As consumers consider suing Cadbury over the salmonella crisis, Business Editor John Duckers looks at how the famous Birmingham company can avoid going into meltdown
Cadbury has long enjoyed a reputation as strong as its sales.
Indeed, with its rich history and popular sales lines, Cadbury is regarded as one of the stalwarts of the business world.
But Cadbury's slow response to the salmonella crisis may well have done irreparable long-term damage to the firm's high regard with the UK's chocolate-buying public.
Many devoted Cadbury customers will view the firm's decision not to notify the Food Standards Agency immediately and its reluctance to issue a recall when the contamination was first discovered in January as a huge breach of trust.
A breach of trust made all the more serious in the particularly sensitive sector of the food market where a great deal of consumption is by children, said Paul Llewellyn, Midlands-based national head of product liability with international law firm Reed Smith.
He cautioned that Cadbury's biggest error was a failure to notify the FSA for six months, allowing millions of chocolate bars on to the shelves of corner shops and super-markets knowing that they could present a danger to customers, no matter how slight.
"Now the Food Standards Agency is contemplating proceedings, which will add to the impression that the company did not act in the public interest," he said.
"Further, the company's food safety procedures have been criticised by an independent advisory committee on food safety as out of date.
"If proceedings are started by the FSA that will result in detailed public scrutiny of its actions and many months of bad publicity. Its reputation will suffer because of this, and it will be difficult to repair the damage done to the brand in the short to medium term.
"Added to that is the near certainty of civil actions by people claiming that the firm's products made them ill.
"The whole episode has been an object lesson in how not to deal with a crisis."
Mr Llewellyn says the immediate cost of the recall has been estimated at around £5 million, but added: "It is too early to say what the long term cost will be."
Crisis management is not a skill many company directors will want to learn on the job, but many aren't prepared until it is too late.
Any number of crises can knock at the door of business. Product contamination, fraudulent employees and industrial negligence are just some headline grabbers which can leave many companies frozen with fear.
To other companies, crisis management is big business. Brands and balance sheets are vulnerable to the mismanagement of negative events. Those with resources and foresight can handle it well and reputations remain intact. Handle it too little and too late, or worse not at all and share prices can plummet, customers walk, and businesses collapse.
According to Toby Stephenson, partner at Birmingham accountants PKF, businesses should take a long-term approach to managing risk.
He said: "Embracing the risk and compliance culture is very good business practice. Good risk management is seen as good governance." Companies serious about crisis management will appoint a crisis management team headed up by the person running the company. It will usually comprises senior staff who have very good knowledge of the business and who can thoroughly assess the impact of a crisis should it occur.
Creating and implementing regular risk and compliance reviews will also be a priority. These reviews will identify strategies to deal with potential weaknesses and risks in a business. They will also help divert a crisis, or ring-fence the fallout when the crisis occurs.
These strategies will be regularly reviewed, and every scenario anticipated to create processes which steer the company through to a successful outcome.
The airline industry frequently tests its crisis procedures to ensure they work. Businesses shouldn't shy away from assessing effectiveness and improve where necessary.
Mr Stephenson added: "Having robust crisis management procedures reduce the risk of a panic reaction. Act quickly to show the market positive controlled action, that the matter is under control, is a one-off, and does not impact on the quality of the product or service going forward. In a word, 'reassurance'."
Timing is key. Reacting too soon without full knowledge of facts will expose weaknesses and challenge integrity. React too late and the crisis creates its own momentum.
By the time a crisis occurs, astute businesses will already be heavily involved in implementing their risk management strategies.
Charles Arrand, regulatory and corporate defence partner in global law firm DLA Piper's Birmingham office, said: "Planning, establishing clear responsibilities and lining up external support in advance is key - for the crisis and for business continuity. Planning for the crisis is rare; for business continuity rarer still."
Expect to co-operate if public enforcement agencies are appointed to investigate the incident. A crisis can attract regulatory scrutiny of some description.
Co-operation with regulators is important but Mr Arrand points out that "it is essential to be aware of your rights and the regulator's powers at an early stage in any dialogue".
He went on: "There is many a criminal prosecution which simply cannot be defended because of well meant but unguarded dialogues with the regulator prior to legal advice being taken. Remember, nothing is 'off the record'."
Communication and relationship management can often be neglected when company executives are fire fighting in a crisis.
Business relationships and alliances with suppliers, customers, employees and the wider community need to be handled sensitively and practically.
Lack of communication can feed rumours so a balance of timing and messaging must be appreciated.
In certain instances shouldering short term costs, financial or otherwise, can help quash bad feeling.
When the crisis is over, take time to analyse assess the effectiveness of efforts. Be bold in showing how the company learned lessons and moved on to make the business stronger.
* Take a long term approach to managing risk. Don't assume your company will be immune. It can happen to any business so embrace risk assessment and risk reviews before any crisis happens.
* Never be complacent about implementing risk management/compliance culture - the reputation of your business will affect your balance sheet.
* Appoint a dedicated team who can anticipate all stages of the crisis management process and create a flexible strategy that can change course.
* Seek legal and professional business help before it is too late. Talk to insurers if claims are necessary, and PR specialists to manage the media.
* Be aware of your rights and the regulator's power when you enter dialogue. A crisis can attract regulatory scrutiny of some description. While it can be and usually is absolutely right to cooperate with the regulator it is essential to be aware of your rights and the regulator's powers at an early stage in any dialogue.
* Be aware that committing thoughts, emotions, speculation and blame to paper or email in the heat of a crisis can lead to what amounts to a confession.
* Work with publicly appointed bodies who are investigating the situation such as Environmental Health, Customs & Revenue, local authorities.
* Timing is everything. React too quickly or too slowly and it could severely hamper efforts to reach a favourable outcome.
* Communication is key - don't try and bury bad news. Talk to all your key audiences from suppliers, and employees to customers and business advisers.
* Hold a post mortem.
PR disasters we have known
* Rescue workers during 9/11 went to Starbucks in need of water to treat victims of the attacks, but were made to pay $130 out of their own pockets for the cases of water. Only after the story was circulated on the internet, calling for a boycott, and the media picked it up was the money reimbursed to the ambulance workers.
* Birmingham radio station BRMB were forced to pay £15,000 in fines after entrants in a competition suffered severe frostbite in August 2001. The entrants had to sit on blocks of dry ice with an average temperature of minus 79 degrees in order to win tickets and backstage passes to BRMBs Party in the Park. This breached Health and Safety laws, costing the station £15,000, as well as pay outs to all four contestants, who all needed hospital treatment, with three of them requiring extensive skin grafts.
* Nestle gained a very bad reputation in the '70s and '80s after marketing its powdered baby milk in poor areas in Africa, where there is not enough clean water to make up the solutions. Several organisations, including Christian groups and some NUS student unions, subsequently banned all Nestle products from their shops.
* After volunteers from the London Greenpeace group handed out leaflets attacking McDonalds working policies and practices, the fast food company took them to court leading to the longest case in English legal history. The volunteers started handing out leaflets in 1986, and it wasn't until 1997 that the judge ordered the volunteers to pay £60,000 to McDonalds, which was later lowered to £40,000. However, the volunteers lodged further appeals which were rejected. Although McDonalds won the case, now known as 'McLibel', it was seen as a huge PR disaster.
* John Lennon unwittingly caused uproar in 1966 by claiming in an interview with The Evening Standard that The Beatles were 'more popular than Jesus'. The comment caused little reaction in England, but Christians in America were horrified, burning their Beatles records and sending death threats to Lennon and his bandmates, as well as campaigning for Beatles concerts to be cancelled in the US.