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Resilience A journal of strategy and risk

Bouncing back with an ethically sound CEO apologyDaryl Koehn

2 I Resilience: A journal of strategy and risk

Resilience is more than just recovering. It’s important to bounce back in an ethical and mindful way. A good apology aims at winning back stakeholder trust. An ethical underpinning is vital in order for the apology to accomplish this aim. Analysis of people’s responses to CEO apologies shows that they expect more than just a corporate expression of regret by the CEO. Indeed, sometimes one hears audience members disgusted by the content or form of a CEO’s “apology” exclaim: “That wasn’t a real apology!” So what elements should a sound apology possess? That depends upon the type of corporate apology in question.

There are two main types of corporate apology. The first attempts to rectify something that a CEO personally has said or done — a case in point would be a CEO caught disparaging customers or employees. Stakeholders will be inclined to repose trust in the firm and its leadership only if the CEO displays appropriate shame and

Bouncing back with an ethically sound CEO apology By Daryl Koehn

Business leaders are increasingly finding that when their firms have been involved in an accident or a problematic incident, not just any apology will do. CEOs need to look at the ethics of their apologies if they are to restore trust, says Professor Daryl Koehn of the University of St. Thomas.

Daryl Koehn, Professor, Ethics and Business Law Department, University of St. Thomas, Minneapolis-St. Paul, Minnesota.

remorse. Those receiving the apology are looking for some degree of psychological transformation on the part of the wrongdoing CEO.

The second type of corporate apology relates to an offence committed by the firm. Here the CEO may personally have done nothing wrong. In fact, the CEO may have been brought in after the fact to right the ship. Or the CEO may have been as unaware and as outraged by the action as customers were — a case in point was when staff at a restaurant chain were filmed deliberately contaminating food about to go out for delivery. In this kind of case, the CEO need not show remorse but should state specifically what the firm plans to do to address the problem and to make sure it does not recur.

In both types of apologies, a prompt response is better than a delayed one. It is true that the full facts may take some time to emerge or may need to be settled through litigation. But when an apology is not given relatively quickly by a CEO, stakeholder scepticism may

be heightened. Those affected by the perceived offence may begin to grouse about what the company has been doing in the meantime.

What pitfalls do CEOs need to be especially aware of? In some cases, the reputation of the business may be so compromised by past wrongdoing that the current CEO may find it difficult to secure trust even though he or she is personally untainted. Stakeholders may be especially reluctant to give the firm the benefit of the doubt or to forgive it if the company has tried to lie its way out of trouble before. To restore trust, the apologising CEO must show somehow that the firm has significantly changed how it does business.

Another overlooked element of an ethically sound apology centres on the context in which the apology is offered. The context should support and be consistent with the content of the apology. If the CEO of a vehicle manufacturer is apologising for past quality control issues while assuring

Resilience: A journal of strategy and risk I 3

car owners that their cars are safe, he should not be seen driving around in a car made by a rival firm.

Cultural differences enter into the contextual equation as well. Japanese audiences historically have looked for more speaker humility and submissiveness than their American or European counterparts. Drafting a persuasive apology for an international audience is challenging because CEOs need to factor in how audiences in different parts of the world may hear their apologies.

A final challenge: External factors beyond a CEO’s control may affect whether the apology will successfully restore trust. A CEO of a cruise ship firm might give an ethically sound apology following an accident involving one of her firm’s ships. If a different firm’s cruise ship were to sink the following day, many listeners might discount the CEO’s apology regardless of how ethically sound her apology was.

For these and other reasons, there can be no guarantee that a CEO apology will restore trust, however well-considered and well-drafted that statement is. Still, experience shows there is a right and a wrong way to apologise. If the CEO personally is the offender, remorse is in order. If the firm has erred, then resilient CEOs promptly offer forward-looking apologies with details concerning the measures they are taking to fix the problem. In both types of cases, resilient CEOs stay focused on what they can change — their personal or their firm’s behaviour — and do not get distracted by external factors outside of their control.

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PublishersDennis Chesley Global Risk Consulting Leader PwC US

Miles Everson US Advisory Financial Services Leader PwC US

Juan Pujadas Vice Chairman, Global Advisory Services PricewaterhouseCoopers International Ltd.

Executive Editors Robert G. Eccles Professor of Management Practice Harvard Business School

Christopher Michaelson Director, Strategy and Risk Institute, PwC Global Advisory Associate Professor, University of St. Thomas Opus College of Business

Managing Editor Rania Adwan +1 (646) 471 5116 rania.adwan@us.pwc.com PwC US

Production Editor Shannon Schreibman +1 (646) 471 1102 shannon.schreibman@us.pwc.com PwC US

Resilience Resilience: A journal of strategy and risk

Daryl Koehn

Author

Special thanks to the following parties for their production and editorial assistance: John Ashworth, Chris Barbee, Lisa Cockette, Marc Farre, Tracy Fulham, Malcolm Preston, Alastair Rimmer, Suzanne Snowden, Julie Szydlowski and Gautam Verma