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Published in Economic Development

PRICE TO PAY: In crises, companies seek delicate balance of legal, PR, consumer ramifications

BY Sunday, November 10, 2019 05:00pm

popular Grand Rapids brewery learned the hard way that focusing on winning a lawsuit can cost a company in other tangible ways if it loses first in the court of public opinion. 

After more than a year of fielding allegations of racism stemming from a lawsuit filed by a former employee, Founders Brewing Co. on Oct. 31 opted to settle rather than continue to fight the well-publicized case. 

The move came as a stunning reversal for Michigan’s largest brewery, which just a week prior said it was confident it would win the racial discrimination lawsuit Tracy Evans filed against the company in October 2018. 

In a statement posted on its website, Founders said it had “listened, engaged in self-discovery, and reached common ground” with Evans and opted to settle so it could “focus on the future.”

The change of course followed a leaked deposition in which the manager of Founders’ Detroit taproom said he was “unsure” if Evans, an African American, was black. The transcript sparked nationwide outrage, and public opinion quickly turned against the brewery, with companies and consumers pledging to boycott its products. Some businesses pulled Founders’ beers from their shelves, while others donated proceeds from the sales of remaining products to anti-racism charities. 

The bad press continued when Founders’ diversity and inclusion director publicly resigned, saying executives were only concerned about optics and winning the case rather than listening to advice about how to move forward. 

On Nov. 7, Founders announced its Detroit taproom, which it temporarily closed after the leaked deposition, would reopen early next year and it would donate all profits to local charities through 2022. The company also announced it hired a consultant to build a diversity, equity and inclusion program for the Detroit location.

Executives at the company did not respond to requests to comment for this report. 

The Founders case and the ensuing public relations quagmire demonstrate the need for companies to pay close attention to how they communicate and react to crisis situations in the digital age. As brands engage with customers on social media now more than ever, and given the prevalence of belief-driven consumers these days, there is heightened awareness of companies’ involvement in social issues, and how they handle public relations in times of crisis and outrage.

“You might win on the merits, but you can win the legal battle and still lose the overall war,” said Brendan Palfreyman, a craft beverage attorney and partner at Syracuse, N.Y.-based Harris Beach PLLC. “Losing a lawsuit could cost you money, but a negative PR reaction could also cost you money, in addition to the moral and ethical price you have to pay.”

Acknowledge, apologize, assure

When a company experiences a crisis, it’s sometimes Mary Ann Sabo, the owner of Grand Rapids-based Sabo PR, who takes the call. Though she did not work on the Founders case, Sabo handles crisis communications for a multitude of companies who are clients of her firm. 

Sabo describes a crisis as a “heart-stopping, show-stopping, reputation-bending” issue that needs immediate attention from an organization. Sometimes it’s a smaller issue, like dealing with some vocal critics on social media. Other times, it’s an obvious tragedy, like a mass shooting, embezzlement, environmental threats or sexual assault.

Then there are cases like Founders, in which people on the internet became aware of the allegations of discrimination, and the issue became a topic of statewide and national conversation. The company has since said it lost ”a few hundred” accounts nationally as part of the fallout from the controversy.

While the intricacies of each crisis situation vary, there is a basic formula for the aftermath that Sabo uses: acknowledge, apologize and assure. 

“You have to acknowledge that something happened,” she said. “That seems pretty basic, but it is amazing to me how many companies and organizations and individuals deny, deny, deny that there is any kind of issue at all.”

Then a company needs to apologize for the hurt caused, Sabo said. 

“That does not necessarily mean you have to throw yourself on the sword, as it were, and take total responsibility for whatever the issue is,” she said. “But you have to offer a sincere apology. It can’t be something that’s too little, too late.”

The last step, to assure, means to evaluate why and how the issue happened, and tell customers what steps will be taken to prevent the issue from happening again. Importantly, the company then needs to follow through on those measures.

“If you don’t and something happens again that’s similar and people find out, they’re not going to listen to you,” Sabo said. “You want to make sure that you are telling the truth throughout all of this.”

Striking a balance

When firms find themselves embroiled in a high-profile lawsuit, they must strike a delicate balance between communicating with the public and trying to win a legal case, said Palfreyman, who has represented more than 160 craft beverage companies. 

While Palfreyman was not involved in the Founders lawsuit, he thinks the widespread negative reaction to the deposition likely led to the settlement of the discrimination case.

“My main reaction (to the settlement) is that bad publicity from the leaked deposition transcript likely was a significant contributing factor to Founders’ decision to settle,” he said. 

In most cases, the client instructs the attorney how to proceed with the case after the attorney advises on the best tactics from a legal perspective to win the case. There can be pros and cons to those tactics, particularly in the public’s response to how an attorney — and by extension, the client — is proceeding with a case, Palfreyman said. 

After the deposition leaked in the Founders case, the brewery’s attorney released a statement defending the company, saying it was “more confident than ever that it will prevail” in the case.

“In some cases, the overall pluses and minuses of apologizing and moving on versus fighting and essentially winning, that balance could tip one way or another depending on the state of the public’s reaction, what you stand to gain, what you stand to lose,” Palfreyman said. “If you’re in it to win it, you probably wouldn’t want your client to admit fault.”

An attorney can advise his or her client on these issues, but ultimately it is up to the client to decide what it stands to gain or lose, according to Palfreyman. Founders needed to balance the desire to win the case with the damage it was causing to the company’s public perception. 

“That’s part of the balancing act each business is going to have to look at,” Palfreyman said. 

The power of consumers

In addition to PR and legal concerns, companies must also weigh consumer reactions when handling a crisis. 

National research last year from Sprout Social, a Chicago-based social media management, advocacy and analytics company, found that people think it’s important for brands to take public stands on social and political issues. However, brands often face more risk than reward, according to the company. In other words, people care about the beliefs of the businesses where they spend money and will take their dollars elsewhere if they disagree.

In the last decade, Sabo has witnessed this increase in consumer power, whether it’s for sustainable clothing or looking at a company’s investment policy. 

In some high-profile examples nationally, people choose to use their influence as consumers via a boycott, such as what happened with Chik-Fil-A over its donations to anti-LGBT groups or Fairlife Dairy after videos surfaced showing poor treatment of animals at a farm in Indiana.

“There are people who take that beyond a personal thing and then you share that on social media,” Sabo said. “And that can become a problem, I think, for organizations if that gets out and that’s known. (Founders) is the perfect case in point right now.”

Still, some evidence suggests consumers using their buying power to support businesses they agree with could outweigh those who choose to boycott brands. In research conducted by New York-based public relations firm Weber Shandwick in 2018, 59 percent of consumers surveyed in the U.S. and the United Kingdom said it was important to participate in boycotts of brands. But a larger majority, 83 percent, said it’s important to support companies that “do the right thing” by buying from them, a practice referred to as a “buycott.”

Despite the risks, companies can make a business case for taking public stances on social issues, said Kim Bode, a co-founder of Small Biz 4 Equality, a coalition of West Michigan businesses advocating for expanding the state’s civil rights law to include sexuality and gender identity. Bode is also the owner of Grand Rapids-based 8ThirtyFour Integrated Communications

Advocating for social issues can attract customers and workers who align with the company’s beliefs.

“Every single business is made up of people,” Bode said. “So you don’t have a choice anymore as a business to remain silent, to bury your head in the sand, to not take a stance one way or the other.”

Read 6599 times Last modified on Tuesday, 12 November 2019 10:11