Viewpoints : Perrier’s Crisis Mismanagement

Perrier’s recent benzene-contamination crisis may turn out to be a passing headache instead of a kiss of death. But its reputation has been severely tainted--something that could have been avoided had it better managed its misfortune.

Let’s test what happened at Source Perrier. But first, let’s look at the product and the market.

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The French company pitches perfection with an attitude: that Perrier is beyond the beyond. That image is shipped across the ocean, trucked overland, carried into the bar and poured down someone’s gullet. Perrier has become a part of France’s image abroad--ranking with Bordeaux, Burgundy and brie--and 60% of its sales come from exports.

So what went wrong?

On Feb. 2, Perrier learned that traces of benzene had been discovered in its product during sampling. It unleashed a limited recall in North America and blamed the impurity on a botched cleanup job. But days later, after benzene turned up in the Netherlands and Denmark, the company changed its story: It wasn’t the guy who cleans the equipment after all, a Perrier official said, but the guy who changes the charcoal filters.

Perrier then announced a new worldwide recall but assured its customers that its natural spring in southern France remained pure and clean. Normal production had resumed, Chairman Gustave Leven said, and would continue full blast until stocks were restored.

When news of the problem first broke, it seemed that Source Perrier deserved credit for some smart crisis-management decisions. Top management appeared to have come forward right away and showed concern without stonewalling. It also seemed to react swiftly, assuming that it had learned of the benzene taint only a few weeks earlier. In addition, officials took sizable measures to stem losses. (After all, the North American market is not chopped liver--or pate .) Nonetheless, the company emerges looking worse. Now, instead of a one-time mistake, the contamination appears to have been caused through negligence. Tests in the United States showed that the water had been contaminated for as long as six months. The company’s faulty quality control was exposed.

Something went wrong with the processing, but something also went wrong with Perrier’s management mentality.

What drives managers in a crisis is mostly human nature. The only thing that managers detest more than discovering mistakes is disclosing them publicly. Some companies are undone by their own fear, ignorance or arrogance. Exxon, for example, shrugged off responsibility for the massive Alaskan oil spill instead of accepting it. Gerber Foods denied that its baby foods were laced with glass (and they weren’t) but lost touch along the way with what its customers needed most: a display of real concern.

Other companies are better schooled or more discerning.

Johnson & Johnson, for example, understood that its reaction to the tampering with Tylenol capsules and its attention to customers’ needs were equally important, and it showed that the company cared in both instances. Most recently, BP America successfully contained an oil spill off Huntington Beach in a largely unheralded but nearly triumphant case of how to manage a crisis well.

Why are some managers prepared and others unfit?

Perrier’s failure can be chalked up to ignorance. Compared to American businesses, European firms are still in the Stone Age when it comes to managing a public crisis, so it is not surprising that Source Perrier stumbled. In the United States, crisis management books sell well and crisis specialists counsel troubled companies. Major business schools make crisis training part of their educational framework.

Perrier could have responded differently.

First, the company either knew or should have known about the problem months ago, and it could have switched into high gear instead of issuing the erroneous explanation that the problem was limited to North America. A crisis team could have been dispatched to manage the product failure and limit physical damages to customers and company. The team could also have handled Perrier’s public-perception crisis by quickly getting out the facts. The company needed a single command center to collect information and state its case with one voice.

Ashland Oil, which two years ago had an enormous spill that contaminated supplies of fresh water in Pittsburgh, is a good role model for Perrier. BP America offers another.

Companies that overcome a crisis should be copied with vigor. The procedures are straightforward. When trouble strikes, top officials should accept responsibility and admit the error, privately and publicly. They should tell the public the facts. If people or the environment will suffer, the company should say so and its officials should get the information out quickly. (The press will dig it up anyway, and there is little that is more painful than having your arm chopped off an inch at a time.)

Next, management should cage its lawyers. They are trained to protect companies in court and are excellent at dispensing legal advice, but lawyers know little about marketing or how to deal with customers. Following an attorney’s advice in these instances can lead management off a precipice. That’s what happened at A. H. Robins with its Dalkon Shield. And that’s what happened at Volkswagen when it tried to protect its market for the Audi 5000.

Management should swing into action with a trained crisis team. It should show that it cares. It should take a cue from Ashland Oil and offer to pay for losses on the spot. Companies should investigate at their own cost and also pay for an independent assessment. Finally, firms should change the managers responsible.

The first commandment of crisis management is “preserve your credibility.” If a firm has credibility, it can prevail; but once it loses credibility, it loses it all.

Credibility starts with integrity, with what a company says and does, and the two must go together. Credibility also springs from concern for stake holders: stockholders, employees and creditors. They must be convinced that a firm has their best interests at heart, that it will protect, nourish and reward them.

When it comes to credibility, Perrier blew it. Whether Perrier’s management was guessing at the source of contamination or dodging the truth, the damage was done. Perrier may have made up a story to cover itself and limit immediate losses, but now the very thing that the French company stands for is at issue. The tainted French water didn’t hurt anybody but the company itself.

Perrier’s contaminated water offers a classic case of a crisis that went unmanaged. All the unmistakable signs are there: chronic non-performance followed by denial, then anger and fear as the story unfolds before the public.

Next for Perrier: radical change, which can mean an organizational shake-up, a shift in identity or a sharp business decline.