From mixing politics with fast food to releasing software that is widely hated, public relations disasters have significant repercussions on a company’s bottom line. Or do they? Here we take a look at three of the biggest corporate nightmares of 2012 and briefly assess their impact on stock price and reputation.
Papa John’s Obamacare Gaffe: A Flash in the (Pizza) Pan?
Unsurprisingly, it appears that political rhetoric and the pizza business don’t mix. Such is the harsh lesson that Papa John’s CEO John Schnatter learned after he doubled down on criticism of Obamacare following the re-election of President Obama. Mr. Schnatter implied that his company would deliberately downsize worker hours in order to remain below the 30 hour mandatory threshold to provide insurance. The stance, which accompanied similar sentiments from Applebee’s franchise owner Zane Tankel, quickly did the rounds of popular online news sites.
By the time the company started to react the damage was done, with the company’s buzz on YouGov’s Brand Index survey dropping from 32 on Election Day to a dismal score of 4 three weeks later. (YouGov BrandIndex’s Buzz score asks respondents, “If you’ve heard anything about the brand in the last two weeks, through advertising, news, or word of mouth, was it positive or negative?”) Papa John’s share price dropped by over half. See the charts below.
Mr Schnatter issued a public apology and claimed his words had been twisted. He went on to clarify he was glad that healthcare insurance would be covering 100% of the population, but that all he meant was that, “we’re all going to pay for it. There’s nothing for free”. Regardless, Papa John’s YouGov buzz score throughout November showed no sign of recovery, even as the share price bounced back.
Bottom line impact…
One is left with the feeling that while business prices can rally, reputation is far harder to regain.
YouGov BrandIndex Buzz score shows restaurants’ reputation decline after anti-Obamacare statements:
Share price of Papa John’s declines then recovers after CEO’s anti-Obamacare statements:
G4S Olympic Security Failure: Losing the Race for New Business
Last summer, things were going well for private security firm G4S. In an interview in July, Ian Horseman Sewell, Managing Director of Global Events, boasted that the security firm was “absolutely on track to deliver” on their contract for the London Olympics, and added that, “If there was a similar event going on in Australia, I would be bullish that we could deliver that at the same time”. He also noted that favourable media exposure could attract many more customers, but warned that “the sensitive, high-profile nature of security meant G4S ran the risk of its image being damaged if problems occurred”.
As it turns out, he was right, but not in the way he would have hoped. Two days later the UK Sunday papers declared that the firm being paid £300m to guard the Olympics had, “yet to fully train or accredit thousands of security guards needed to protect the games from terrorist attack”.
The story exploded, leading the UK government to announce that it would be forced to bring in the army to cover the shortfall, in some cases with troops not long returned from Afghanistan, touching a nerve with the British papers.
Unfortunately for G4S, the story spread far beyond the British mainstream: Over subsequent days the phrase “humiliating shambles” had to be translated into at least 30 languages for international media headlines. G4S’ share price duly crumbled. Journalists also used this event to recap and dig into other controversies surrounding the company, furthering the fiasco.
As it turned out, overall security at the Olympics was effective and the stand-in troops became a surprise hit with the crowds. The media spotlight has since moved away from the tribulations of G4S, however, the firm’s reputation has yet to recover. Share price has regained some of the losses suffered, but has yet to make a full recovery.
Bottom line impact…
Perhaps the most telling effect is that the company went on to lose a contract to run Britain’s first private prison and failed to win any new contracts in the biggest round of prison privatisation in England and Wales so far. Although Prisons Minister Jeremy Wright assured newspapers that the decision was unrelated to the Olympics fiasco, most news of the matter made that connection. Not a good year for the folks at G4S.
Share price of G4S falls and slowly recovers following its Olympic security difficulties:
Apple Pays the Price of Seeming to Be Perfect: Loses its Way with Maps and Scuffgate
The introduction of Maps, Apple’s in-house mapping system, finally severed the company’s dependence on its rival’s platform Google Maps and was originally welcomed with glee. However, a definitive PR disaster ensued when Maps’ maps were found to lack accuracy and made some high-profile mistakes. It didn’t help matters that the iPhone bumped Google Maps for the defective newcomer. Given the high-profile of the launch and the internet-savvy nature of tech enthusiasts, it wasn’t long until Apple faced the full brunt of accusations that Maps was the “worst software update in Apple’s history”.
Complaints over the new Maps app were compounded when information emerged that a high percentage of iPhone 5s were arriving with scuffing and scratches on the phone’s aluminum exterior. The problem received major media attention, prompting Apple to increase quality control in its Chinese factories and slow production. Although minor (especially considering the iPhone 4’s Antennagate debacle) this has not stopped ardent consumers from pushing Apple for a recall. Hell hath no fury like an angry fan-boy.
Criticism of the Maps app was so endemic that Apple has taken significant steps to address it. Scott Forstall, head of the company’s mobile software division and a protégé of Steve Jobs, was dismissed following reports that he refused to sign a letter of apology to Apple consumers over the matter. Tim Cook, the company’s CEO, went on to sign said letter in his stead.
Apple’s share price has seen some shrinkage (see the chart below), but there are too many influences at work to pin it entirely on Maps. Some have called the stock overvalued, after more than doubling in the past year. And its price drop may be at least partly a result of less-than-expected demand for the iPhone 5 following its launch.
Bottom line impact…
Apple’s reputation and brand are extremely strong. It may, in fact, suffer from seeming to be too perfect. Although many would no doubt like to see Apple knocked off its pedestal, one bad app won’t spoil the whole Apple.
While this double PR disaster has probably provoked some consumers to consider alternatives, the iPhone 5 remains a complete success, selling over 5 million units in its first weekend in shops. Sometimes it’s heartening for the big guy to show some flaws, apparently.
Decline of Apple share price following Maps app problems: