update Expert endorsement and involvement, transparency and admission of guilt during the period of crisis, are some elements that can help technology brands stay alive after major scandals, according to academia.
Assistant Professor Augustine Pang from the division of public and promotional communication at Nanyang Technological University's Wee Kim Wee School of Communication & Information, told ZDNet Asia in a phone interview that companies found to have committed fraud generally have "a lot of difficulty getting back the trust of people".
"At the heart of the issue is trust and credibility...when trust is gone it's very hard to rebuild [it] again," he pointed out.
Gregor Halff, associate professor for corporate communication practice at the Singapore Management University's Lee Kong Chian School of Business, noted that breaches of standards of morality or the law are typically the "most difficult" to manage.
Companies involved in an accounting fraud, he explained in a phone interview, need to make clear from the start that the mismanagement was limited to a small circle "acting in contradiction to core values". On top of that, the company needs to act swiftly to correct the situation, and demonstrate that it has the proper mechanism in place to avoid similar scenarios in future.
In 2004, former Computer Associates chief executive Sanjay Kumar, and the software company's former head of worldwide sales Stephen Richards, were indicted on 10 counts including one for securities fraud conspiracy. The company had backdated contracts to meet financial analysts' quarterly targets, which led to top executives being awarded bonuses of millions of dollars for meeting those targets.
Kumar pleaded guilty in 2006, and that same year, the company tweaked its name to CA.
Fast-growing Indian IT services player Satyam hit a wall on Jan. 7, when its founder and chairman B. Ramalinga Raju admitted he had inflated profits over several years.
The company was later acquired by Tech Mahindra and rebranded as Mahindra Satyam.
According to the Bombay Stock Exchange, Satyam's share price plummeted to 11.50 rupees (US$0.24) on Jan. 9; on Sep. 4, 2008, the stock was valued at 438.50 (US$9.08) per share. At 4 p.m. India time today, the share price listed on BSE's Web page stood at 103.20 rupees (US$2.14).
Computer Associates and in particular, Satyam Computer Services, made strong efforts to distant their brand from the wrongdoing of specific individuals, said Halff. "In both instances, they've made it clear that this was about a circle of people that have misbehaved--it's not about the core values of the company.
"[Each of the two companies] today is not just a rebranded one, but one that is re-governed--it has a new system in place to avoid [a repeat of the incident]," he explained. "Rebranding alone [is never enough]--you need to make sure that you have solutions in place, and communicate the solutions."
NTU's Pang concurred: "If the company is successful in pinning the blame and [can] show clearly the reasons why these individuals are to be blamed instead of the company, there is this window of grace for them."
However, limiting liability to specific individuals may sometimes not be enough, such as in the case of Sanlu, he added. The Chinese company stunned the world last year when milk powder it produced was found to have been contaminated with melamine.
Although Sanlu Group Chairwoman Tian Wenhua and some senior executives bore the blame, the severity and magnitude of the matter--which involved the lives and health of young children--was too damaging for the company, said Pang. "They collapsed...folded."
Admission of guilt and transparency, Pang noted, are also important.
"If they are serious in repairing and regaining the trust of stakeholders, the first thing [to do] is to just say 'I'm sorry', [state] the reasons and then do damage control from there," he said. "When you talk about cases like fraud, the heart of issue is trust; if that trust is further diminished by denials and cover-ups, that's going to make the situation worse."
SMU's Halff added that transparency is a core rule of crisis communications. Culprits ought to be named as soon as possible, in part to "protect" those in the company who have not done wrong.
According to him, it is also beneficial for implicated businesses to demonstrate that a resolution timeline is in place.
NTU's Pang added: "It's important for companies to show that action is taken to repair the situation. Words without action are useless."
Having a credible third party such as the government, also helps, Pang noted.
In the case of Satyam, the Indian authorities stepped in to appoint well-respected veterans to Satyam's board to lead the company through the crisis.
When contacted by ZDNet Asia, a Mahindra Satyam spokesperson acknowledged that the "timely and active involvement" of the Indian Ministry of Corporate Affairs had helped stabilize Satyam's operations. "The government's involvement...sent out a strong message to the global business community and industry in general, that this incident was one of a kind and should not impact the credibility of the entire company and IT industry."
Within a short time, the government-appointed interim Board took stock of the situation, sought to reassure key customers of the company's delivery capabilities, secured funds for operational expenses and short-term liquidity, and evaluated strategic options for ensuring long-term stability and induction of equity capital.
Another instrumental factor during the difficult time was employee commitment, the spokesperson said. "Employees...left no stone unturned in servicing the customers like business as usual.
"They maintained the expectations of the service level agreements and in turn our customers expressed their appreciation and satisfaction on the excellent delivery of services throughout the crisis," he added.
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