Managing Recalls and the Threat to Reputation: Consider the "Three Rs" of Readiness, Response and Rebuilding a Best-Practice Approach to Communication During a Recall

Have you been tempted to order that sleek new Toyota this year? Even if you've never driven one, the sheer number of vehicles recalled in 2010 and the way the Japanese auto giant has handled the crisis can't have escaped your attention. In today's 24-hour world of fervent consumerism and social networking, product recalls are bigger news than ever before. Toyota's response has been well documented--a slow drip of bad news, one of the key things to avoid.

Of course, the most effective crisis management takes place well before the problem escalates out of control.

The key to resolving negative publicity quickly and effectively is to be prepared by developing, implementing and maintaining a plan for managing a product recall. Companies that respond quickly and openly in these scenarios recover more quickly, and subsequently outperform those that fail to respond effectively. As Rory F. Knight and Deborah J. Pretty showed in their 1997 Oxford Executive Research Briefing The Impact of Catastrophes on Shareholder Value, a company's ability to recover from a public catastrophe is a key determinant of future shareholder value. In a report studying the impact of 15 major corporate catastrophes, including six highly public product recalls, the researchers determined that in all cases the event had a significant negative impact on shareholder value.

In my extensive experience working with companies to manage product recalls, I'd highlight the "three Rs" of readiness, response and rebuilding as a best-practice approach to ensuring proper communication. Readiness is about the basics of good business and supply chain monitoring--for example, having a simple process for people to follow and a regular training program for any staff involved in a recall. This must cover communication with all potential stakeholders, because early dialogue with suppliers may avert the crisis.

Response is the part most often associated with recalls because it's the part that's immediately visible to the public. A consumer learning of a product recall has three questions: Have you sold me a product of inferior quality, have you sold me a product that puts me or my family at risk, and how painless are you going to make this whole process for me? Managing recalls effectively has to be about addressing these concerns clearly, quickly and honestly. Customers need reassurance--mixed messages invariably lead to anxiety.