Brand Ireland: Reputation Damage and Recovery

Mary Lambkin© March 2011

The recent Vanity Fair article entitled “When Irish Eyes Are Crying”, summed up the state of Ireland as it appeared to Michael Lewis, an influential if caustic external commentator. It also held up a mirror to force us 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 reputational damage to our country and to our brand. The arrival of the ECB and the IMF to bail us out last November was 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 nation's sovereignty was being compromised nearly 100 years after hard-fought independence. A leader in the Irish Times talked of ignominy. "There is the shame of it all," it said. "Having obtained our political independence from Britain to be masters of our own affairs, we have now surrendered our sovereignty to the 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 look forward and to consider whether and how we can repair the damage and recover not only our reputation but, 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 we can expect to return to business as usual in a relatively short time frame.

Countries as brands

The idea of treating countries or nations as brands but has been gaining currency in recent years as

competition for tourism and foreign direct investment (FDI) has intensified among the developed nations

and, even more so, as emerging nations such as India and China have become serious challengers in the

global market. That‟s why terms such as „nation brand‟, „country brand‟ and „place brand‟ are now heard

so 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 countries

around the world use this annual survey or similar to track their global ranking on a host of variables that

influence their success in economic terms (exports, tourism and inward investment) and in political and

cultural affairs.

The concept of a „nation brand‟, however, was conceived in a relatively benign environment with the

assumption being that nations wish to build awareness and a positive image for their country which will

support and enhance exports of goods and services, attract tourists, and foreign investment. The

literature on this topic is almost all about reputation building and says little or nothing about when a brand

is 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 come

down, and that repair and recovery deserve just as much attention.

Ireland was an early adopter of the concept of a nation brand and, arguably, has been consciously

cultivating Brand Ireland for at least 50 years, since the creation of promotional bodies such as Bord

Failte, Coras Trachtala, the IDA, etc. Our exceptional record in developing food exports and tourism, and

in attracting a disproportionate share of foreign investment attests to the success of our brand building

efforts.

The exceptional economic growth of the economy during the decade from the mid 1990s to the mid

2000s seemed to represent a new super-era in which all our efforts coalesced into a brand that was the

envy of the world. This success reached its zenith in 2005 when the Economist Intelligence Unit‟s Quality

of Life Survey found Ireland top of the list of 111 countries and headlined Ireland as “the Best Country in

the World” to live in. This was on the basis that it successfully combined the most desirable elements of

the new (the fourth-highest GDP per head in the world in 2005, low unemployment, political liberties) with

the 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 Gravity Given that we don‟t have any systematic evidence of nation brands being damaged and repaired, we have to look elsewhere to find analogous situations that might give us a steer in understanding the process of repair. Fortunately, quite bit of research has been done to see what happens when commercial 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 negative stakeholder reaction and thereby has the potential to threaten the financial well-being, reputation, or survival 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 the degree 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: from mismanagement resulting in major losses, to malevolence (such as contamination or tampering with products), to confrontation (kidnapping or terrorism), technological disaster (BP or Exxon Mobil), or major natural disaster (earthquakes and flooding). Mismanagement may be further sub-divided into deliberate and inadvertent categories, with deliberate mismanagement such as fraud having more serious consequences than inadvertent mismanagement resulting principally from incompetence. Ireland‟s problems belong at the lowest level of this continuum, resulting principally from inadvertent mismanagement. In theory, this should be easier to deal with from a reputation point of view, than more disastrous events.

However, reputation recovery is much more difficult than reputation building, so the task is still very challenging. One well-respected communications expert has argued that reputation repair is six times as difficult as reputation building. Let‟s look at some of the issues involved.

Duration and Trajectory of Crises

Another feature of organisational crises has to do with the speed of occurrence; they can be sudden such as 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 crisis status. They are often aggravated by rumours and counter-rumours circulating inside and outside the organisation. These are situations when leaders are blamed for the crisis and its subsequent effect on the organisation.

The problems affecting Brand Ireland definitely seem to belong in the latter category. The economic woes date back to late 2008 but, due to a regular stream of negative revelations since then, the problems have widened and deepened for more than two years. The nadir came on November 18 last with the arrival of the team from the IMF and the ECB to implement the financial bailout. Negative media coverage since then, 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, with any repair or recovery starting from 2011.

Attribution of Blame

As mentioned above, the attribution of blame has an important bearing on whether and how quickly an organization can recover its reputation. If the problems are seen to emanate from a source outside the organisation‟s control, the response of interested parties is sympathy, and an inclination to help. This is

witnessed time and again when natural disasters occur, such as the tremendous response from Irish business people to the reconstruction following the Haiti disaster. An organisation‟s good reputation in the external community provides it with a “relational reserve” that can help it bounce back from untoward events. For example, when a firm has an established reputation and supportive network yet is involved in a damaging event, its external supporters may validate the firm by redirecting attention to positive, undamaged dimensions or by devaluing the dimensions that were targeted by the damaging event. In contrast, there is an extremely negative response to a crisis in which the leaders of the organization are seen to have caused the problems due to either incompetence or a deliberate effort to deceive. The public response to the problems at Anglo Irish Bank and the opprobrium heaped on its management are an eloquent example of this. It is not very difficult to perceive that the first and critical step in restoring reputation is to remove the people whose are seen as the perpetrators of the problems. The problems of Ireland Inc have been variously attributed to the bankers, the developers, the government and the regulators. Most of the bankers and regulators are now gone and we have just got a new government, so the basic conditions are now right to allow us to move forward to rebuild our national reputation.

Repairing Reputation When we talk about reputation repair, we must necessarily consider two aspects. One concerns the perceptions and beliefs of key stakeholders who have some influence on the welfare of our country, both economic and political. The other concerns the real business delivered through these stakeholders—the sales of our goods and services internationally, employment of our people, and investment in our economy. Countries have multiple stakeholders, just as business corporations do, and individual groups will respond variously to a crisis. These stakeholders include customers (both trade and end users), investors and investment analysts, employees and job seekers, the media, regulators and so on. From a reputational point of view, each of these groups represents a single audience which must be addressed individually to try to repair reputation. With regard to perceptions and attitude, we may take some guidance from reputation research conducted every two years by PR firm BursonMarsteller. The 685 executives from all around the world questioned in their survey suggest that it takes companies slightly more than three years (3.2 years) to recover from a crisis that damages their reputation. The result was 3.2 years in North America, 3.6 years in Europe and 3.5 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 of 2014. Hopefully, however, the restoration of normal business will be much quicker than that. Let‟s consider the evidence for the two most important stakeholder groups: customers and investors.

Customers: Customers who purchase products and services from a company or country are its lifeblood and therefore the first and most critical audience to be considered. The most likely response of customers to a catastrophic event is to suspend their purchases. The critical issues are the extent of this suspension and the duration of it.

There have been lots of studies of customer reactions to food scares and product recalls around the world and the evidence on this point is quite encouraging. In general, it shows that consumers change their consumption pattern during a scare but typically return to their past behavior afterward, leaving no lasting damage. Typically, they over-react to the shock initially with dramatically decreased consumption of the suspect item, but concern gradually dissipates, leading to the resumption of previous patterns, and sales recover to the previous equilibrium level. This recovery process takes about 6 months, on average, and rarely, more than a year. Intensive information 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, the national financial problems and negative reputational consequences don‟t really have any direct connection with individual products and services and therefore there is no reason for customers around the world to change their purchasing behavior. The risk of losing export business seems slight, therefore, and the fact that our export figures have held up so well throughout the financial crisis vindicates this point of view. Undoubtedly, the efforts of all our overseas representatives including state agencies and individual companies play an important part in assuaging any general anxieties that may persist but, broadly, speaking, our customer audiences seem relatively immune to the country‟s reputational problems.

Investors: Ireland has an exceptional record for attracting foreign direct investment and was ranked as second in the world for FDI just recently. The international companies that have come here employ 140,000 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 reputational damage such as Ireland has suffered? Well, in fact, the evidence is very positive and should give us major cause for optimism. One of the foremost studies conducted on the impact of a catastrophe on the stock value of organizations found that after a sharp initial negative impact (of almost 7%) of shareholder value, there is a full recovery after 260 trading days. Witness the case of Toyota which has revered completely from the major product recall last year, and BP which is well on the road to recovery after the catastrophic oil spill

that went on for several months. They also found that share trading became very volatile immediately following 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 investment decisions respond to the former more than the latter. This augurs well for Ireland, suggesting that current and potential investors are unlikely to be phased by all the negative media coverage if they understand and believe that the fundamental investment conditions are favourable. That this is the case is borne out by the fact that the IDA‟s investment pipeline has continued to be strong throughout the worst of the financial crisis and remains very strong as we go into 2011.

Importance of Communications The investor study mentioned above also showed, however, that not all companies recovered from crises and that there was a big difference in the response of recoverers and non-recoverers. Companies that mishandled crises saw their stock price (calculated as cumulative abnormal returns) drop 10% on average in the weeks after a crisis, and continue to slide for a year, ending 15% below their pre-crisis prices. Companies with effective crisis response, in contrast, saw their stock fall an average (cumulative abnormal returns) of just 5% in the weeks following a crisis. More significantly, companies with effective crisis response saw their stock price recover quickly, and remain above their pre-crisis price thereafter. In other words, the difference between effective and ineffective crisis response was, on average, 22 % of market capitalization. The reasons for this disparity were not the scope of financial damage or reduction in cash flows caused by the crisis. Rather, the most important determinant of a company‟s ability to recover and increase its market capitalization after a crisis is the management team‟s response; positive stock performance springs from what catastrophies reveal about management skills. Management is placed in the spotlight and 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 agrees that there was a communications deficit from government throughout the course of the past two years.

There was little or no communication from the top and whatever information did emerge was always bringing additional bad news. This communication deficit was an important contributor to the gravity of our problems. It lead to great anxiety and loss of confidence among the general public and contributed to the appetitie of the media, at home and abroad, for bad news stories. As a publicity tool, negative information has two hooks that work in its favor. The first is that individuals pay relatively closer attention to negative information than they do to positive information. The second is that negative information tends to linger longer in people's minds than positive information does. Long after negative information is presented to the public and even after individuals fail to recall specific facts about the original information, some negative bias remains. Ironically, even after a clear and undisputed refutation of negative information is made, individuals still have some residual negative bias toward the target of the original publicity. This is why negative publicity is so powerful. Even when the information is refuted, 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 announce specific actions the company will take to respond to the problem, tireless communications through a wide variety of external and internal channels and a comprehensive re-examination of company culture and its commitment to corporate responsibility. A recovery strategy that continues to grow in importance is the use 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 raise morale 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 stable and attractive investment location to bring their business and to provide the employment that is so badly needed.