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What not to do the Toyota way

What not to do the Toyota way
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First Published: Tue, Apr 27 2010. 01 15 AM IST

Photo: Nelson Ching/Bloomberg
Photo: Nelson Ching/Bloomberg
Updated: Tue, Apr 27 2010. 01 00 PM IST
Toyota, a car company known for quality, reliability and customer satisfaction, as well as for winning corporate awards year after year, is also now known for one of the biggest public relations (PR) disasters to date. While president Akio Toyoda and his colleagues are nowadays pictured in conferences trying to pinpoint what went wrong with car quality, they should also pause a moment to consider how they could have better handled their PR.
On 21 January, Toyota announced a voluntary recall of 2.3 million vehicles to correct sticking accelerator pedals, which were causing sudden and unintended acceleration. This action was separate from the ongoing recall of 4.2 million Toyota and Lexus vehicles for pedal entrapment by loose or incorrect floor mats. Adding fuel to the fire, Toyota suspended sales of eight models on 26 January, since it couldn’t fix the sticking pedal problem. The company that was once a public relations dream found itself at the centre of a media circus where each news cycle seemed to add to the nightmare.
While the media was challenging every aspect of the Japanese car company, nothing was heard from Toyota. No US Toyota CEO made a public statement until 1 February. Toyoda himself made no public statement for two weeks. Finally, on 6 February, he publicly apologized in Nagoya, Japan. However, the press poorly received this as “too little too late”.
Photo: Nelson Ching/Bloomberg
During the time Toyoda went missing, the media grew consumer fears to astronomical heights. Reports surfaced that these problems had existed for a decade, with the company ignoring most early complaints. US transportation secretary Ray LaHood aided the panic, saying in a US congressional hearing: “Drivers of cars affected by the recall should stop driving them and take them to the dealer for repair”. He later attempted to retract his controversial statement by saying, “Owners should take their cars to get them fixed as soon as possible.”
Why did this cause such a media frenzy and result in such a PR fiasco? Was Toyota’s highly regarded PR department simply overwhelmed? Or was the problem closer to home?
If we observe the organizational structures of numerous companies and the reporting relationships between the corporate communications officer (CCO) and the CEO, it becomes apparent that this relationship is crucial to timely responses to issues as well as a positive public image. But at Toyota Motor North America and its larger sales arm Toyota Motor Sales USA, the heads of the public relations organizations do not report to their respective CEOs, but instead to senior officers responsible for legal affairs. Had this not been the case, the PR gaffe may have been prevented.
With rapidly evolving communications, corporate communications is admittedly a challenge. Companies successful in keeping up and effectively using new media to communicate in the marketplace see their public relations chief becoming one of the most influential voices of the company for stakeholders, the media and the public in their business relations efforts. In that case, the CCO’s professional background, inter-organizational and inter-cultural relationships could make or break a firm.
But a lot of these personal attributes won’t even matter if the CCO does not report to the CEO or does not have a seat at the table on all executive committee decisions. To wit, the most important role in public relations is providing counsel to the CEO on what action or inaction causes changes in public perception and consumer confidence. This has been the essence of public relations since it evolved into a profession in the early 20th century.
But why is the CEO an important link here? Irrespective of the size and complexity of an organization, employees, customers, shareholders, analysts and the media, all monitor the entity through the CEO. It becomes important, then, that the CEO focus on and highlight corporate culture, its values and commitment of the organization in terms of what the brand represents. Since CCOs communicate this information to the CEO, the reporting relationship becomes critically important.
A 2006 survey by global PR firm Weber Shandwick of the CCOs of Fortune 500 companies in the US and Europe revealed something important. Among the 141 CCOs who participated in the survey, nearly 53% reported to their CEOs. In 2009, another study by the Korn/Ferry Institute that surveyed Fortune 200 companies also examined the reporting relationships of the CCOs. Among the 67 surveyed, about 46% reported to CEOs. The rest reported to several other departments. Interestingly, this study states that the CCOs’ performances were not measured by any quantitative metrics. The qualitative metrics such as positive media coverage (75%) and the CEO’s gut feelings (73%) made up most of the measures.
For now, Toyota seems to be selling its way out of this problem. Through an aggressive programme of interest-free loans, significantly discounted leases and offers of free maintenance, some sales have picked up. But how much of this PR fiasco has affected the Toyota image in the long term, only time will tell.
Madhukar Angur is professor of marketing at the Flint campus of the University of Michigan. Comment at theirview@livemint.com
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First Published: Tue, Apr 27 2010. 01 15 AM IST