BUSINESS CLASS: Bad relations

Recalls in the auto industry are hardly a rare occurrence. Granted, Toyota has somewhat over-delivered in that department lately, but considering there is a passenger vehicle recall of some description being issued every other week, Toyota seems to be coming out of this whole mess rather badly.

So where did they go wrong – beyond the whole, you know, potentially-life-threatening-accelerator-and-break-pedal thing?

It's all in the way it's been handled, or rather mishandled, says The Motley Fool's John Rosevear. "Big consumer-facing companies like Kraft ...and Johnson & Johnson – heck, most companies – surely have the same standard procedure: If something bad should come up, get out in front of the story. Disclose everything you know and take corrective action right away. Toyota hasn't been doing that, and it has blown up on them big-time. Worse, now people might be starting to ask, What else are they hiding?"

"It's a variation of the Chicken Little problem," continues Rosevear in a separate article; "deny the sky is falling for long enough, and nobody will believe you when you say it finally fell. If the unintended-acceleration problem wasn't due to the floor mats, as you claimed last year, why should we believe that it was due to a gas pedal part, as you claimed last week? Why shouldn't we believe that it's a software problem, for instance?"

And Bill Fischer at Forbes agrees: "Toyota has started to look like a lot of organisations that promise things they can't deliver and sell brands with little substance behind them... One of the things that Toyota ...forgot was that one must, in the words of Paul Ingrassia, the author of Crash Course, a new book on the auto industry, 'never build … a new product in a new factory with a new workforce.' ...Organisations must always combine knowing with growing if they are to succeed in a global marketplace... Knowing things will become as important as, if not more important than, making things."

But "there's hope for Toyota," says The Atlantic's Edward Tenner, "but only if the public is convinced that it is learning from the disaster and shifting from lowering costs while maintaining quality to enhancing quality without increasing costs."

Look at Intel, says Tenner, and its response to the "Pentium floating point bug" of 1994, in which faulty chips led to erroneous results. "Of course, there were no fatalities associated with the flawed Pentium chip," he adds, "but Intel, like Toyota today, was mocked for what consumers thought an inadequate response from a dominant brand. The chip maker recovered and even became the foundation of the new Mac operating system. The shock was probably good for it."

However, it might be a while before Toyota can find the good in this pile of twisted metal. In the meantime, it is reaching out to customers the old fashioned way.

PR and the president

Meanwhile, in Washington, President Barack Obama has had a little car wreck of his own this week, after some comments he made about his friends the bankers got all misconstrued. In a discussion about exorbitant Wall Street bonuses – in particular, the $US17 million and $US9 million recently and respectively paid to JPMorgan Chase chief Jamie Dimon Goldman Sachs CEO Lloyd Blankfein – Obama told Bloomberg that he doesn't "begrudge people success or wealth. That is part of the free-market system." He then had the bright idea to compare bankers' remuneration with that of baseball players, and baseball players "who ...don't get to the World Series either."

Needless to say, it didn't go down well. Among those most miffed was the esteemed Paul Krugman, who started by calling Obama "clueless" on his NYT blog, followed on with a cry of "we're doomed" and finished up by calling the whole incident "shocking and dispiriting". And here's some of what he said in between:

"First of all, to my knowledge, irresponsible behaviour by baseball players hasn't brought the world economy to the brink of collapse and cost millions of innocent Americans their jobs and/or houses. And more specifically, not only has the financial industry has been bailed out with taxpayer commitments; it continues to rely on a taxpayer backstop for its stability."

"These bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. ...At the very least, you would think that Obama would understand the importance of acknowledging public anger over what's happening."

"I mean, how hard is it for the White House to understand that it's a really, really bad idea to be saying nice things about bailed-out bankers, Goldman Sachs in particular? Even if you think it's a bad idea to come across too populist – and why, exactly? – ... Do NOT praise Lloyd Blankfein's savvy, OK?"

Simon Johnson of The Baseline Scenario was similarly outraged: "...The White House has a major public relations disaster on its hands. Does the president truly not understand that Dimon and Blankfein run banks that are regarded by policymakers and hence by credit markets as 'too big to fail'? This is the antithesis of a free-market system."

Looks like someone else could use a lesson from Intel: knowing things = important.

But never fear, the White House PR machine has kicked into gear and is "clearing up the issue". Apparently there was some confusion about what the President said, and what he actually thinks. Confused? Don't worry, Salon's Andrew Leonard can explain: "It's a modern American political tragedy. We've got a guy in the White House capable of more nuance than anyone in recent memory, and a political culture that can't deal with any nuance at all."

Holes in the human heart

And in our final PR lesson for the week, we give you Vedanta Resources, a self-proclaimed "exceptional mining company with a world class resource base" that was the second biggest riser on the FTSE index last year until a series of indiscretions in the ever-so icky human rights department not only managed to attract the attention of "celebrity protestors", but last week moved the Church of England to sell its £3.8 million stake in the miner.

"The church has been under mounting pressure over the past year to disinvest in the ...company after it continually refused to back down on its plans to construct an open-cast mine on Niyamgiri mountain in Orissa, India," says Kathryn Hopkins in The Guardian. "Activists believe it will destroy the area's ecosystem and threaten the future of the 8,000-strong Dongria Kondh tribe, who depend on the hills for their crops and water and who believe the mountain and surrounding forest to be a sacred place."

Apart from the obvious lessons for Vedanta, here, you have to wonder if the old Church of England might learn something from this, too. Like, what took you so long?

According to Hopkins: "In June [2009], an environmental award was withheld at the last minute when details of the mine in the eastern state of Orissa were brought to the jury's attention. ...In August, India's environment minister admitted the project should never have been approved."

The Norwegian government, meanwhile, sold its $US13 million stake back in November, saying: "There is little reason to believe that the company's unacceptable practice will change in the future." Even BP's pension fund reduced its holdings because of "concerns about the way the company operates". Ouch.