Companies in Crisis - What not to do when it all goes wrong
Snow Brand Milk Products Co.
One of the most feared scenarios for any food products company must be an outbreak of food poisoning associated with its products. For Snow Brand, Japan's premier dairy foods company, 2000 was the year when that nightmare came true, in fairly spectacular fashion. The company is still struggling to recover, and has suffered from further problems (see update at bottom of page).
What happened
Large numbers of people, mostly in western Japan, suddenly came down with food poisoning after consuming milk or related products made by Snow Brand. As events played out, it transpired that over 15,000 people had been affected.
The problem was traced to bacteria on the production line of Snow Brand's Osaku factory that processed low-fat milk. The bacteria concerned was staphylococcus aureus, and it was located in a valve which, although it should have been cleaned regularly, had not been. Inspections of the plant condemned hygiene standards as being appalling.
What did the company do?
By all account, it initially sought to downplay the incident, and gave the impression of being more concerned for its reputation and standing than it was for the victims of the outbreak.
For instance, the company made an attempt to limit the extent of the product recall it would have to make. The Osaka city public health centre issued a recall order for two products, whilst requesting that the firm voluntarily recall other products. This the company was reluctant to do. After the city officials pressed the point, the company grudgingly agreed to the recall, but then requested that the recall order not be announced, but the company could be seen to be doing it voluntarily. The city publicised both the recall and the request.
The company was also held to have sought to cover up information about the full nature of the incident. Snow initially claimed that the valve where the contamination was found was used rarely - in fact it transpired it was used almost every day. They also claimed that the area of contamination was small, about the size of a 10 yen coin - subsequent examination found it to be rather larger than that. Snow asked authorities not to issue official recall.
The overall impression - as judiciously reported by the media at the time - was that the poisoning was the end-product of a company rife with corporate arrogance. The President, Tetsuro Ishikawa tried in vain to win support, and was eventually admitted to hospital suffering from the stress of the incident. The end result was that he, and seven executives, resigned in atonement for what had happened.
Cost and benefit
The consequences for Snow Brand have been dramatic and awful. Sales for the company have plummeted as consumer confidence has evaporated. The company was pushed to close five of its factories - including the offending site from the poisoning - and has recently increased this figure to eight.
The company's bottom line is grave testament to the impact it has all had. Snow Brand reported a consolidated net loss of 52.9 billion yen (about $430 million) for the fiscal year ending in March.
Snow Brand enjoyed a market share of around 45 percent before the incident. In the immediate aftermath, it plunged into single figures, and has gradually - with new promotions - recovered up to around 30 percent. It is still languishing well short of its previous level.
The fight back
A key component of the fight back has been for the company to revamp its approach to its social responsibility.
In the first instance, the new President of the company, Kohei Nishi, made clear statements of regret - acknowledging the mistakes of the past and the determination to move forward.
Improving quality assurance is, needless to say, a key part of the restructuring plan. But at least as importance is a reform of the corporate culture. Steps to be taken in this area include:
- Renew corporate philosophy - making the corporate charter a guarantor of more responsible corporate behaviour.
- Promote customer-focused management - particularly allowing for the two-way flow of information and feedback
- Enhance corporate governance - particularly to appoint outside directors and to increase the speed of decision making
- Restructure risk management function - and conduct practical training
Conclusion
The features that made Snow Brand's initial response to the crisis a failure was that they responded too slowly, failing to move quickly towards a full product recall and to communicate with the public. When it did communicate, it dwelt much more on the impact on financial performance, and not so much on the suffering of the people who had consumed its product.
First, Snow Brand did not move quickly enough; it should have acted faster to assemble the facts and act on them, both in the form of moving toward a product recall and in terms of communicating with the media and the public. Three days passed before either of these happened, following numerous reports and inquiries from public-health centers.
Second, Snow Brand had no structure in place to accurately respond to a crisis, including no method of getting information to top management. Therefore, management was unprepared when it finally did speak to the media and was not armed with all the facts.
They also made the huge mistake of seeking to cover up the bad news. Once such a situation has arisen, all the facts will eventually be revealed, and early and voluntary disclosure by the company is the only way to move forward. Snow's reluctance in this area meant that not only did customers fear that the products would be unsafe, they also did not trust the company to seek to ensure that it would be otherwise.
The message of the company is that it has learnt its lessons and is ready to move forward. History of other such incidents suggests that this will take some time, although the resignation of the previous leadership enables a line to be drawn to some extent.
