There’s one hard lesson that companies of all sizes are learning right now: no brand is too big to fail. In this environment of heightened sensitivities and consumer awareness, customers are holding brands to higher standards than ever before and expecting full accountability for actions and decisions that have been poorly made.
In the case of fashion retailers and brands, this has been driving many, either proactively or reactively, to hire Chief Diversity and Inclusion officers to ensure that they are not out of sync with their consumers and are delivering on customer expectations for what their company sells and how it acts.
But if you look outside of this industry vertical, you can see examples of many companies and flagship brands that are not only falling out of step with their consumers’ values, but are slow or even reluctant to face the fact that consumer expectations have changed.
For example, industries including automotive, healthcare, and transportation have a history of missteps which put consumers in harm’s way. Yet even as they denied fault and said very little about changes being made to correct their behaviors, in the past, their actions were quickly forgiven and/or forgotten. Consider the number of issues with medicines, plane crashes, or automobile malfunctions that have taken place over the years with little-to-no lasting repercussions. This has bred a leadership culture that has not only felt infallible, but justified in scamming consumers and putting them in harm’s way for the sake of profits.
As Mark Twain and others have said, “All empires contain the seeds of their own destruction.” What we are seeing now is that even once esteemed brands are no longer immune to the repercussions of consumer backlash. An international survey by Cohn & Wolfe found that 87% of global consumers felt that it was important for brands to “act with integrity at all times.”
Three such brands who are feeling this shift in consumer mindset are Volkswagen (VOW.DE), Boeing (NYSE: BA) and the billionaire Sackler Family, whose privately-held Purdue Pharma is accused of playing a central role in the U.S. opioid epidemic. Whether they are able to fight back into the good graces of the public will be largely dependent on whether they are willing to connect with today’s consumer and their expectations for accountability.
Two fatal crashes of Boeing’s 737 Max, once the fastest-selling airliner in the company’s history, have halted all sales of the aircraft as the company faces lawsuits, congressional hearings, and a criminal investigation.
While Boeing has long been one of the most prestigious brands in the U.S., this was not the first time Boeing had a problem with their designs. In the 1960s, the Boeing 727 had issues with its new wings. In the 1990s, the Boeing 737 had issues with its rudder. And in 2013, the Boeing 787 Dreamliner had issues with its battery catching on fire. Yet the brand and its good reputation endured.
But times have changed. According to Business Insider’s Sinéad Baker, the most recent crashes have eroded public trust because of how Boeing responded to them. Rather than take ownership, the company spouted the same old line as with previous crashes, first blaming pilot error rather than design malfunctions. It took Boeing almost a month to issue an apology.
Further, an opinion piece in the New York Times penned by, Jim Hall, chairman of the National Transportation Safety Board from 1994 to 2001, and Peter Goelz, managing director of the board from 1996 to 2000, says that Boeing’s “disturbing culture of denial persists,” and the company has “institutional reluctance to even examine potential design flaws in its product.”
The piece goes on to advise that “Safety begins at the top...Boeing’s board must find out who has enabled and encouraged this corporate culture, and hold those leaders accountable...”
Boeing showed some good faith, but it may not be enough. In addition to apologizing, they’ve been offering to fly their CEO first on the plane in a bid to prove that it’s safe, and they’ve also been organizing more sales of the plane to prove just how confident the industry still is in the jet.
But still, 44% of travelers in North America and Europe say they would wait a year or more to fly the Max, according to a survey of 1,756 fliers by Barclays Plc, David Strauss, a Barclays analyst. Strauss downgraded Boeing after the study, and weighed in on the company’s recovery, “I don’t know...It feels different to me this time.”
With the 737 Max accounting for about one-third of Boeing’s profit according to this recent article, if demand fades because of nervous consumers, airlines who have placed orders could postpone deliveries or force Boeing into a pattern of deeper discounts that erode its profit and cash.
By now, everyone has heard of Dieselgate, Volkswagen’s emissions cheating scandal which equipped cars with “defeat devices” designed to cheat emissions tests. It resulted in the company pleading guilty to three felonies and paying $14.7 billion to settle. Consumer Reports estimated that as many as 11 million vehicles were affected worldwide. The scandal resulted in a 40% drop in the company’s share price in just 2 weeks.
Just this month, news surfaced that the emissions scandals didn’t stop with the Volkswagen brand, and that the VW-owned Audi was more deeply involved in developing the emissions cheating scheme than previously known. Audi was continuing to sell vehicles with illegal software even after the scandal became public.
Similar to Boeing, VW/Audi has a history of denying that actions will directly impact their brand over the long run. According to reporting by the New York Times, in May 2003, an Audi software developer circulated a poem which read, “Defeat device, come hither!” and “CARB won’t notice,” a reference to the California Air Resources Board. It did notice, and its investigators were largely responsible for forcing Volkswagen to confess. But this came with little to no lasting impact on the company’s squeaky-clean brand in the U.S.
But times have changed. While the automaker was quick to admit fault this time, removing its CEO and vowing to launch an internal investigation, in an era where global warming and pollution reduction are top-of-mind with consumers, good PR may not be enough.
The company is working to make amends, focusing its efforts to push forth electric cars by vowing to manufacture 22 million electric vehicles in the next decade, offering better warranties than competitors, developing self-driving cars, and connecting directly with the Paris Climate Agreement’s goals. CEO Herbert Diess said in a statement that the climate agreement is the company’s “yardstick,” and they will be “systematically aligning production and other stages in the value chain to CO2 neutrality in the coming years.”
The new CEO of North America for Volkswagen, Scott Keogh, rightly noted that “Volkswagen has missed a lot of opportunity in the last decade. Its product line has been misaligned with the market ...” He recently told Forbes, “We’ve never had the portfolio better aligned.” I guess we’ll see…
It’s almost painful to watch the Sackler Family try to defend themselves against allegations that its pharmaceutical company, Purdue Pharma, sparked the opioid crisis across America through its sale of OxyContin. The company faces suits from 48 states and more than 500 cities, counties, and tribal governments, accusing it of deceptive practices.
OxyContin is a prescription drug used to treat moderate-to-severe pain in adults. From 1999 to 2017, nearly 218,000 people died in the United States from overdoses related to prescription opioids, according to the U.S. Centers for Disease Control and Prevention.
In 2007, Purdue agreed to pay $600 million to settle federal criminal and civil charges that the company illegally marketed OxyContin. Three Purdue executives also agreed to pay $34.5 million in penalties. But, once again, it didn’t stop the sale of the narcotic.
The lawsuits now accuse the privately held company and the Sackler family of downplaying the risks of addiction to OxyContin while exaggerating its benefits. Prosecutors say the company’s marketing practices encouraged doctors to push higher doses of the narcotic and contributed to a public health crisis.
The response from the company has been nothing short of defensive and misaligned, stating publicly that they weren’t the only ones to sell the narcotic, and that while they are sorry about the opioid crisis, they did not play a direct role. David Sackler, the grandson of the founder of Purdue Pharma, stated in an interview that his family has “so much empathy” for the thousands whose lives have been devastated by opioid addiction. “We feel absolutely terrible. Facts will show we didn’t cause the crisis, but we want to help.”
Not surprisingly, with very little ownership of their role, companies, individuals and organizations are creating distance and loosening their ties with the family. According to reporting by CNBC, art gallery group Tate announced it would no longer accept gifts from the Sacklers. The Guggenheim — which received $9 million in gifts from the Sacklers between 1995 and 2015 — has confirmed it will no longer accept Sackler donations. The Sacklers have also seen their money expelled from hedge fund Hildene Capital Management, and campaigners are also calling on institutions to strip the family’s name from their buildings.
As manufacturers of this drug, the Sackler Family has an obligation to the public to take ownership of its role in the opioid crisis. Their inability to admit fault is in complete misalignment with the communities they serve, both within the medical field and elsewhere. The Sackler name may forever be ruined thanks to this disconnect. But who knows, that might just be the right medicine for the right family.
The country is experiencing an extreme paradigm shift away from a culture of denial to one of accountability. No brand or company is immune to the high standards being set upon by consumers, who show little-to-know tolerance for companies doing harm for the sake of profits. Companies and brands of all sizes must ensure they are connected to their customers’ expectations, and be ready to deliver upon them to avoid catastrophe. The truth is, there’s no company in today’s market that is too big to fail.