Brand Ireland: Reputation Damage and Recovery


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Brand Ireland: Reputation Damage and Recovery - Mary Lambkin©, Professor of Marketing, Smurfitt Business Shcool, University College Dublin - March 2011

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Brand Ireland: Reputation Damage and Recovery

  1. 1. Brand Ireland: Reputation Damage and Recovery Mary Lambkin© March 2011The recent Vanity Fair article entitled “When Irish Eyes Are Crying”, summed up the state of Ireland as itappeared to Michael Lewis, an influential if caustic external commentator. It also held up a mirror to forceus to look at ourselves and we don‟t like what we are seeing.This was just the latest in a series of body blows that appear to have caused extensive reputationaldamage to our country and to our brand. The arrival of the ECB and the IMF to bail us out last Novemberwas the final blow in a downward spiral that has gathered momentum over the last two years.Historian Diarmuid Ferriter described it as a devastating and "humiliating milestone" that the nationssovereignty was being compromised nearly 100 years after hard-fought independence. A leader in theIrish Times talked of ignominy. "There is the shame of it all," it said. "Having obtained our politicalindependence from Britain to be masters of our own affairs, we have now surrendered our sovereignty tothe European Commission, the European Central Bank, and the IMF."This is all true and we can‟t wish it away. However, what is done is done, so now the best plan is to lookforward and to consider whether and how we can repair the damage and recover not only our reputationbut, more importantly, the economic progress that is the real measure of reputation.This article argues that reputation is a fragile asset but that history shows it can be recovered and that wecan expect to return to business as usual in a relatively short time frame.Countries as brandsThe idea of treating countries or nations as brands but has been gaining currency in recent years ascompetition for tourism and foreign direct investment (FDI) has intensified among the developed nationsand, even more so, as emerging nations such as India and China have become serious challengers in theglobal market. That‟s why terms such as „nation brand‟, „country brand‟ and „place brand‟ are now heardso often, and a minor industry has grown up in designing, managing and measuring nation brands.The Nation Brand Index devised by Simon Anholt has become the gospel in this area and most countriesaround the world use this annual survey or similar to track their global ranking on a host of variables thatinfluence their success in economic terms (exports, tourism and inward investment) and in political andcultural affairs.The concept of a „nation brand‟, however, was conceived in a relatively benign environment with theassumption being that nations wish to build awareness and a positive image for their country which willsupport and enhance exports of goods and services, attract tourists, and foreign investment. Theliterature on this topic is almost all about reputation building and says little or nothing about when a brandis damaged or destroyed and how to repair it. Yet it seems obvious that nation brands are fragile assets,subject to the vagaries of positive and negative events and that what goes up is just as likely to comedown, and that repair and recovery deserve just as much attention.
  2. 2. Ireland was an early adopter of the concept of a nation brand and, arguably, has been consciouslycultivating Brand Ireland for at least 50 years, since the creation of promotional bodies such as BordFailte, Coras Trachtala, the IDA, etc. Our exceptional record in developing food exports and tourism, andin attracting a disproportionate share of foreign investment attests to the success of our brand buildingefforts.The exceptional economic growth of the economy during the decade from the mid 1990s to the mid2000s seemed to represent a new super-era in which all our efforts coalesced into a brand that was theenvy of the world. This success reached its zenith in 2005 when the Economist Intelligence Unit‟s Qualityof Life Survey found Ireland top of the list of 111 countries and headlined Ireland as “the Best Country inthe World” to live in. This was on the basis that it successfully combined the most desirable elements ofthe new (the fourth-highest GDP per head in the world in 2005, low unemployment, political liberties) withthe preservation of certain cosy elements of the old, such as stable family and community life.It seems hard to credit such superlatives from where we stand right now.Corporate Crises vary in GravityGiven that we don‟t have any systematic evidence of nation brands being damaged and repaired, wehave to look elsewhere to find analogous situations that might give us a steer in understanding theprocess of repair. Fortunately, quite bit of research has been done to see what happens whencommercial organisations face crises of one kind or another and there is a lot to be learned from those. A corporate crisis is “any emotionally charged situation that, once it becomes public, invites negativestakeholder reaction and thereby has the potential to threaten the financial well-being, reputation, orsurvival of the firm or some portion thereof.”The first thing to note is that crises vary in gravity and the recovery rate is in reverse proportion to thedegree of gravity. The gravest problems take the longest time to recover from, and vice versa.Corporate crises form a continuum from least to most serious in terms of their consequences: frommismanagement resulting in major losses, to malevolence (such as contamination or tampering withproducts), to confrontation (kidnapping or terrorism), technological disaster (BP or Exxon Mobil), or majornatural disaster (earthquakes and flooding). Mismanagement may be further sub-divided into deliberateand inadvertent categories, with deliberate mismanagement such as fraud having more seriousconsequences than inadvertent mismanagement resulting principally from incompetence.Ireland‟s problems belong at the lowest level of this continuum, resulting principally from inadvertentmismanagement. In theory, this should be easier to deal with from a reputation point of view, than moredisastrous events.
  3. 3. However, reputation recovery is much more difficult than reputation building, so the task is still verychallenging. One well-respected communications expert has argued that reputation repair is six times asdifficult as reputation building. Let‟s look at some of the issues involved.Duration and Trajectory of CrisesAnother feature of organisational crises has to do with the speed of occurrence; they can be sudden suchas a major natural disaster or they can be gradual like a smouldering fire.Sudden crises are circumstances that occur without warning and beyond an institution‟s control and,consequently, the organisation and its leadership are not usually blamed.Smoldering crises differ in that they begin as minor issues that, due to negligence, develop to crisisstatus. They are often aggravated by rumours and counter-rumours circulating inside and outside theorganisation. These are situations when leaders are blamed for the crisis and its subsequent effect on theorganisation.The problems affecting Brand Ireland definitely seem to belong in the latter category. The economic woesdate back to late 2008 but, due to a regular stream of negative revelations since then, the problems havewidened and deepened for more than two years. The nadir came on November 18 last with the arrival ofthe team from the IMF and the ECB to implement the financial bailout. Negative media coverage sincethen, such as the Vanity Fair article, has kept the problem in the forefront of peoples‟ minds.In terms of repair, it would probably be fair to consider the end of 2010 as the end of the crisis period, withany repair or recovery starting from 2011.Attribution of BlameAs mentioned above, the attribution of blame has an important bearing on whether and how quickly anorganization can recover its reputation. If the problems are seen to emanate from a source outside theorganisation‟s control, the response of interested parties is sympathy, and an inclination to help. This is
  4. 4. witnessed time and again when natural disasters occur, such as the tremendous response from Irishbusiness people to the reconstruction following the Haiti disaster.An organisation‟s good reputation in the external community provides it with a “relational reserve” that canhelp it bounce back from untoward events. For example, when a firm has an established reputation andsupportive network yet is involved in a damaging event, its external supporters may validate the firm byredirecting attention to positive, undamaged dimensions or by devaluing the dimensions that weretargeted by the damaging event.In contrast, there is an extremely negative response to a crisis in which the leaders of the organizationare seen to have caused the problems due to either incompetence or a deliberate effort to deceive. Thepublic response to the problems at Anglo Irish Bank and the opprobrium heaped on its management arean eloquent example of this.It is not very difficult to perceive that the first and critical step in restoring reputation is to remove thepeople whose are seen as the perpetrators of the problems. The problems of Ireland Inc have been variously attributed to the bankers, the developers, thegovernment and the regulators. Most of the bankers and regulators are now gone and we have just got anew government, so the basic conditions are now right to allow us to move forward to rebuild our nationalreputation.Repairing ReputationWhen we talk about reputation repair, we must necessarily consider two aspects. One concerns theperceptions and beliefs of key stakeholders who have some influence on the welfare of our country, botheconomic and political. The other concerns the real business delivered through these stakeholders—thesales of our goods and services internationally, employment of our people, and investment in oureconomy.Countries have multiple stakeholders, just as business corporations do, and individual groups willrespond variously to a crisis. These stakeholders include customers (both trade and end users), investorsand investment analysts, employees and job seekers, the media, regulators and so on. From areputational point of view, each of these groups represents a single audience which must be addressedindividually to try to repair reputation.With regard to perceptions and attitude, we may take some guidance from reputation research conductedevery two years by PR firm BursonMarsteller. The 685 executives from all around the world questioned intheir survey suggest that it takes companies slightly more than three years (3.2 years) to recover from acrisis that damages their reputation. The result was 3.2 years in North America, 3.6 years in Europe and3.5 years in Asia.If this is correct, and we consider January 2011 as the starting point in our reputation recovery process,then we should expect that Brand Ireland would be back to normal, pre-crisis levels by the beginning of2014.Hopefully, however, the restoration of normal business will be much quicker than that. Let‟s consider theevidence for the two most important stakeholder groups: customers and investors.Customers: Customers who purchase products and services from a company or country are its lifebloodand therefore the first and most critical audience to be considered. The most likely response of customersto a catastrophic event is to suspend their purchases. The critical issues are the extent of this suspensionand the duration of it.
  5. 5. There have been lots of studies of customer reactions to food scares and product recalls around theworld and the evidence on this point is quite encouraging. In general, it shows that consumers changetheir consumption pattern during a scare but typically return to their past behavior afterward, leaving nolasting damage. Typically, they over-react to the shock initially with dramatically decreased consumptionof the suspect item, but concern gradually dissipates, leading to the resumption of previous patterns, andsales recover to the previous equilibrium level.This recovery process takes about 6 months, on average, and rarely, more than a year. Intensiveinformation campaigns have been found to be effective in hastening the re-adjustment process.So, what does this suggest concerning customers and consumers of Irish products? Well, first of all, thenational financial problems and negative reputational consequences don‟t really have any directconnection with individual products and services and therefore there is no reason for customers aroundthe world to change their purchasing behavior.The risk of losing export business seems slight, therefore, and the fact that our export figures have heldup so well throughout the financial crisis vindicates this point of view. Undoubtedly, theefforts of all our overseas representatives including state agencies and individual companies play animportant part in assuaging any general anxieties that may persist but, broadly, speaking, our customeraudiences seem relatively immune to the country‟s reputational problems.Investors: Ireland has an exceptional record for attracting foreign direct investment and was ranked assecond in the world for FDI just recently. The international companies that have come here employ140,000 people and account for 75% of all exports so are hugely important to the economy.So what do we know from research concerning the likely reaction of such investors to reputationaldamage such as Ireland has suffered? Well, in fact, the evidence is very positive and should give usmajor cause for optimism.One of the foremost studies conducted on the impact of a catastrophe on the stock value oforganizations found that after a sharp initial negative impact (of almost 7%) of shareholder value, there isa full recovery after 260 trading days. Witness the case of Toyota which has revered completely from themajor product recall last year, and BP which is well on the road to recovery after the catastrophic oil spill
  6. 6. that went on for several months. They also found that share trading became very volatile immediatelyfollowing the crisis but settled down to normal patterns within a month.All of this suggests that investors distinguish between fundamentals and media hype and their investmentdecisions respond to the former more than the latter.This augurs well for Ireland, suggesting that current and potential investors are unlikely to be phased byall the negative media coverage if they understand and believe that the fundamental investmentconditions are favourable. That this is the case is borne out by the fact that the IDA‟s investment pipelinehas continued to be strong throughout the worst of the financial crisis and remains very strong as we gointo 2011.Importance of CommunicationsThe investor study mentioned above also showed, however, that not all companies recovered from crisesand that there was a big difference in the response of recoverers and non-recoverers. Companies thatmishandled crises saw their stock price (calculated as cumulative abnormal returns) drop 10% onaverage in the weeks after a crisis, and continue to slide for a year, ending 15% below their pre-crisisprices. Companies with effective crisis response, in contrast, saw their stock fall an average (cumulativeabnormal returns) of just 5% in the weeks following a crisis. More significantly, companies with effectivecrisis response saw their stock price recover quickly, and remain above their pre-crisis price thereafter. Inother words, the difference between effective and ineffective crisis response was, on average, 22 % ofmarket capitalization.The reasons for this disparity were not the scope of financial damage or reduction in cash flows causedby the crisis. Rather, the most important determinant of a company‟s ability to recover and increase itsmarket capitalization after a crisis is the management team‟s response; positive stock performancesprings from what catastrophies reveal about management skills. Management is placed in the spotlightand has an opportunity to demonstrate its skill or otherwise in an extreme situation.This evidence has a particular significance for our own situation here in Ireland. Virtually everyone agreesthat there was a communications deficit from government throughout the course of the past two years.
  7. 7. There was little or no communication from the top and whatever information did emerge was alwaysbringing additional bad news.This communication deficit was an important contributor to the gravity of our problems. It lead to greatanxiety and loss of confidence among the general public and contributed to the appetitie of the media, athome and abroad, for bad news stories.As a publicity tool, negative information has two hooks that work in its favor. The first is that individualspay relatively closer attention to negative information than they do to positive information. The second isthat negative information tends to linger longer in peoples minds than positive information does. Longafter negative information is presented to the public and even after individuals fail to recall specific factsabout the original information, some negative bias remains. Ironically, even after a clear and undisputedrefutation of negative information is made, individuals still have some residual negative bias toward thetarget of the original publicity. This is why negative publicity is so powerful. Even when the information isrefuted, the general public will still retain some measure of lingering doubt regarding the target.The best steps to beginning the reputation recovery process range from having the CEO announcespecific actions the company will take to respond to the problem, tireless communications through a widevariety of external and internal channels and a comprehensive re-examination of company culture and itscommitment to corporate responsibility. A recovery strategy that continues to grow in importance is theuse of the corporate web site to relay information, progress and updates about company actions.We can only hope that our new Taoiseach and his cabinet will heed this and work tirelessly to raisemorale at home by having greater visibility, by keeping the public informed about events good and bad,and by demonstrating a positivity and sense of purpose that will lift spirits and thereb7y stimulate growth.We will also need to rely on them to represent us well abroad, to restore confidence in Ireland as a stableand attractive investment location to bring their business and to provide the employment that is so badlyneeded.