CEO scandals: Three types that can harm your brand

The news has been full of CEO misdeeds lately.  A quick recent harvest:

Best Buy: Company founder Richard Schultze stepped down as chairman because he failed to alert the board of directors about CEO Brian Dunn’s “inappropriate relationship” with a female subordinate.  Dunn had resigned in April.

Yahoo:  CEO Scott Thompson resigned after only four months on the job amid a controversy over whether he fudged his resume.  He’s alleged to have added a bogus computer science degree to his accounting degree from Stonehill College.

Liberty Mutual: Jaw-dropping spending at this insurance firm has been exposed in a recent series by Boston Globe columnist Brian McGrory.  Instances include a $50 million annual pay package for former CEO Ted Kelly, five corporate jets flown primarily to his summer home and resort destinations, and a $4.5 million office remodel by successor CEO David Long.

So what?

Okay, okay.  But who on earth cares—and what does this have to do with my brand?  Maybe nothing.  But here are three circumstances in which a CEO scandal may harm your brand.

1. Icky = sticky

Most personal misbehavior, like a juicy tale of adultery or a sorry one of domestic violence, is likely to be attributed to the individual, not the company.  But if your CEO’s behavior violates a true social taboo, like pedophilia or incest, it’s much more likely to have a wider impact. When the violation touches a raw cultural nerve, it risks spreading to the brand or company, especially if he/she has risen through the ranks.  The aftershock calls everything into question:  How could they hire, much less promote someone that twisted?  In these (happily) rare circumstances, the ick-factor could stick to the brand for a good long while.  (As an adjacent example, I refuse to watch Woody Allen movies.)

Best Buy’s CEO scandal came at a lousy time for the company (as online retailers continue to gain), and it’s unfortunate to see the founder of an innovative company leave on terms not his own.  But brand-wise this incident is a harmless blip.  A garden-variety dalliance wasn’t properly reported.  Borrring!

2. Pervasive idiocy

A corporate brand can suffer if everyone running the company looks like idiots.  When stupidity is widespread, people can legitimately wonder: what’s going on there?  Particularly vulnerable are brands where being smart matters.  Like Yahoo.

By failing to check the CEO’s credentials, Yahoo was asleep at the switch on basic due diligence.  This is a doh! error at all times, but especially troubling for such a high-profile hire.  And especially for a company that already has a stormy leadership history.  (Prior CEO Carol Bartz was controversial—and ousted by phone).  Hello?

As for Thompson: resume padding is always dumb, because it’s so easily caught.  But padding a degree from Stonehill College?  Which didn’t even have a computer science department in 1979?  Stonehill is a worthy little Catholic college in a leafy Boston suburb, but it’s no MIT.  Finally, this all came to light because an activist shareholder, Dan Loeb of Third Point, found it through (you gotta love this) a Google search.  That little tidbit alone speaks volumes about Yahoo.  Ouch!

3. Hitting the brand jugular

Here’s a dirty little secret in marketing: most brands are little more than dressed-up commodities.  Sadly, this is true not just for detergents and packaged foods but also for services like banking and insurance.  Minute differences are played to the hilt to people who mostly don’t care, but we brand folk work hard to get people to buy Our Stuff vs. Competitor Stuff.  If we’re good (and sometimes lucky), we can find a little piece of ownable turf that’s both relevant and believable.  If we’re smart, we develop strong messaging that cuts through the clutter, and we stay with it over time so people can begin to see us as a Little Bit Different and Better.

Liberty Mutual had done just that.  In a long-running campaign that has been, of all things, a pleasure to watch, the company has stressed responsibility as a theme, as illustrated in this commercial.

“Responsibility.  What’s your policy?” Most people probably don’t know Liberty Mutual well but would believe it’s possible that an insurance company somewhere is responsibly run.  And it’s something people would dearly love to believe.

Then along comes a parade of evidence that completely undermines the hard-won brand proposition.  Arrrggh!!

The stories emerging about the company are well documented—and damning.  Not only is Liberty Mutual irresponsible, it is way more so than its peers.  Systemic, entrenched irresponsibility at the top eviscerates the brand’s claim.

At least one letter has appeared in the Globe from a policyholder who dropped Liberty Mutual because of the articles.  Doubtless other folk have switched as well. If the stories gain traction, the company will be cruising for a bruising.

Rot at the top: A core American story

What’s a brand to do when the CEO falters?  Not much, alas.  But it’s worth noting how the three noteworthy misdeeds above came to light.

• The harmless Best Buy story?  Company policy that worked.
• The Yahoo story, more damaging?  An activist shareholder.  All it took was a Google search and a phone call to Stonehill.
• The Liberty Mutual scandal, potentially the most damaging by far?  This caught the attention of an experienced and widely respected journalist—most likely through a local source.

The classic French playwright Moliere once wrote:

“It is a public scandal that offends; to sin in secret is no sin at all.”

But companies can’t–and shouldn’t–count on sins staying secret in these transparent times.  Especially when the tale is one of serious Rot at the Top.

In “An American Morality Tale,” Robert Reich has written about four core American stories, one of which is the notion of Rot at the Top.  The corruption of unscrupulous elites resonates powerfully with the public.  And it can topple mighty brands and companies as well as their leaders.  Anyone remember MCI?