and, ultimately, examines the possible factors that led one such whale to kill three people in captivity. The film has outraged animal rights activists and casual audience members alike with footage of brutal whale-on-human attacks at the parks and haunting tales of a natural order torn apart to keep 12,000-pound animals in captivity. SeaWorld’s attempts to head off criticism by emailing an itemized rebuttal to critics has drawn widespread publicity, but many have interpreted the move as defensive and further damning.

This week, it became clear that Pixar has taken note of the movie – and the backlash. The animation studio decided to rewrite part of the upcoming sequel to Finding Nemo that referenced a SeaWorld-like facility.

The plot is reportedly still in flux for Finding Dory, currently scheduled for release in November 2015. Ellen DeGeneres is set to star as Dory, an amnesiac blue fish who cannot remember who raised her, according to the L.A. Times. Initial plans for the movie saw characters ending up in a marine park for fish and mammals. But now, the aquatic center will be differentiated from SeaWorld by giving the animals the option to leave.

With theatrical release over two years away, Pixar could probably do nothing and still avoid the cloud of negative press hovering over SeaWorld as a result of Blackfish. Cowperthwaite confirmed that she screened Blackfish on the Pixar grounds and told the L.A. Times that employees appeared deeply “impacted” by the documentary, but she would not comment on any connection between her film and Finding Dory. The change may be an emotional response – having seen Blackfish opening weekend, I can personally attest that it’s a moving documentary that made me develop a real interest in orcas and the conditions for both animals and trainers at SeaWorld.

But Pixar’s move is also a clear attempt at mitigating reputational risk.

By getting in the plot change now, the company turns the tide on conversation about using aquatic animals for entertainment and preempts any ties between their blockbuster-to-be and the current controversy over cruelty. Further, adjusting the plot demonstrates an engagement with their subject matter and concern for their audience. From a studio known for their silence on any projects in the works, this very public adaptive response is a definitive publicity win – and a great example of proactive risk management.

SeaWorld Entertainment Inc. reported earnings of $77.4 million in 2012, and total revenue rose 7% from 2011 to over .

4 billion, according to the Orlando Sentinel, and the company launched an IPO in April 2013 with a valuation of $2.5 billion. Attendance also grew last year, as more than 24 million people visited one of the chain’s 10 parks. It’s a big fish to hunt. But after grossing just over $1 million in limited release over the last month, Blackfish has managed to become a harpoon in the company’s side.

CNN recently picked up Blackfish and will air the documentary in October, so we can only assume there will be further uproar this fall.

Paula Deen and the Impact of Reputation Risks

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Further illustrating how important reputation can be to a business enterprise, Paula Deen’s rapidly crumbling empire took another hit this week when Ballantine Books announced that it was cancelling the publication of the celebrity chef’s latest cookbook, Paula Deen’s New Testament: 250 Favorite Recipes, All Lightened Up, which was scheduled to be released in October as the first in a five-book deal signed last year. Even more surprising, was that, based on pre-orders alone, the book was already Amazon’s number-one best seller (Interestingly enough, the book was replaced at the top spot by another Paula Deen cookbook, Paula Deen’s Southern Cooking Bible.)

The book cancellation brought the total of business deals killed by Deen’s admission that she had used racial slurs in the past to 12. According to the Consumerist, the tally includes:

  1. Food Network
  2. Target
  3. Sears
  4. Kmart
  5. Walmart
  6. Smithfield Foods
  7. Caesar’s Entertainment
  8. Home Depot
  9. Novo Nordisk
  10. Walgreen’s
  11. JCPenney
  12. Ballantine

QVC has also decided to “take a pause” in its relationship with Deen, but stopped short of saying that it would permanently sever ties. According to a letter from QVC CEO Mike George:

“Paula won’t be appearing on any upcoming broadcasts and we will phase out her product assortment on our online sales channels over the next few months…Some of you may wonder whether this is a “forever” decision – whether we are simply ending our association with Paula. We don’t think that’s how relationships work. People deserve second chances. And we always strive to do the right thing.”

Deen’s misstep could come with a hefty pricetag. Deen earned a reported $17 million in 2012, according to Forbes, making her the fourth-highest paid celebrity chef after only Gordon Ramsay, Rachael Ray and Wolfgang Puck. But the possible losses don’t end there. Burt Flickinger III, president of retail consultancy Strategic Resource Group told the Associated Press that Deen’s annual revenue from her endorsement business generates about $100 million a year. He estimated that the controversy has cost her at least half of that so far and that she could lose up to 80% by next year as other suppliers cancel their agreements as well.

Last year, in the pages of Risk Management, Ted Tafaro and Frank Zuccarello wrote about the big business of celebrity chefs and how companies needed some sort of contingency plan in place in case one of these chefs were to be laid up with an injury and couldn’t perform. What the article didn’t cover, however, was that a damaged reputation can be just as catastrophic for the business. The Deen controversy serves as a sobering reminder of how important it is to have a plan to deal with these reputation risks as well.

Gerald Baron at Crisisblogger offered some helpful advice on what those involved in “reputation wrecks” can do to mitigate the damage. In the end, as Baron writes, it’s about character. “Those responsible for [organizational] reputation have to take very seriously the character and integrity of those who represent and make decisions for the organization.”

The Cost of Food Fraud or “Does This Vodka Taste Like Bleach to You?”

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In the May issue of Risk Management, Emily Holbrook reported on the prevalence of food fraud in restaurants and supermarkets around the world. Characterized by counterfeit or purposely mislabeled foods used by unscrupulous producers looking to make a quick buck, food fraud manifests itself in many ways. Sometimes its as unsettling as pig rectum in place of calamari or horse meat for hamburger, while other times its farm-raised fish sold as “fresh-caught.” Regardless of the nature of the deception, customers are put at risk. Not only are they conned into buying more expensive items, but they can also be exposed to pathogens or toxins that they would have no reason to expect in their food.

The New York Times recently reported about instances of fake vodka laced with bleach to lighten its color or olive oil contaminated with engine oil to extend the supply and increase profits. It turns out that food fraud is more widespread than most people realize. 

“Around the world, food fraud is an epidemic — in every single country where food is produced or grown, food fraud is occurring,” said Mitchell Weinberg, president and chief executive of Inscatech, a company that advises on food security. “Just about every single ingredient that has even a moderate economic value is potentially vulnerable to fraud.”

The Times article goes on to cite a report by the United States Grocery Manufacturers Association, which puts the cost of adulteration and counterfeiting of global food and consumer products at $10 billion to $15 billion a year. The study further indicates that a single adulteration incident could cost a company anywhere from 2% to 15% of a company’s annual revenue. To use a bad pun, this is not small potatoes. Even the bleached vodka scheme was estimated to have cost the British government $2.3 million in lost tax revenue.

So given how pervasive and lucrative food fraud has become, companies will need to be more diligent to protect their bottom line and their reputations and to protect public safety, governments will need to fight back as well, either through regulation or prosecution. When there’s this much money at stake, the problem will only get worse. Hopefully it won’t take a widespread illness from food contamination to make it better.

Saving Your Company From a Social Media Nightmare

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Facebook has more than 1 billion users worldwide. Twitter processes more than 340 million tweets per day. What is the liability for your company? Are you liable for postings made from employees’ own devices? Can you legally access your employees’ social media sites or base hiring and firing decisions on them?

“Social Media in the Workplace: Litigation Risks and Insurance Coverage” — a RIMS 2013 session — covered these critical issues. Presenting on the topic were:

  • Karen Bachman, director, risk management and privacy for Shire Pharmaceuticals
  • Max Perkins, underwriter, specialty lines for Beazley Group
  • Joann Lytle, partner, McCarter & English, LLP
What is social media? According to Merriam-Webster, it’s:
Forms of electronic communication (as Web sites for social networking and microblogging) through which users create online communities to share information, ideas, personal messages, and other content (as videos)
“It’s basically what we have done for years in terms of networking and interfacing but it’s now in an electronic format that moves at the speed of sound and speed of light,” said Perkins.”It can be scary at times but can also be used to your benefit.”By now, most of us are aware of the reasons why companies use social media, including:
  • marketing
  • customer service
  • market research
  • hiring

But what are the concerns?

  • Privacy “What if someone makes a mistake and mentions a patient’s health history,” asked Perkins. “How is your HR team using social media? Are they able to do that legally?”
  • The speed and ease of communication lead people to make impulsive, ill-considered comments
  • Permanent record

But alas, as the speakers pointed out, there are resources available to organizations that wish to manage the risks of social media? They can:

  • Draft a social media use policy
  • Require employee training
  • Monitor social media use
  • Purchase insurance “It’s not all there right now, it’s still developing,” said Perkins.
Joann Lytle used an interesting, real-world example. A health clinic employee disclosed the contents of a patient’s medical file, including the fact that the patient had a sexually transmitted disease from a sexual partner other than her husband. Another employe created a MySpace page with picture of the patient and disclosed the contents of her medical file, disclosing she has an STD. Though the page was only up for a few days, it was enough for a legal case against Fairview (Yath vs Fairview Clinic).
It seems like it would be a cut and dry case, ending in Yath’s favor.But that’s not what happened.
Fairview had a policy prohibiting the use of social media at work. Technical evidence demonstrated that the MySpace page was not created at the employer’s place of business.
“It really saved Fairview,” said Lytle. “They did the right thing and took the right steps. If any of the factors were different, it could’ve been a huge liability.“
How should a company respond to a potentially damaging post? “This is the kind of thing you should be planning for in advance,” said Bachman
  • Take full responsibility — in social media, it’s impossible to run and hide
  • Make no excuses — stick to clarifying an incident — stick with real data
  • Respond immediately 
  • Do not get into an ongoing conversation with other posters — you’re just going to get deeper and deeper into trouble with no way to dig yourself out

We only need to look at LinkedIn’s Top 5 Corporate Twitter Disasters of 2012 to understand how a simple mistake or an irate employee can cause a media nightmare.Companies can establish a framework to manage risk these risks, however. Aside from monitoring and training, companies can purchase media content liability coverage, including:

  • Defamation, libel, slander, infringement of copyright
  • Infringement of domain name, trademark, trade name, trade dress
  • Plagiarism, piracy, misappropriation of ideas under an implied contract
  • Invasion or interference with an individual’s right to privacy

“One thing to think about is where your culture is within the organization,” said Perkins. “Do you have a cultural awareness of what social media is?”