A New Framework for Crisis Planning in THE Food and Agriculture Industry

Bill Coletti CEO, Kith

TABLE OF CONTENTS

Table OF Contents

1. Introduction

2. Preventable Reputational Risks

3. Strategic Reputational Risks

4. External Reputational Risks

5. Conclusion

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Bill is a reputation management, crisis communications and professional development expert. He has more than 25 years of global experience managing high-stakes crises, issues management and media relations challenges for both Fortune 500 companies and winning global political campaigns.

Bill previously co-led the Global Risk Management and Crisis Communications Practice for Hill+Knowlton Strategies. He held senior leadership positions in the firm’s Austin, Texas,

Los Angeles, California and Orlando, Florida offices where, as a member of the senior management team, he was responsible for the firm’s growth strategy.

Additionally, he provided senior counsel in crisis management, corporate communications, and reputational defense to numerous clients, such as AT&T, Target Corporation, American Airlines, The Home Depot, Xerox, Nuclear Energy Insitute and Freeport MacMoRan, as well major universities and global NGOs. Previously, Bill served in the Republic of Bulgaria as a senior advisor to the prime minister, Council of Ministers and the labor minister. He was the first executive director of the American Chamber of Commerce in Bulgaria.

Bill ColettiCEO / Founder

PreFACEIn this eBook, “A New Framework for Crisis Planning in the Food and Agriculture Industry,” crisis management expert Bill Coletti, CEO of reputation management and crisis communications firm Kith, introduces a new framework for managing reputational risk. Adopting a model used in the financial sector for risk planning, Coletti places reputational risks into three categories: preventable, strategic and external. The new model helps companies not only manage reputational risks, but also align critical issues facing their businesses.

Coletti also explores how to respond to and manage each type of risk situation successfully.

Click here to see: • Part I Introduction: The Three Types of Reputational Risks• Part II How to Manage Preventable Reputational Risks• Part III How to Manage Strategic Reputational Risks• Part IV How to Manage External Reputational Risks• Part V Conclusion

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CHAPTER ONE

Introduction

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The 3 Types of Reputational Risks

IntroductionThe 3 Types of Reputational Risks

Developing a comprehensive crisis plan can often feel like trying to boil the ocean. Communicators and executive leadership are known for staying awake at night thinking about the number of worst-case scenarios that could damage a company’s business and reputation. And trying to prepare for every scenario can feel overwhelming—if not impossible. Then, when communicators try to prepare an organization for the worst, they oftentimes lose credibility with company leaders who think they sound like Chicken Little crying out that the sky is falling. Company leaders don’t plan for reputational risks the way they do for other business risks – but they should. Thorough crisis planning can also be hindered by a company’s culture. Most corporate leaders today like to instill a can-do, optimistic culture, and focusing on the negative, including taking a hard look at a company’s shortcomings, can run counterculture to their ethos of forward-thinking.

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To avoid losing credibility with company leaders and to prepare organizations for very real and potential threats, communicators need to place reputational risks in a framework and language that leaders can understand and that other parts of the business are using. We’ve adapted a model used in the financial sector for risk planning to create a new framework for crisis planning.

The model places risk into three distinct categories: preventable, strategic and external. This new model aligns critical issues for assessing and managing reputational risks.

Let’s take a look at each type of risk more closely.

Preventable risks are risks for which companies should have a zero-tolerance policy. They are risks that are caused by the company and generate no strategic benefit. A food recall would be an example of this type of risk in the food industry. All food processing facilities should have rigorous safety protocols in place to prevent foodborne illnesses. Blue Bell experienced the pains of not having rigorous enough standards in place during a 2015 outbreak of listeria. One of the deadliest food borne pathogens, listeria is responsible for approximately 260 deaths a year and 1,600 illnesses, according to the Centers for Disease Control and Prevention. Blue Bell’s outbreak resulted in three deaths and multiple illnesses. Blue Bell pulled its products from stores and has since put in place more robust testing procedures to avoid any future missteps. Consumers expect that companies will meet their promises by providing safe products, and if a company breaks that promise, its customers will hold the business accountable. Risks that are within a company’s control are preventable, and for both ethical and business reasons, companies should have a zero-tolerance policy for mistakes made in this category.

1. Preventable Risks

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Strategic risks are risks that a company chooses to take for significant investment returns. They improve the overall value of the business, but there is a gamble associated with them. For example, consumers today increasingly want to buy foods labeled “organic,” and food companies have shifted their labeling and in some cases supply chain sources to meet the growing market demand. But being labeled organic doesn’t necessarily mean “safe,” as consumers realized through Chipotle’s 2015 foodborne illness scandal. Chipotle made the strategic decision to position itself as a healthy fast-food chain that promised to deliver high-quality, sustainably sourced food. To meet that brand promise, they sourced their food from local, organic farms.

It was a strategic risk with a huge upside. The only problem, though, was that some of the farms didn’t have the safety protocols in place to prevent foodborne bacteria. And more recently, it came to light that not all of its employees were following the right safety protocols. At best, Chipotle knew the risk they were taking and righted course after the food illness outbreaks occurred—more than 500 cases of E-coli illness in total. At worst, they completely ignored the strategic risk they were taking (or were in denial that it was a strategic risk) and instead prioritized their marketing efforts while being unprepared for the what-ifs. At the end of the day, more than 500 people fell ill in the latter part of 2015 after eating at Chipotle, according to a report by Food Safety News. J.P. Morgan estimated that Chipotle will have lost three years of earnings between fiscal year 2014 and fiscal year 2017 as a direct consequence of the outbreaks. Strategic risks can have great upside value, but companies need to be prepared for the downsides. Communicators should be able to explain and defend company decisions, because the impacts can be severe. Ultimately, when considering a strategic risk, a company should make certain that communicators can adequately explain the decision to consumers. If the risk would go

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2. strategic Risks

over like a lead balloon, such as a choice that endangers people’s health, the business should reconsider making the decision in the first place.

Finally, there are external risks, which are risks that come from outside the business. These risks are out of a company’s control and instead happen to the company. An example of an external risk would be an active shooter entering a large restaurant chain and holding people hostage. In addition, natural disasters, such as a hurricane that rips through a company’s facilities, are external risks. The appearance of a new, unknown bacteria (e.g. Mad Cow disease) that infects the supply chain would also fall into this category. Despite these occurrences being outside a company’s control, external reputational risks can still cause a company’s brand to suffer and thus impact the bottom line. Customers may perceive that a restaurant, campus or food is “unsafe” and stop buying it. Unfortunately, there is little companies can do to stop these types of scenarios from taking place, but they can be prepared to respond effectively. Communicators can protect the brand and the public’s perception of it.

Company leaders usually recognize the need for crisis planning, but the most common barrier to adequately providing it is the vocabulary gap within an organization. Communicators (responsible for the customer experience and expectations) and leaders (responsible for managing food safety) need a common vocabulary and framework to clearly understand the three types of risks and how to manage them. When these tools are provided, companies more effectively prepare for and prevent threats from becoming realities.

Next: In sections II, III, and IV, we explore each type of risk and how to manage the different challenges that come with them.

SUMMARY

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3. External Risks

CHAPTER ONE

PREVENTABLE RePUTatIONAL RISKS

2How to Manage

Preventable reputational RisksHow to Manage:

Preventable risks are risks that are preventable in nature and yield no strategic benefit. There is zero upside from the business choice, but there is considerable risk.

There should be no tolerance for preventable risks.

Let’s look at a few common scenarios for preventable risks, using the food industry as an example. A food manufacturing company—a company that processes food and prepares it for public consumption—should have a zero-tolerance position for circumstances that can lead to a food recall. However, food recalls happen, as can be seen in this list of the 10 biggest food recalls in U.S. history: http://www.businessinsurance.org/10-biggest-food-recalls-in-u-s-history/ Companies put plans and processes in place to prevent mistakes from happening, but sometimes they happen anyway. Equipment can break down, employees might not follow the rules or perhaps raw materials are contaminated.

Common Scenarios

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Preventable risks are risks that can be managed by rules.

Preventable risks are generally able to be managed by improving procedures, by establishing required best practices (rules), and by allocating the necessary resources to put the proper technology, science and/or manpower in place. The best practice is to have constant, vigilant review and testing of protocols in real time. At a food production company, if tests for bacteria levels come back positive and potentially contaminated food has left a facility, the company should recall the food as quickly as possible. In addition, the company should stop the manufacturing process on that line to get to the root cause of the bacteria proliferation. Immediate action is the best tactic to manage these kinds of situations. When a preventable risk becomes a reality, there’s no passing the buck. There’s no blaming somebody else. Preventable risks simply shouldn’t happen. Because these types of risks are the fault of the company, the tone and nature of the response should reflect the following:

• Focusing on an apology. • Stating that the company is on top of the situation. • Working to aggressively solve the problem. • Asking that the buyer continue to have trust in the company while the problem is fixed.

Some companies do not follow this protocol and instead make it the retailer’s responsibility to handle the communication. These companies allow the end distributor—the grocery store or the restaurant that’s selling the product—to address the issue with the consumer. This is a mistake. The companies that are getting it right own the situation, communicate the problem well to consumers and articulate their plans clearly. In addition, they very aggressively address all aspects of the situation from their standpoint as the producer to eliminate the issue. They never push the problem downstream to the actual end user.

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It’s important to respond in this manner, because preventable risks shouldn’t happen. When something happens that shouldn’t happen, the only rational position is to apologize and fix it. There’s no explaining it away. There’s no saying, “Yes, but….” The company simply has to apologize, fix it and move on—quickly and from the highest levels. A company may also help its brand by over-communicating the event through social media channels in order to let people know the company is vigilant and on top of the situation. Employees—as brand ambassadors—can be brought into the conversation to help share with consumers the company’s aggressive handling of the problem. Most importantly, the companies that do it right, apologize.

When faced with a critical and preventable situation, a company must apologize, state that it is handling the problem, work aggressively to find a solution and ask for consumers’ patience and trust during and after this process.

For the future and as part of the solution, a company can improve by reviewing its practices and procedures, developing crisis readiness plans and keeping employees engaged. There’s a lot at stake when talking about these issues. The point of the new crisis framework is not simply about how to respond during the crisis, but rather, it’s about how to plan for and talk about these reputational risks in advance. What’s most important to understand is what could happen and what can be done to prevent it so a company is never in the situation of having to apologize for and fix a problem.

summary

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CHAPTER ONE

strategic RePUTatIONAL RISKS

3How to Manage

strategic reputational RisksHow to Manage:

A strategic risk is a risk that a company takes in order to maximize economic value. These risks might be about a process, an ingredient innovation or some type of manufacturing decision that is made for strategic gain and to create efficiency. A strategic risk is taken intentionally to achieve greater strategic financial performance of the enterprise and thereby grow market share. Because these risks are taken intentionally, companies need to be prepared to defend them. A classic example of a strategic threat Company X makes and packages hamburger patties on a conveyor belt and decides to reduce the frequency of preventive maintenance on the machine from once a week to every other week. The company has never seen an issue with the machine, and reducing the maintenance time will save money on staffing while allowing the business to address more pressing issues. The downside is that it may increase the risk of physical contaminants (e.g., metal shavings from the machine) falling into the patties.

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Company X decides to take the strategic risk because of the overall cost savings and improvements to workflow. A second example would be when a company introduces a production innovation that maximizes yield or food safety, but is viewed as distasteful by the public (e.g., nitrates added to cured meats to prevent botulism). Roadblocks to managing strategic risks The challenge that many companies face when managing strategic risks is the belief that these risks can be managed through consumer ignorance. Company leaders may think that no one will find out, but this isn’t a strategy and doesn’t work. Everything is available on the internet. There’s so much access to information in today’s world. Part of that availability may include either whistleblowers or researchers who share facts and practices about the company. Companies should assume that their decisions will eventually become public. When that happens, they must be ready to defend them. If a company intends to take a strategic risk, that company also needs to be able to defend it. Complexity is often cited as a reason why companies don’t explain processes. With consumer demand for transparency at an all-time high, it is critical that operations and R&D work with skilled communicators on their team (or find some) who can explain a process clearly to the public. If not, bloggers or critics will fill the void and explain that process in a paragraph—usually not to the company’s liking. A company needs to be able to vigorously defend and explain its decisions. Inevitably, things happen. When they do, the strongest position companies can take is to defend their strategic risks and decisions. In each scenario, a company must be able to explain why each choice was the good and correct one. Throughout, the company should not give up. Especially if a lot of time and investment went into the research, development, design and innovation requiring the strategic risk, it’s vital also to take some time to create a thorough defense of it. Hoping that nobody discovers the change is a recipe for disastrous results.

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If it was an investment worth making, it’s one that’s worth fighting for. Companies should view the strategic risk as a business decision that was smart and positive for both consumers and the company. Because of this, they should also vigorously defend it. If the issue or science is not easy to understand, companies can engage third-party experts such as NGOs, academics, government officials or consumer advocates—people who advocate on behalf of the food-buying public—who can help explain the science and defend the decision. Defending the decision doesn’t stop at the consumer. Companies should be actively engaged with retailers to explain the decision and reassure retailers about their product’s safety and excellence. Managing strategic risk is centered on the notion of defense. A company’s fundamental posture for managing a strategic risk is defensive—it’s based on how to defend a process or product. It’s important to take strategic risks deliberately. If a company chooses to take a risk, the company should also be in a position to defend the decision. It’s also important to know that if a company is going to take the risk (in manufacturing or operations), the company’s team members should also understand that risk so that they have a well-thought-out response in place.

What’s at stake is the growth of the enterprise. There are many innovations, process improvements and ideas that make companies better, leaner and more efficient, but companies need to understand that the public may react. While companies view a move as innovative, the public may view it as a major health risk or dangerous. Oftentimes, there is a disconnect between what the CEO thinks is important and what the consumer thinks is important. That leads to poor planning and preparation. Companies need to anticipate the public’s reaction and concerns and have plans in place to defend why the decision was made.

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summary

CHAPTER ONE

external RePUTatIONAL RISKS

4How to Manage

external reputational RiskHow to Manage:

An external risk is one that comes from outside the business, so this type of risk is out of a company’s control and instead happens to the company. Externals risks can pose a reputational threat to the company’s brand since people may perceive that the restaurant, campus or food is “unsafe.” Such threats could then impact a company’s bottom line. General examples of external risks include an active shooter entering a large restaurant chain and holding people hostage, a hurricane that rips through a company’s facilities or a new, unknown bacteria (e.g. Mad Cow disease) that infects a supply chain. Unfortunately, there is little companies can do to prevent these types of scenarios from taking place, but they can be prepared to respond effectively in order to protect the brand and the public’s perception of it. Industry examples: agriculture and restaurants For agribusiness specifically, some events can interrupt the natural supply chain and change the way companies do business. For example, in the beef industry, an external risk could be a significant weather event,

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such as a long-term drought, near-term flooding or immediate-term flooding. These events will significantly impact the way the herd (the community) is managed and will have an impact on a company’s long-term reputation, because they directly relate to the company’s ability to meet its supply chain needs. Another example is an active shooter scenario. In the early ‘90s, Luby’s restaurant in Texas experienced the largest mass-casualty active shooter situation in history at the time (now tragically superseded by the event in Orlando in June 2016). The event still ranks as the fourth-deadliest mass shooting by a single shooter in U.S. history. While Luby’s handled the situation appropriately, the event had a significant and critical impact on Luby’s brand, including an immediate decrease in sales and the perception that the restaurant was unsafe.

The case also impacted the food industry at large as restaurants are where many people naturally congregate. This Luby’s eventually closed its doors permanently in 2000.

Overcoming the challenges In all external risk situations, customers, communities and critics tend to give companies both the benefit of the doubt and a second chance. For a company whose supply chain is impacted by a natural disaster (or something else completely outside its control), the company’s partners and customers are generally willing to give the affected company a chance to recover. However, protecting the brand during an external risk situation is still necessary and centers around two ideas: • Fixing the problem quickly and getting back to normal • Being a part of the herd #1: Fixing the problem quickly to get back to normal

Companies need to solve the problem as fast as they can and get to resolution as soon as possible. This is not only to assuage customers’ concerns and to protect the brand’s reputation, but also to prevent other threats. For example, competing companies whose supply chains weren’t affected because of different geography (e.g. in the case of a natural disaster or

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drought) may see your company’s challenge as their opportunity to fill the gap. While consumers will give a company a second chance, the company has to demonstrate that it’s getting back to normal as fast as it can and is managing the solution efficiently. This may require spending additional resources that may be difficult in an already trying time. Nevertheless, if the problem requires the company to bring in generators to turn on a power plant or turn on the lights, the company should do it. If the business has to give workers overtime in order to rapidly fix things, the company should do that, too. The company has to spend the money necessary to return to normal so it can also quickly return to its standard way of doing business. In addition, normal for a company involves reconnecting to the business’ defining traits and philosophy. These matters are vital in helping communicators come from an authentic place when discussing the event. The company’s unique traits also remind customers of the company’s special qualities, since the business does not want to be forever defined by the difficult event.

#2: Being a part of the herd

A second key step in addressing an external risk involves admitting that there is a problem while also saying, “Yes, this tragic event happened, but we are not the only ones that this has ever happened to. This has happened to a lot of people.” Being a part of the herd is an important part of the messaging strategy. Communicators should share that their company is not the only one impacted by either this particular tragedy or this type of event. Think about this in a broader context. Think about it from a community context.

There’s been a lot written in both books and other publications about varied external risks, but a company does not have to be exhaustive in planning for all of the permutations of what could go wrong. There are natural disasters.There are force majeure events and crime-related events, ranging from an active shooter to embezzlement to a data breach. Regardless of the event, what’s at stake is the company’s reputation.

summary

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The key takeaway is that a business doesn’t need to be exhaustive with a plan for each external risk.

Rather, in facing an external threat, the company needs to focus on its defining traits and business philosophy while also getting back to normal as fast as possible. Returning to normal may require substantial expenses, but it’s necessary to get up and running quickly to retain the public trust and avoid competitors stepping into the gap. In essence, the company goal in an external situation is to get back to doing what the business does best as quickly as possible, while simultaneously reminding customers that the company is simply part of the herd and not alone in facing this type of situation.

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CHAPTER ONE

Conclusion

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conclusion

Successful crisis planning (and prevention) can face many obstacles ranging from communicators who are unsure about which multitude of potential crises to prepare for to executive leadership disconnects between what they think is important versus what the consumer thinks is important.

Regardless of the reason, the result frequently leads to poor preparation and planning.

The crisis-planning framework laid out here provides communicators and leaders with a common language for understanding reputational risks and an easy-to-use model for managing them.

However, each type of reputational risk is different and requires a specific approach to manage it successfully.

The key takeaways for successfully managing each type of risk are as follows:

• There’s no blaming somebody else—preventable risks simply shouldn’t happen.• Because the risk was preventable, the response should follow this protocol: • Focus on an apology. • State that the company is on top of the situation. • Say the company is working aggressively to solve the problem.

Preventable risks

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• Ask that the buyer continue to have trust in the company while the problem is fixed.• There are a lot of innovations, process improvements and ideas that make companies better, leaner and more efficient (and that the company may view as innovative), but companies need to understand that the public may react (and may view these same choices as dangerous or even as major health risks). • Companies need to anticipate the public’s reaction and concerns, and have plans in place to defend why the decision was made.

• Companies don’t have to be exhaustive with the various permutations of what could go wrong. The bottom line is knowing that the business’ reputation will be at stake no matter which tragic event occurs.• It is vital to focus on both a company’s defining traits and its philosophy as an organization.• The best response to an external risk situation is to do two things: • Fix the problem quickly to get back to normal. • Be part of the herd.

Ultimately, there’s a lot at stake around the issues that pose reputational risks to a business, which is why the crisis framework is not simply about how a company responds during a crisis. The framework is also about how to plan for and talk about these reputational risks in advance.

Being prepared can help prevent situations from happening that may force the company either to apologize or to fix something before it quickly impacts the business’ reputation and bottom line. In addition, being prepared can smooth the way when a problem inevitably occurs. It helps to know the risks and helpful responses to them, so that they can be addressed if and when the time comes.

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external risks

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Strategic risks

Kith is the reputation management and crisis communications firm for sophisticated B2B

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