What are the lessons we have learned from Toyota crisis management regarding

recall issues?

Facts:
- 9 Million cars had to be recalled in 2 separate recalls because floor mats
could jam the gas pedal down
- The Toyota brand, once almost synonymous with top quality, has taken a
heavy hit.

What can we learn?

- Maintaining a good corporate reputation in the 21st century is tricky
- Aggressive growth can create unmanageable risk (Toyota expanded too
much and too fast and so it pushed it to the outer limits of quality control; in
2005 Toyota recalled more cars and trucks than it sold; by 2007, Consumer
Reports magazine stopped automatically recommending all Toyota models
because of quality declines on three models; )
- Get the facts quickly and manage your risks aggressively (current recall,
covering 4.1 million cars, involves potentially sticky gas pedals.  Late in 2009,
Toyota also recalled 5.4 million cars whose gas pedals could get stuck on
floor mats.  Plus, Toyota says there are some cars affected by both problems;
investigators almost always start with two time-worn questions.  What did
you know?  And when did you know it? Were employees encouraged to flag
safety issues to senior management?  Were sufficient resources devoted to
investigating the problems?   When did the board become aware of the
situation and what did it do about it? good internal risk assessment programs
can help identify those areas of the business where management should be
on the alert
- Your supply chain is only as strong as your weakest link (auto companies
make hardly any of their parts; quality control [means] daily vigilance. You
can't coast on your reputation because it can fail very quickly; Smart
companies will know their suppliers and their respective strengths and
weaknesses)
- Accept Responsibility (
- Take the Long View (
- What Can Be Known Will Be Known
- Communicate Inside Out
- The Message Matters
- Don’t Stonewall the Media
Accept Responsibility.  This is one area where Toyota seems to be doing a good job, albeit maybe a year or
more too late.

Toyota's National Ad on Recall - January 31, 2010

Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it
was the driver’s fault,” David Cole, Director of the Center for Automotive Research, told Design News. 
Coles says that reaction ultimately hurt Audi’s reputation.
Toyota seems to be avoiding the appearance of passing the buck.  When pressed by the New York Times
about problems that might have been caused by supplier CTS, for example, Toyota spokesman Mike
Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has
always been that Toyota is responsible for the cars.”
Accountability matters enormously.   Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following
the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis
management.  But that recall stemmed from the deadly act of an outsider (who has never been caught), not
any problem with the product itself, as is the case with Toyota.
Take the Long View. The three leading factors burnishing corporate reputation these days are "quality
products and services, a company I can trust and transparency of business practices,” writes public relations
executive Richard Edelman, who last week released his corporate “Trust Barometer” survey for 2010.
That’s unfortunate news for Toyota, given the hand that it’s currently playing.  But the company doesn’t
have much choice.  By one estimate, auto industry recalls conservatively cost an average of $100 per car -
suggesting that Toyota might be on the hook for at least a one billion dollar charge.   That doesn’t include
lost revenue to Toyota and its dealers from the production shutdown.  And competitors are already trying to
woo customers away and capitalize on Toyota’s misfortune.  Disgruntled investors and Wall Street analysts
will make the company aware of their feelings; class action lawsuits are almost a certainty (one lawyer is
already searching for Toyota customers as clients).
Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the
company will collapse completely.  And that may be one of the one of the biggest lessons for other
companies as they study how Toyota emerges from this recall crisis.  The reality is that Toyota is
positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality
products and corporate responsibility it has developed over the last two decades.  That reputation is a
valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months
ahead.

Lesson #1: What Can Be Known Will Be Known.

The “sweep it under the carpet” approach rarely works. Ignoring a major mistake and hoping no one will
learn about it didn’t work very well in the ‘80s or ‘90s. In today’s 24/7, Twitter-driven world, if a company
makes a major mistake, it’s only a matter of time before word will get out.
That doesn’t mean, however, that you should advise the organization to issue a press release every time it
stumbles. In certain situations, the best approach is to immediately correct the business problem and have a
reactive communications plan in place if—and, likely, when—the information starts to flow. There are
risks to a reactive approach, most notably losing control of the story and letting competitors, customers, and
reporters define the situation and remedy instead.
Lesson #2: Communicate Inside Out.
Next to Toyota customers whose cars don’t stop at red lights, we feel especially sorry for Toyota dealers
and employees. We imagine that the only thing harder than addressing angry shareholders and reporters is
facing a Toyota-driving soccer mom who wants you to promise that her kids are safe in her car. That’s
tough….especially if you’re not convinced that her car is safe.
Be aware that employees are constantly talking with customers and shareholders.  Since both customers
and shareholders are critical to the success of the company, so is anyone who interacts with customers.
Whether the company has five employees or 50,000, every one of them is a spokesperson, especially in a
crisis, and every one of them needs context and talking points. In the absence of being told what to say to
customers, realize that employees will make up their own script.
In our experience, few companies have all the facts gathered when a crisis strikes. That’s what makes it a
crisis: it’s one part mistake and two parts lack of clarity.  As a fiduciary, you can help a company succeed
in a crisis by counseling them to (1) move quickly to reassure their employees and customers that they will
do the right thing for their customers (and hold them accountable for sticking to that promise), (2)
communicate what they know for sure, which may be very little, and (3) explain the process they’re
undertaking to gather the necessary information. Most importantly, companies must communicate all this
information to their employees first, and then to their customers, shareholders and other important
constituents.  Legal counsel can help guide management in creating communications materials that won’t
cause discovery and/or litigation issues down the road.
More than ever before, a successful crisis communications plan includes—and goes beyond—media
relations.  Customers, shareholders, regulators, employees, franchisees, dealers, intermediaries, industry
influencers and vendors are all important constituents who need to be included in the communications
process.
Lesson #3: The Message Matters.
In our experience, companies in a crisis are well served by developing three or four key messages that
summarize the “who, what, where, when and how” of the situation. Often, much is unknown at the outset,
and it’s imperative that legal counsel is included in both the message development and delivery process.  If
a company in crisis creates the right key messages and delivers them in a timely manner and consistently to
all important audiences, it will likely minimize bottom-line and reputational damage.
Lesson #4: Influence the Influencers.
If you doubt that industry experts are important to a business during a crisis, ask Toyota Motor Corporation
President Akio Toyoda how U.S. Transportation Secretary Ray LaHood impacted Toyota on the day of his
remarks at a House of Representatives hearing, and for many days thereafter. One sentence, in which
Secretary LaHood counseled any owner of a recalled Toyota to “stop driving it,” sent Toyota stock into a
freefall and Toyota owners into a panicked frenzy.
In every industry, experts are contacted by the government, by the media, and by customers to provide
perspective on a crisis or event.  In Toyota’s case, it would be nearly impossible to proactively contact
every industry expert around the globe; however, there are several important constituents whom Toyota
seemed to ignore, Secretary LaHood among them. We have found there are always a few experts who stand
out from the crowd and who should be contacted proactively. Better yet, advise your management team to
develop and maintain good relationships with industry experts now so that they know your company before
a crisis occurs.
Lesson #5: Don’t Stonewall the Media.
We’ve heard executives and directors say, “If we talk with the media about this issue, it will only legitimize
their articles and make them longer.”  In our experience, that’s rarely true.  If an issue is important enough
(and/or it’s a slow news day) articles will be written – and segments will air – regardless of a company’s
willingness to respond. Who is better positioned to deliver your company’s perspective:  the company or its
competitors?  There are plenty of competitors who will talk about why your company made a mistake and
the impact that mistake will have on its business. Some will talk on the record; others won’t. Either way, it
doesn’t bode well.
What You Can Do
Even well-managed companies can find themselves in situations that can hurt their reputations and bottom-
line results. When that happens, remember these five lessons and ensure that your executive management
team manages the situation in a way that will efficiently address the issue, reaches all important
constituents, and positions the company for future success.
In the meantime, keep in mind this wise quote from Warren Buffett, “It takes 20 years to build a reputation
and five minutes to ruin it. If you think about that, you’ll do things differently.”

It’s never easy to find your company on the front page or leading the nightly news for all the wrong
reasons. And it becomes an even greater problem if Congress takes notice and requests (or, worse,
demands) your presence. But this is just where Toyota Motors president Akio Toyoda finds himself.
Toyoda, who has already apologized for how his company dealt with safety problems that led to a massive
recall of its vehicles, offers a crash course in crisis PR. Managers everywhere will learn some lessons on
how to handle tough questions. They'll also gain some wisdom on how to learn about, admit to, and
announce bad news quickly and effectively—a skill that would have helped limit the scope of Toyota’s
quality problem and soften its consequences.
Answering Questions
Every manager gets faced with challenging questions—from a boss who wonders about a project that has
yet to meet goals; from staff members who heard rumors of a cut in benefits; and from customers
concerned about product quality. These can be make-or-break questions that must be handled well.
It's important to understand that a tough question often has an emotional component. The question might be
being asked out of great concern, possibly fear. Your answer must appeal to the heart as well as the head. It
isn't true that "the facts speak for themselves." You must show you recognize the questioner's feelings and
are concerned about them.
As you answer the question, match the conviction of your words with appropriate movement and vocal
changes. To be believed, you have to show that you yourself believe.
Be careful not to resort to clichés and circumlocutions. And never count on the power of your position to
provide a satisfactory answer. The person who asked the question might accept a perfunctory response—
but will feel resentful.
As you lay out the facts, use supporting evidence that the other person accepts and, equally important,
understands. It's all right if you set the groundwork before you address the question—but make it clear
from the beginning that you'll give the answer.
Don't sabotage a good answer by adding an unsupportable statement like "Employees are our most valuable
asset" because the followup question might be "Then why are you putting people out of work?"
Beware of hypothetical questions. They might be intended to make you to contradict something you said or
did earlier.
Many questions are predictable during tough economic times like these. Prepare persuasive, concise, and
supportable answers to these questions. Sound bites are memorable—but they can also appear glib.
Here are some special tips for answering questions during the Q&A part of a presentation: If the question
was negative, rephrase it without changing its meaning, look at the questioner as you begin answering, but
look elsewhere before you finish so you don't get a negative followup question. Frame your responses so
they answer the question and tie back to one of the points you're making, but be sure you really answered
the question before you tie back. Finally, when you rehearse the presentation, also rehearse the Q&A.
And here’s some advice on how to handle questions from the press about your layoffs or any other
problem: Appoint someone who will be in charge of answering questions from the media. Check legal
counsel about what can or can't be said. Call the reporter back right away or the story will be published
without your rebuttal to the charges. Be certain about your facts because they’ll be scrutinized; making an
error here can compound the problem. If your problem arises to a Toyota-like level, consider getting public
relations crisis consulting.
Announcing Bad News
Let’s say you're announcing something your employees don't want to hear—a staff cutback, for example.
It’s best to make the announcement quickly so you head off rumors that might grossly misrepresent the
change. Never announce bad news by email, though. Do it personally.
Speak from the heart. You can't do that effectively if you read from a script. Rehearse your announcement
so well that you won't need written comments. Tell the employees about how hard it was to make the
decision without apologizing for it. But don’t talk at length about how bad you feel because you'll seem
less concerned about those affected.
Assure the employees that the future is bright because management has a strategy for overcoming hard
times, and ask for their support. Be optimistic—but don't infer that there won't be future layoffs.
If layoffs are part of a multipronged organizational improvement effort, describe it; otherwise employees
will feel they're being blamed for the company's bad times and only they are being penalized. Apart from
concerns about their job security, employees also will worry about taking on the responsibilities of those
who were laid off.
Break the news early in the day. This gives the employees time to digest it and ask questions.
Anticipate the questions you're likely to be asked. Be ready to tell everyone what their role will be and
assure them that they'll have a voice in future planning. As you answer questions, keep showing your
humanity. Maybe the question is intended to rattle you; maintain your equanimity and handle it with
respect because you may have misunderstood the employee's intention, especially when you expected to be
confronted.
Tell the employees everything that can be told. If you don't yet know the full extent of the impending
change, say so. Promise to keep everyone informed. If there’s no new news to announce, say so.
Begin the presentation by describing why change was needed—but do it quickly. Too much background up
front can make you sound evasive or insecure about how to present the news. If you participated in
decisions that led to the problem, admit it.
Answering tough questions and delivering bad news constitute two of the biggest challenges managers
face. By handling these challenges well, you'll demonstrate to senior management how well you can lead in
tough times.

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