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Andy Gilman: While nobody wants to have a bad thing happen, nobody wants to have a crisis, if you’re prepared the apology can come appropriately in time, it can be sincere and it can be well delivered.
Stephanie Kelton: Welcome to the Best New Ideas in Money, a podcast for Marketwatch. I’m Stephanie Kelton, I’m an economist and a professor of economics and public policy at Stony Brook University.
Charles Passy: And I’m Charles Passy, a reporter at Marketwatch.
Stephanie Kelton: Each week we explore innovations in economics, finance, technology, and policy that rethink the way we live, works, spend, save, and invest.
Charles Passy: Today we’re going to start a bit south of Louisiana in the Gulf of Mexico, back in 2010.
Speaker 4: A well drilled by the BP Oil Company blew out, killing 11 workers on the Deepwater Horizon rig and unleashing a gusher into the Gulf of Mexico for 87 days.
Charles Passy: It was the largest marine oil spill in the history of the petroleum industry, leaking roughly 210 million gallons of oil and impacting an area of the ocean that was about the size of Oklahoma.
Maurice Schweitzer: This oil well is just spewing oil into the Gulf of Mexico. It was an environmental catastrophe.
Charles Passy: That’s Maurice Schweitzer. He’s a professor at the Wharton School.
Maurice Schweitzer: I began my studies focused on negotiations, and in negotiations there are two really interesting challenges. One is deception, which is very tempting for many negotiators, and trust, which is essential. And I became interested in thinking about how we can repair trust, and that really started my interest in apologies.
Stephanie Kelton: And the Deepwater Horizon spill required a big one, but Schweitzer says while the explosion itself was a disaster, it was made worse by BP CEO Tony Hayward’s response. Initially calling the spill relatively tiny compared to the ocean, Hayward added fuel to the fire while touring the disaster site.
Maurice Schweitzer: He first said, “There’s no one who wants this over more than I do.”
Tony Hayward: There’s no one who wants this thing over more than I do. I’d like my life back, so there’s no one who wants this thing done more than I do, and we are doing everything we can to contain the oil offshore, defend the shoreline, and return people’s lives to normal as fast as we can. There’s just no effort being spared in any dimension.
Maurice Schweitzer: I think this reflects the challenge where when things are going badly, it’s very easy for us to take our own perspective and say, man, I’m having a bad day, and Tony Hayward sure was having a bad day. But he struggled to take that perspective, in part because he didn’t have a plan in place, he didn’t know how to deal with it.
Stephanie Kelton: Today, that’s exactly what we’re going to be looking at, what happens when something goes wrong and a company needs to say I’m sorry. What goes into a good apology? How do these crisis communications plans come together? And who are the people working behind the scenes to make sure they do?
Charles Passy: Plus, we’ll look at some new research on how the stock market responds to corporate apologies, and we’ll try to answer the question, what’s a good apology worth?
Stephanie Kelton: First things first, what are the elements of an effective apology? Not just from a company, but from any of us? To answer that we went to Marjorie Ingall and Susan McCarthy. They’re the co-authors of the recent book, Sorry, Sorry, Sorry: The Case for Good Apologies. They’ve been studying apologies for years, which began in the form of a blog called Sorry Watch. After almost a decade, Ingall and McCarthy decided to synthesize all they’ve learned about apologies over the years. Their book breaks down the elements that make a good one. Here’s Marjorie Ingall.
Marjorie Ingall: The nice thing about the six and a half steps to a good apology is that they are relevant and helpful and useful. Whether you are a third-grader who has chased a classmate with a booger, whether you are a, let’s say, world leader who has to apologize for having a big party during a COVID lockdown, whether you are a spouse who, not that I know about this, just keeps forgetting to unload the dishwasher even though she promised to. But the six and a half steps to a good apology are number one, say you’re sorry. Use the words I’m sorry or I apologize, not I regret, not I’d like to address, say the words I’m sorry.
Stephanie Kelton: Seems like a given, but Susan McCarthy says it’s less common than you’d think.
Susan McCarthy: You’d be surprised how often people dodge that and just say, “Oh, I feel really bad.” No, this is not about you.
Charles Passy: We’ll get into some of the reasons why that’s the case later in the episode. On to the rest of the steps.
Susan McCarthy: Step two is to specify what you’re apologizing for. So you don’t say, “I am sorry about the situation,” you say, “I am sorry I jumped on the table.” Step three is showing that you understand the impact of the apology, “I’m sorry I jumped off the table and all your dishes fell off and half of them were broken.” Step four is not making excuses. If you have to explain things, then you can put in a little bit of explanation, but it’s really easy for that to go into excuses, and, “Your party was really boring, you needed somebody to jump on the table to liven it up,” whatever. Step five is saying why it won’t happen again. Step six is making reparations if that’s appropriate, pay for those broken dishes. We also put in a half step that may or may not be appropriate in any particular situation, which is to listen, to let the person you’re apologizing to have their say.
Charles Passy: Okay, sure, but those are apologies in your personal life, how do those steps change when it’s a corporation saying sorry?
Stephanie Kelton: Well, Charles, the steps don’t actually have to change that much. Here’s what Maurice Schweitzer, the Wharton professor we heard from at the beginning of the episode, said when we asked him what goes into a good corporate apology.
Maurice Schweitzer: The first is this expression of remorse, and then to really put things back together you want to do what you can to convince the other side that you’ve changed. So it could be a promise to change, it could be addressing something in a very different way, and then some offer of penance, some payment, or it can even be just a token cost from your side to demonstrate that you’re really committed to the change and feel remorseful about what happened to the other party.
Charles Passy: That last part, committing to a change, can be especially important when it comes to corporate apologies. One example that follow the course Schweitzer lays out is the case of Baptist Children’s Hospital in Miami.
Maurice Schweitzer: There was a tragic case where the Sosa family brought in their one and a half year old daughter. She’d been climbing up a couch, she fell, hit her head. They did some initial tests, they weren’t sure exactly how bad things were, so they decided to do an MRI, so they sedated and intubated her. Tragically, during that whole process the breathing tube became disconnected and her brain was starved for oxygen, she suffered irreparable brain damage. What’s so interesting about this case is medical lawsuits are so common, but what the hospital did is they followed this procedure they had put in place, and I think that’s a really important and interesting idea, that here it was a policy decision. The whole team, the doctors came together and apologized right away, they explained the mistake that had happened. They worked with the family to figure out what the Sosa family would need, and so they affected change throughout the hospital.
The mom became a spokesperson and made a video, a safety video, showing how they had made these important changes throughout that area of the hospital. They color coded things, they had child sized crash carts, they put in new systems in place to monitor and check for this sort of error. And the Sosa’s talked about how the hospital had really made this fundamental change and they never sued the hospital. And it’s part of a broader framework where many hospitals have moved in this direction, and rather than trying to be protective, not apologizing out of fear of admitting responsibility, many hospital systems have moved to quickly acknowledge errors in ways that have decreased not only the number of lawsuits, but also the magnitude of the damages of those lawsuits.
Stephanie Kelton: Medical care isn’t the only line of work that’s generally been more successful in issuing apologies. Schweitzer points out some industries wrestle with the challenge of apologizing all the time. Airlines, restaurants, and hotels all regularly encounter dissatisfied customers, and consequently have to plan for how to respond when things don’t go as expected.
Maurice Schweitzer: One issue is the recognition that we’re going to fall short. There’s going to be something we do that doesn’t meet the standards that we wished we had met. And so in service industries they’re more experienced and it’s a more familiar challenge. But it happens in the automotive industry where there’s a recall of a car, or I mentioned BP and the oil spill. It happens across industries, and one thing is this call to recognize that, hey, we need a plan not for what’s going right, but also plan in case things go wrong. And the second is to then develop, okay, what’s the plan for when we fall short? And to be, I think, pretty serious, thoughtful, and dedicated to that plan.
Charles Passy: Coming up, we’ve learned what makes a good apology, but who are the people making it happen, and how does an apology, good or bad, impact the stock market? That’s after the break.
Stephanie Kelton: Welcome back to the Best New Ideas in Money. Before the break we dove into what makes a good apology, and took a look at some of the corporations that have delivered. But a successful apology doesn’t just materialize out of thin air, and increasingly PR firms specializing in what’s often called crisis communications have become an important player in the development and delivery of these public declarations
Andy Gilman: In the corporate world you have to assume that it’s not a perfect world. So while nobody wants to have a bad thing happen, nobody wants to have a crisis, if you’re prepared, the apology can come appropriately in time, it can be sincere, and it can be well delivered.
Charles Passy: That’s Andy Gilman. He’s the CEO of CommCore Consulting Group, a specialty public relations firm based in Washington DC.
Andy Gilman: We specialize in preparing people who have to give speeches, do media interviews, testify in Congress, and a subspecialty has been in crisis communication.
Charles Passy: Gilman’s experience in crisis communications goes all the way back to one of the most famous and successful examples of corporate apology.
Andy Gilman: I worked with Johnson & Johnson during the Tylenol crisis back in the 1980s when their product was poisoned, and that is still taught as a case study in business schools for how does a company come back after a crisis with a stronger reputation than when they started
Stephanie Kelton: A quick synopsis of that case. In late September 1982 in Chicago, a still unknown suspect laced Tylenol with potassium cyanide. Seven people died in the Chicago metropolitan area, and a series of copycat incidents across the country led to more deaths.
Speaker 9: The phone has been ringing off the hook at Rush Presbyterian St. Luke’s Medical Center in Chicago. It’s the regional poison control center for the entire Chicago area. Poison specialist Lane-
Speaker 10: Oh, we’ve been receiving calls about once every 15 seconds.
Stephanie Kelton: Johnson & Johnson acted swiftly, working with the Chicago Police Department, the FDA, and the FBI on the case. As the drugs market share collapsed from 35 to 8%, the company issued a nationwide recall of more than 31 million bottles of Tylenol. Here’s Susan McCarthy, the co-author of, Sorry, Sorry, Sorry, who we heard from in the first half of the show.
Susan McCarthy: At the time it was predicted that Tylenol was dead in the water, that no one would ever buy Tylenol again. They withdrew it immediately, they were extremely open and transparent with the public, they said exactly what they were doing. And then they came back on the market with completely changed packaging, which has been copied by other companies, and is extremely influential, and a week doesn’t go by when I don’t open a bottle that’s design has been influenced by that tragedy and by Tylenol’s response to it.
Charles Passy: Within just a few years, Tylenol regained its market share. One year after the crisis it was already back up to 30%. Gilman says the company’s rapid response was largely responsible for the turnaround, and the lessons of the tragedy can be applied to other companies looking to develop their own crisis communications plans.
Andy Gilman: When a company needs to apologize, it needs to first get the facts. What happened? What, if anything, went wrong? What did the company do wrong? And sometimes that’s either factual or perception of that. Then you need to think about who are the audiences you are trying to reach? Is it your customers? Is it your suppliers and vendors? Is it your shareholders? Is it the public at large? And then you need to follow through with not just an apology, but what are you actually going to do about it? It’s not just words. What are your actions? So for example, if it’s a product recall, are you going to give a coupon for customers to get another substitute product at some point? If it’s a spill, what are you doing to clean up the environment, not just the fact that you’re sorry that something you did happened to cause that? So be specific of what your actions are.
Charles Passy: Gilman also notes that it’s important for companies to make deposits in what’s known as the Goodwill Bank Account in advance. He explains.
Andy Gilman: You need three deposits in that Goodwill Bank account for one withdrawal. So if you’re an airline and you’ve inconvenienced passengers because of flight delays, well there are now rules that require airlines to compensate passengers over X amount of time. In a certain way there’s the apology, I’m sorry you were late. I’m sorry you were inconvenienced, but that doesn’t go very far with the traveling public these days, do something about it.
Stephanie Kelton: One big shift that has altered the calculus around corporate response in recent years is the rise of social media, for better and for worse.
Andy Gilman: Because of Instagram, because of Facebook, because of Twitter, you can’t get ahead of the story. What you do need to do is respond with at least something within a certain period of time. It could be within what we call the golden hour, within an hour, sometimes less than 15 minutes. You don’t have to say a lot, but it might be, “We are aware of this incident, we are looking into it, we will come back to you as soon as possible.” You can’t get ahead of the facts, so if you can’t determine what happened, you can’t honestly say we are at fault. You can communicate, “We’re sorry that you were inconvenienced, we’re investigating. When we have more information we will come back.” The important point actually for planning for an apology for a crisis is to have a plan, have a set of checklists, have the ability of your crisis team to come together and quickly figure out what’s going on, who do we need to communicate with, and when?
Charles Passy: We’ve talked a lot in this episode about what people, employees, customers, and the public at large value in apologies, and how that impacts companies behavior. But when corporations are deciding what to do, that’s not the only consideration.
Ben Ho: We really wanted to know how do apologies affect the real world?
Charles Passy: This is Ben Ho. He’s a professor of economics at Vassar College, and he’s been studying apologies for quite a while.
Ben Ho: Doing a PhD the most daunting part is doing a dissertation, where you basically have to come up with an idea no one in the history of the world has ever done before. So one day my roommate basically came to me with a problem, he had a friend that kept showing up late, and she kept apologizing, and he just said, “Ben, why are people apologizing? They’re just empty words.” And I’d just been studying the economics of cheap talk and game theory, studying how we use words, and I thought, great, this is a perfect topic, and so I took it on. So my dissertation was about apologies, and I’ve been working on apologies ever since, for like 20 years now.
Stephanie Kelton: Recently, Ho has taken a look at the impact of corporate apologies in a study published in January in the Journal of Economic Behavior and Organization. With his co-authors, Ho looked at a specific type of incident, chemical spills. With a sample of 200 spills over roughly 30 years, they looked at the impact on share prices right after an apology announcement.
Ben Ho: So we’re just looking at the moment that apology comes out, what happened to the share price in the following days? And what we found at first matched the earlier literature, which is that there seems to be no effect, that my roommate was correct, apologies in this case seem to be empty words, and the average impact on the share price was the same for corporations that apologize or corporations that did not apologize. However, my research also went on to use game theory to categorize apologies into different types.
Stephanie Kelton: The team found five categories of apology, empathy based, excuse based, monetary, promise based, and reputation apology. That last one is when a company owns up to its own failures.
Ben Ho: Basically what we found was that excuse based apologies actually worked well. When a corporation makes an excuse, their share price seems to go up, and promise based apologies and reputation apologies especially tend to do poorly. Basically when an apology admits to making a mistake, admits to their own incompetence, their stock prices actually go down. Actually, it’s interesting because it goes against what a lot of crisis management advisors say. They often say that those weak a apologies aren’t effective and that you need to do a full throated strong apology, but we find that the stock market reacts in the opposite direction.
Charles Passy: In other words, what the stock market seems to value in an apology is different than what a person does.
Ben Ho: In the case of corporations the excuse is basically a low cost apology, it’s one where basically you’re actually not accepting responsibility, you’re not admitting fault, and that actually is bad maybe for restoring relationships, but it’s good for appearing competent, you’re placing the blame on other people. Whereas an apology where you take responsibility, that is the opposite. That’s a very costly apology for the firm, they basically admit to being incompetent. That might help them appear more warm with regulators or their employees, but it makes them look incompetent, and apparently the stock price doesn’t seem to like incompetence. So what the stock market seems to value is competent firms, and so that really effective apology is bad for shareholders.
Stephanie Kelton: For some companies, walking that fine line means the best apology is no apology at all.
Ben Ho: In our dataset we identified 200 chemical spills, and there were only a apologies for 70 of them. So in 130 cases, there were no apologies. And I think people often look at that and say, “What’s wrong with your corporations?” And I guess from our data it’s basically saying, well, what’s wrong with them is that it’s hard to apologize.
Stephanie Kelton: Still, Ho sees the value in a good apology.
Ben Ho: I believe trust is really important, and the reason why apologies exist is to restore trust. And so I do think that it’s good for corporations, and people, to try to restore trust whenever possible. I think in order for apologies to work they have to be difficult, they have to be costly. In economics, we often say that there’s no free lunch, that yes, an apology can work, yes, apologies could be good in the long run, but there has to be some cost that’s paid along the way.
Stephanie Kelton: Thanks for listening to the Best New Ideas in Money. You can subscribe to the show wherever you get your podcast. If you like what you heard, please leave us a rating and review, and if you have ideas for future episodes, drop us a line at bestnewideasinmoney@marketwatch.com. Thanks to Maurice Schweitzer, Marjorie Ingall, Susan McCarthy, Andy Gilman, and Ben Ho. To learn more about New Ideas in Money, head to marketwatch.com. I’m Stephanie Kelton.
Charles Passy: And I’m Charles Passy. The Best New Ideas in Money is a podcast from MarketWatch. The producers are Michael McDowell, Mette Lutzhoft, and Katie Ferguson, who also mixed this episode. Melissa Haggerty is the executive producer. Tim Roston was our newsroom editor on this episode. The Best New Ideas in Money theme was composed by Sam Retzer. Stephanie Kelton is an economist and a professor of economics and public policy at Stony Brook University and not part of the Marketwatch Newsroom. We’ll be back next week with another new idea.