5 Corporate Scandals Every Leader Can Learn From

After a year plagued by ethical lapses within government, educational institutions, and businesses, one thing is clear: The American public has had enough of people in high positions behaving badly.

In JUST Capital’s 2019 survey, Americans deemed transparent and honest leadership the second most important issue overall, ahead of paying a living wage, providing good benefits, minimizing pollution, and so many other issues. (Only paying a fair wage for industry and job level came out ahead.)

The public wants companies to act ethically and with integrity at the leadership level and take responsibility for company wrongdoings. Corporate leaders must create strong ethical codes of conduct and enforce them across the organization.

But in every organization — especially large ones — leaders can’t control everything. Scandals and ethical breaches test leaders’ ability to live up to their own standards.

These five companies responded to scandals by taking responsibility and addressing the situation head on, proving that when handled correctly, a company absolutely can bounce back from controversy.

Scandal #1: The Tylenol Poisonings

The gold standard for corporate crisis response was set in 1982, after a tragic incident in which seven people in the Chicago area died after ingesting cyanide-laced Tylenol capsules.

Tylenol maker Johnson & Johnson was not directly to blame; the killer was injecting the poison into Tylenol packages on store shelves. But Johnson & Johnson didn’t shirk responsibility or blame the media for the nationwide hysteria that followed these random murders.

Instead, it advised the public to immediately stop taking its best-selling drug and soon ordered a full recall of its capsules. J&J’s chief executive promised not to return them to shelves until a tamper-proof package had been developed.

Within a year, Tylenol was again the nation’s biggest-selling pain reliever. The Tylenol murders prompted laws requiring all medications to be tamper-proof. But the killer was never caught, despite a $100,000 reward offer from J&J.

Scandal #2: Nike’s Sweatshop Labor

The kids yearning for Nike’s Air Jordan may not know that two decades ago, the brand was once widely shunned for its use of sweatshop labor.

In 1997 alone, dozens of rallies were held over Nike’s use of low-cost, maltreated labor at its contracted overseas plants. The next year, then-CEO Phil Knight acknowledged that “the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse.”

The company adopted a code of conduct for its plants and implemented a factory auditing system. It took many years, but today Nike is a leader in social sustainability, according to JUST Capital’s research. The company produces detailed reports on its efforts to improve working conditions and protect worker rights in its supply chain, and in 2005, it became the first company in its industry to publicly disclose its factory base.

While other retailers must cope with revelations about unsafe conditions overseas, Nike can keep its brand focused on what matters to its customers.

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Scandal #3: Bias at Starbucks

In April 2018, a manager at a Philadelphia Starbucks called the police on two African-American men who were waiting for a business meeting and hadn’t made a purchase.

In the face of a public uproar and weeks of protests, Starbucks executives could have dismissed the case as an isolated incident and the manager as a bad apple. Instead, they showed how seriously they took their mission to make Starbucks a “third place” outside of work and home “where everyone is welcome and we can gather,” in the words of company policy.

In a rather dramatic gesture, the company closed all 8,000 U.S. stores for a day for unconscious bias training for all employees, losing an estimated $16.7 million in sales. They followed it up with additional training and store policy revisions aimed to make everyone feel welcome at their cafes.

Our research finds that Starbucks follows through on its commitment to inclusiveness behind the counter, as well through strong adherence to equal opportunity workplace policies.

Scandal #4: Waffle House Sleeps at the Grill

Waffle House prides itself on serving customers 24 hours a day, but when tipsy patron Alex Bowen stumbled into a South Carolina Waffle House late one night in 2017, he found the only worker asleep. So he walked behind the counter and cooked his own meal.

After Bowen’s Facebook posts went viral, Waffle House urged customers never to go behind the counter for safety reasons — but it also apologized to Bowen, complimented his cooking skills, and quipped that it would “like to talk to him about a job.”

A few days later, Waffle House executives even appeared on a local TV station to show Bowen how to cook a bacon cheesesteak. The chain’s perfectly calibrated response showed the power of humor to put an embarrassing (if relatively minor) incident in perspective.

Scandal #5: ABC Ditches Roseanne

In the spring of 2018, ABC’s reboot of the series “Roseanne” debuted to the highest ratings of a new TV series in years. The network had taken a risk on Roseanne Barr due to her history of making controversial statements, but executives pointed to her ability to speak to rural and small-town viewers who felt culturally marginalized. Then Barr posted a blatantly racist tweet about an aide to former president Barack Obama.

Hours later, ABC cancelled the show, which had brought in about $45 million in advertising revenue for the season. ABC entertainment president Channing Dungey called the tweet “abhorrent, repugnant, and inconsistent with our values.”

ABC parent company Disney didn’t make excuses to try to save its golden goose. Like other companies that have rebounded successfully from scandals, it took rapid and decisive action.

You may or may not agree with how leaders at these companies handled each situation — and it’s not for JUST Capital to advocate a position one way or another — but clearly the public prefers addressing a situation head on over skirting and sugar-coating.

Want to know what else Americans deemed most important when it comes to business practices? Check out the results of our 2019 Survey: A Roadmap for Stakeholder Capitalism.

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