Reputational crises in Peru

SPECIAL REPORT
Reputational crises in Peru:
Lessons to be learnt from 2011
Lima, February 2012
BARCELONA
BEIJING
BOGOTÁ
BUENOS AIRES
LIMA
LISBOA
MADRID
MÉXICO
PANAMÁ
QUITO
RÍO DE JANEIRO
SANTO DOMINGO
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
1. INTRODUCTION
1. INTRODUCTION
2. CASES
In the current business climate, characterised by a growing demand for
transparency, ethics and social responsibility by stakeholders, management
of reputation and the reputational risk has become one of the greatest
opportunities for creating and protecting value for companies.
3. CONCLUSIONS
AUTHORS
LLORENTE & CUENCA
The Corporate Reputation Forum and the IE Business Institute define
corporate reputation as “the set of perceptions of the company by
its different stakeholders, both internal and external. It is the result
of the company’s behaviour over time and describes its capacity to
provide value for those stakeholders”.
The same sources consider reputational risk to be the impact that a given
event may produce on the reputation of a company. This is revealed when
the organisation is unable to meet, or fails to live up to, the expectations
of its stakeholders. Management of stakeholders’ expectations is,
therefore, a key issue in the management of reputational risk.
“It takes 20 years to build up
a good reputation and just five
minutes to ruin it. If we
think about it, we will do
things differently”
Warren Buffet
A reputational crisis occurs when a company shifts from a situation of risk to
a situation of impact. In other words, when a company’s reputation starts to
be damaged as a result of poor management of its reputational risk.
In this article, we analyse five cases of reputational crisis that occurred
in Peru in 2011, applying concepts of different authors, including
Professor Daniel Diermeier, from the Kellogg School of Management.
The cases presented involve companies in very different areas. In
addition, the stakeholders that triggered the crises are of a very varied
nature —employees, customers, public entities and the government. In
each one, we will analyse the causes of the crises and what went wrong
in the management of expectations of each of the stakeholders involved.
2
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
2. CASES
UVK Multicines: The importance of
a speedy, consistent response
“The company’s
reaction was
appropriate, but neither
consistent nor timely”
On 15 December 2011, the local
authorities of Miraflores closed
the UVK Larcomar multi-screen
cinema. The reason: An accusation
of racial discrimination. The fact
was presented by an influential
online figure, Pierina Papi.
According to her version, a youth
dressed in the typical outfit of the
mountainous area of the country was
forced to leave the shopping centre,
escorted by a security officer.
The
Miraflores
authorities
applied a precautionary measure,
provisionally
closing
the
establishment for a period of
seven days. One of the reasons
given was that they had not hung
a sign indicating that all forms of
discrimination were prohibited in
the district, pursuant to Article
5 of the Bye-law N°294-MM. The
control officer for this district
declared in several media that
this measure had been taken
after concluding that there had
been a case of discrimination.
The news spread like wildfire
on Internet, bringing to light
a growing social awareness
within the Peruvian society,
and especially among young
netsurfers. The number of
people who reject and explicitly
condemn through their presence
online
any
discriminatory
conduct is growing constantly.
News published in La República online
(larepublica.com.pe)
A few hours later, the daily
newspaper El Comercio contacted
the manager of UVK Multicines in
Larcomar to find out the company’s
version, but he replied that for the
time being he was “not authorised
to make any declarations”.
Over the following days, apart
from the damage caused by
the accusations of racism, the
company UVK Multicines had to
put up with other events with
adverse consequences for its
reputation: demonstrations by
young people in front of its doors
against racial discrimination; opinions
of several well-known Peruvians
against the company (Gastón Acurio
protested with categorical sarcasm:
“I’m going to the cinema”);
several accusations from Peruvian
public bodies, such as Indecopi;
and anti-racist campaigns by
several entities and organisations,
including the local authorities
of Miraflores which, in a press
release, assured that they would
fight against racism through sport.
What could the company have
done differently? Or in this case,
what didn’t it do? First of all, it
did not apologise in time.
When everyone was talking about
the case, UVK admitted the fault
in its Twitter channel, which it
had not used for a long time.
The reaction was appropriate,
but too late.
Finally, when the company
manager
made
several
declarations to the media,
instead
of
repeating
the
apologies that the company
had already made in Twitter,
he surprisingly denied any
discrimination against the youth.
Moreover, in declarations made
3
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
to one newspaper (El Comercio),
he gave two different versions
of the facts.
Moreover, by taking a defensive
attitude, the manager made
certain remarks about the
customer and mentioned what
had supposedly caused the
reaction by the employee. The
tone and contents of these
comments strengthened the
perception of distancing and
lack of empathy, instead of
curing it.
In these situations it is difficult to
separate the real responsibility
of the company from the
stakeholders’ expectations; the
latter want to hear a sincere
apology from the company.
However, going to the extent of
constructing our response based
exclusively on “who is right”
and “who is wrong” is a mistake
if our reputation is a priority.
“Constructing our
response based
exclusively on who is
right and who is wrong
is a mistake if our
reputation is a priority”
Finally, in these times of the web
2.0, a speedy response is vital,
but it must also be consistent
and coherent in its messages,
avoiding a situation where,
from trying to react quickly
(although that was not the case
in this example) we contradict
ourselves later.
Corporate policies exist and must
be respected, but companies
must be aware that if they
prevent a swift, adequate
reaction, the effect may be the
opposite of what was intended
when the policies were designed:
instead of avoiding a problem,
they might worsen it.
Wong and the Chehade case:Who
owns your brand?
In 2007, one of the leading
groups
of
Chilean
retail
outlets, Cencosud, took over
Supermercados
Wong.
The
brand, which the new owners
assured from the outset would
be maintained, is for many
synonymous
with
service
quality and an asset in the
increasingly more competitive
segment of supermarkets.
The Wong Group continued investing
in other businesses, especially
agribusiness and property, and
continued doing so with its
traditional low profile.
In 2011, the renown of the Peruvian
family group grew drastically
and not precisely associated
with positive facts: in October,
information came to light according
to which the second Vice President
of the Republic at that time, Omar
Chehade, had met senior police
officials to discuss the eviction
of the sugar refinery Andahuasi.
Apparently, this benefited the Wong
Group and Chehade had allegedly
previously been in contact with
representatives of the group.
The problems in Empresa Agraria
Azucarera Andahuasi and the
disputes between the groups
claiming to be the legitimate
shareholders of the company (the
Wong Group and the Bustamante
Group) went back years and
although they had occasionally
come into the limelight, they had
never had such a major effect on
the reputations of these companies.
4
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
However, our analysis of this
case focuses on whether or not
there is any impact for the “other
Wong”, i.e. the supermarket
chain, and the risk that one
of your main brands might be
directly associated (in this case,
it is identical) with third parties
for whose actions you are not
responsible and cannot control.
“Corporate reputation
is not the responsibility
of the communications
manager or the press
officer. To secure
adequate, strategic
reputation management,
it must be in the DNA of
the entire organisation”
Has this scandal affected the
sales of Supermercados Wong in
the short term? Probably not.
But direct customers are not the
only stakeholders of a company
and protection of the firm’s
reputation must be considered
over a longer term.
What’s more, however wellknown the case might have been
in political circles, fortunately
for Cencosud, it had nothing to
do with its core business (a key
factor, as we shall see below,
for assessing the seriousness of a
reputational crisis).
However, the example can serve as
a warning and adds a new factor
when deciding on a brand strategy.
No company is exempt from risk.
Crises occur and the most important
thing about them is how they are
handled. But no company wants
to make itself more vulnerable
by leaving its reputation in the
hands of third parties.
Supermercados Peruanos: At times of
high risks, full alert
Plaza Vea Avenida Primavera
(elcomercio.com.pe)
Early morning on 24 December
2011. Hundreds of customers
who went to the Plaza Vea
shop at block no. 23 of Avenida
Primavera in Surquillo ended up
very disappointed as they could
not get in.
Some days earlier the company
had announced in Facebook that
13 of its shops would be open day
and night over the festive period
from 8 a.m. on Friday 23 to 9 p.m.
on Saturday 24. The promotion
included early morning offers for
users of the store credit card.
So many people went that
numerous customers had to wait in
huge queues in the hopes of being
able to buy some of those products
on offer. Hundreds of them were
unable even to get inside the doors.
As the time went by and the
queues got longer and longer,
the problem became more and
more complicated. On the one
hand, people protested at not
being able to enter so as not to
exceed the capacity allowed for
these establishments by Civil
Defence, and on the other hand,
complaints were received from
local residents about the traffic
hold-ups and the noise.
Although this is apparently
a one-off incident, it has all
the ingredients to capture the
media’s attention: consumer
unrest, images for TV, in situ
declarations by those affected
and, finally, days with little
news: the Christmas period.
Certainly, there was press coverage
and several media tried to contact
the representatives of Supermercados Peruanos, all claiming to have
received the same reply: None.
5
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
The reputational crisis had begun.
Hours later the brand was exposed
in radio programmes, earlymorning news programmes and
online editions of the principal
newspapers. To sum up, there were
reports of general discontent and
unkept promises by the company.
“Ripley had not
previously built
up a reputation
associated with its
role as employer”
Fortunately, the company reacted
to the criticisms regretting the
inconvenience and upset caused and
announcing that it would continue
working to try to remedy its errors.
The response was correct
in respect of content, but
how could it have been more
effective? Probably by reacting
earlier. Once again, the reaction
time is crucial, but impossible
to improve if the reputational
risks have not been identified
in advance and, therefore, no
preparations have been made.
Corporate reputation is not
the
responsibility
of
the
communications manager or the
press officer. To secure adequate,
strategic reputation management,
it must be in the DNA of the entire
organisation. All areas of the
company must be aware that their
actions, above all else, build or
damage the company’s reputation.
If this awareness exists, the areas,
when leading a commercially
attractive initiative such as a
Peruvian “black Friday”, for
example, are more likely to be
aware of what could go wrong for
the reaction systems to be on alert.
Demonstration by Ripley employees
in San Isidro (peru.com)
Having the risks mapped out and
being lucky enough to be able to
anticipate when they are most
likely to occur, it is possible
to prepare the response that
the company would give in
different situations.
Those dealing with the different
stakeholders could thus act
immediately as soon as the facts
occur to demonstrate responsibility
and minimise the damage. In the
case of Plaza Vea, unfortunately,
the community manager was not
available during the early-morning
event. His active presence in the
social networks would have been
important for answering queries,
complaints and suggestions.
Therefore, reputation management
is not incompatible with innovation
or risky initiatives. In fact, what
business activity is nowadays
entirely free from risk? The
difference lies in being aware that
those risks exist and, in an exercise
of honesty and prevention, sharing
them with those members of the
organisation who can help us in
advance to be prepared for them.
Ripley: Reputation and credibility
are earned over time
In August 2011, the union leaders
of the Ripley employees called an
indefinite all-out strike. The same
unions had previously announced a
number of labour claims, including
pay rises and overtime pay. The
main claim was an increase of 600
new sols in what they defined as
“poverty-level basic wages”.
On 5 and 6 August, the employees
stopped work at the stores of the
Ripley chain. The crisis had become
6
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
public and everyone was talking
about its employees’ salaries.
“Any indicent that
questions or entails a
risk to those decisive
factors will have a
greater impact on our
reputation”
The crisis, which began offline,
spread rapidly through the social
networks and received coverage
in the country’s principal media.
The first person to speak on behalf
of the company was Eduardo
Castillo, the Human Resources
Manager of Corporación Ripley,
who considered the workers’
claims unfeasible. “It would
require a huge outlay”, he
declared when given the chance.
Shortly afterwards, the company
posted a video on YouTube in
which Eduardo Carrioury, the
General Manager of Ripley acting
as its spokesman, focused his
message on denying some of the
information circulating about the
working conditions in the company.
Ripley was, therefore, in clear
conflict
with
the
principal
stakeholder of any company: its
employees. However, it is not the
only company with an industrial
dispute or tense situations when
it negotiates with its unions, or
to suffer a strike. So what makes
the workers’ information spread
so rapidly and generate so much
“solidarity” among those receiving
it, regardless of whether they have
anything to do with the company?
First of all, credibility (or rather,
lack of credibility). Companies
are used to competing for market
shares,
developing
attractive
offers in order to be the option
chosen by customers. But in the
area of reputation, they compete
for something else and in terrain
in which they are much less
comfortable: competition to see
who is more reliable, which version
do I believe most.
In this case, Ripley was at a
disadvantage from the start: it
could not be credible from one
day to the next when offering
its explanations on the working
conditions, firstly because unions
and workers’ associations will
always be trusted more by the
public at large and, secondly,
because it had not previously built
up a reputation associated with its
role as employer.
Being a “good place to work” is
one of the fundamental drivers
of reputation. More and more
companies measure their labour
mood and how their collaborators
see the company in this regard.
The challenge is double in this
case: having decent conditions so
that your employees are happy
and getting external audiences to
perceive that satisfaction and even
aspire to working for you.
Other factors go against the brand
in this case: those who still reject
Chilean investments will be among
the first critics of the company in
this dispute, for example.
For that reason, it is never too late
to make a good diagnosis of your
reputation. Do we know which
“drivers” we have problems in
and why? After this analysis, there
are many strategic options: from
directly attacking our weaknesses
(for example, making sure our
working conditions are better
and announcing any progress) or
7
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
reinforcing our strengths, hoping
they will indirectly help us to offset
the reputational deficit generated
by our weak points.
The thing is they all take time and
sustained work to make a favourable
impression on perceptions so that
when faced with a problem our
stakeholders give us at least the
benefit of the doubt.
Peruvian Airlines: the crisis that
hits the core of the business
In August 2011 the Ministry of
Transport and Communications of
the Republic of Peru suspended
the operations of Peruvian Airlines
for 90 days for “breaching aircraft
safety rules”. The director general
of Civil Aviation, Ramón Gamarra,
stated in a press conference that
the operations by the company
owned by César Cataño could
even be cancelled definitively if
the observations that had been
made were not remedied.
Gamarra explained that the
company did not have the capacity
to provide a security standard on its
flights, which, he mentioned, had
been proved in the two incidents
registered that same year.
Ten days later, the Ministry of
Transport and Communication
lifted the suspension for part of
the Peruvian Airlines fleet. But
the damage was already done.
Less than two months later, the
company was sold to the Irish group
Aergo Capital Limited.
Peruvian Airlines (skyscraperlife.com)
It was not the first time that
Peruvian Airlines hit the headlines.
The company was controversial
because of the accusations
made periodically against its
owner of being associated with
drug trafficking.
Had that information affected
the business of Peruvian Airlines?
Yes, probably, but from a
different point of view from
that of the success or failure
of its commercial offer among
passengers. The shadow of doubt
regarding the source of capital
is certainly not the best visiting
card for interacting with another
key stakeholder: the regulatory
and supervisory authorities, which
are essential for any business but
especially one as strictly regulated
as air passenger transport.
So why could the company not
withstand another problem of this
nature and why did the temporary
suspension of its licence trigger
off its sale?
The then owner of the company
argued that this was due to the
losses sustained during that time
and the smaller revenues when
operations were resumed with part
of the fleet still under suspension.
However, from a reputational point
of view, the reason could quite well
be different: the crisis had hit the
core of the business, where the
impact is decisive and if it is not
handled well it can jeopardise the
survival of the company.
For an airline, the “safety” factor
is absolutely vital to generate the
confidence of its passengers, along
with punctuality and fulfilment of
8
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
scheduled times. Therefore, the
licence suspension was hitting
the essence of the business: its
capacity to transport passengers
safely and within the scheduled
times from one place to another.
So when assessing the seriousness of a crisis from the point
of view of reputation, we must
go beyond the specific impact
in the media or how serious
the situation really is: we must
be clear on what elements are
decisive in the core of our business and which attributes are
essential for it. Any incident
that questions or entails a risk
to those decisive factors will
have a greater impact on our
reputation. 5. Peruvian Airlines:
the crisis that hits the core of
the business.
• We must not make ourselves more vulnerable by
leaving our reputation in
the hands of third parties.
• To ensure adequate, strategic management of our
reputation, it must be in
the DNA of the entire organisation.
• Mapping risks enables us
to anticipate and be prepared for them.
• Companies must anticipate in what situations
they are increasing their
reputational risk.
• We compete for credibility.
3. CONCLUSIONS
• Time and sustained work
is required to make a
favourable impact on
people’s perception of us.
• In any crisis, the response
must be swift and consistent.
• We must be aware of our
weaknesses.
• Communicating
only
in
terms of who is right distances us from our stakeholders’ real expectations.
• Any incident related with
decisive factors for our business will have a greater
impact on our reputation.
9
REPUTATIONAL CRISES IN PERU:
LESSONS TO BE LEARNT FROM 2011
REPORT ISSUED BY LLORENTE & CUENCA IN PERU:
Luisa García Partner and CEO of LLORENTE & CUENCA in Peru.
Expert in management of regional accounts and strategic
consultancy. Former consultant in the firm Issues and
developed academic research projects with the European
Public Relations Confederation. Graduate in Publicity and
Public Relations from Universidad Complutense de Madrid, she
completed post-graduate studies at the Universities of
Georgetown and Phoenix in the United States and Adolfo Ibáñez in Chile.
Carlos Alonso Consultant of LLORENTE & CUENCA in Peru.
Experience in financial, corporate and CSR issues and in
handling reputational risks and crises. Graduate in Journalism
from Universidad de Sevilla. Master in Business and
Institutional Communication from Universidad Complutense
de Madrid and Master in Corporate Social Responsibility from
Universidad de Alcalá de Henares (Spain).
10
Leading Communications Consultancy in Spain, Portugal and Latin America
LLORENTE & CUENCA is the largest communications consultancy in Spain, Portugal and Latin America. It has 16 partners and more than 300 professionals
who provide strategic consultancy services to companies in all business sectors with operations aimed at the Spanish and Portuguese speaking countries.
It currently has offices in Argentina, Brazil, Colombia, China, Ecuador, Spain, Mexico, Panama, Peru, Portugal and the Dominican Republic. It also offers
its services through affiliates in the United States, Chile, Bolivia, Uruguay and Venezuela.
Through its international development, in 2011 and 2010 LLORENTE & CUENCA became one of the most important communication companies in the world,
as reflected in the annual Ranking published by The Holmes Report. In 2013 it was 51st in the ranking, having risen one place from its 2012 position.
Organisation
CORPORATE MANAGEMENT
LATIN AMERICA
José Antonio Llorente
Founding partner and President
[email protected]
Alejandro Romero
Partner and Latin American CEO
[email protected]
Enrique González
Partner and CFO
[email protected]
José Luis Di Girolamo
Partner and Latin American CFO
[email protected]
Jorge Cachinero
Corporate Director of Reputation and Innovation
[email protected]
Antonio Lois
Regional Director of Human Resources
[email protected]
IBERIA
Bogota
Arturo Pinedo
Partner and General Director
[email protected]
María Esteve
General Director
[email protected]
Adolfo Corujo
Partner and General Director
[email protected]
Av. 12 de Octubre 1830 y Cordero.
Edificio World Trade Center, Torre B, piso 11
Distrito Metropolitano de Quito (Ecuador)
Tel: +593 2 2565820
Germán Jaramillo
President Director
[email protected]
Rio de Janeiro
Madrid
Carrera 14, # 94-44. Torre B — of. 501
Bogota (Colombia)
Tel: +57 1 7438000
Joan Navarro
Partner and Vice-President of Public Affairs
[email protected]
Tel: +52 55 52571084
Panama
Javier Rosado
Partner and General Director
[email protected]
Avda. Samuel Lewis. Edificio Omega, piso 6
Tel: +507 206 5200
Quito
Catherine Buelvas
General Director
[email protected]
Juan Carlos Gozzer
Executive Director
[email protected]
Buenos Aires
Amalio Moratalla
Partner and Senior Director
[email protected]
Rua da Assembleia, 10 — sala 1801
Rio de Janeiro — RJ (Brazil)
Tel: +55 21 3797 6400
Pablo Abiad
Partner and General Director
[email protected]
São Paulo
Juan Castillero
Financial Director
[email protected]
Enrique Morad
President Director for the Southern Cone
[email protected]
Lagasca, 88 — planta 3
28001 Madrid
Tel: +34 91 563 77 22
Av. Corrientes 222, piso 8. C1043AAP
Ciudad de Buenos Aires (Argentina)
Tel: +54 11 5556 0700
Barcelona
Lima
Santo Domingo
María Cura
Partner and General Director
[email protected]
Luisa García
Partner and CEO of the Andean Region
[email protected]
Alejandra Pellerano
General Director
[email protected]
Muntaner, 240-242, 1º-1ª
08021 Barcelona
Tel: +34 93 217 22 17
Cayetana Aljovín
General Manager
[email protected]
Avda. Abraham Lincoln
Torre Ejecutiva Sonora, planta 7
Tel: +1 8096161975
Lisbon
Av. Andrés Reyes 420, piso 7
San Isidro. Lima (Peru)
Tel: +51 1 2229491
ASIA
Madalena Martins
Founding Partner
[email protected]
Mexico
Carlos Matos
Founding Partner
[email protected]
Alejandro Romero
Partner and Latin American CEO
[email protected]
Rua do Fetal, 18
2714-504 S. Pedro de Sintra
Tel: + 351 21 923 97 00
Juan Rivera
Partner and General Director
[email protected]
José Antonio Llorente
Founding partner and President
Alameda Santos, 200 — Sala 210
Cerqueira Cesar. SP 01418-000
São Paulo (Brazil)
Tel.: +55 11 3587 1230
Beijing
Sergi Torrents
General Director
[email protected]
2009 Tower A. Ocean Express
N2 Dong san Huan Bei Road, Chaoyang District
Beijing - China
Tel: +86 10 5286 0338
Bosque de Radiatas # 22 — PH7
05120 Bosques las Lomas (México D.F.)
LinkedIn
www.linkedin.com/company/llorente-&-cuenca
Corporative webpage
www.llorenteycuenca.com
Corporative blog
www.elblogdellorenteycuenca.com
Twitter
http://twitter.com/llorenteycuenca
Facebook
www.facebook.com/llorenteycuenca
Centre of Ideas
www.dmasillorenteycuenca.com
UNO Magazine
www.revista-uno.com
YouTube
www.youtube.com/LLORENTEYCUENCA
Slideshare
www.slideshare.net/LLORENTEYCUENCA
d+i is the Centre of Ideas, Analysis and
Trends at LLORENTE & CUENCA.
Because we have a new macroeconomic
and social script. And communication is not
lagging behind. It is progressing.
d+i is a global combination of relations and
exchange of knowledge that identifies,
focuses and transmits new communication
patterns from an independent position.
d+i is a constant flow of ideas moving
ahead of new trends in information
and business management.
d+i LLORENTE & CUENCA exists because
reality is not black or white.
www.dmasillorenteycuenca.com