Five Ways Your Company Can Avoid a Crisis Like Ikea’s

Ikea used forced prison labour to make furniture—headline in The Independent.

On Thursday it was business as usual at Ikea. On Friday the results of an independent investigation by Ernst & Young revealed that in the 1980s political prisoners in the former East Germany provided some of the labor that helped Ikea keep its prices so low.

This shocking revelation is making news around the world, and Ikea is in damage control mode. According to a story in The New York Times, “The use of political prisoners as forced labor, even decades ago, is a publicity disaster for a company that with its familiar blue and yellow logo seems at times like a cultural ambassador for Sweden.”

“We deeply regret that this could happen. The use of political prisoners in production has never been acceptable to the Ikea Group. At the time, we didn’t have today’s well-developed control system and obviously didn’t do enough to prevent such production conditions among our former GDR suppliers,” says Jeanette Skielmose, sustainability manager at Ikea of Sweeden.

There are three reasons that every large global corporation teeters at the edge of a reputational cliff. First, employees, consumers, shareholders, and other stakeholders are holding corporations to higher and higher standards. Second, there’s a growing movement of socially conscious citizens, especially younger people, who are deeply concerned that too many people are still living in unacceptable social and economic conditions. And third, easier access to information and the ability to share information quickly means that inappropriate behavior can’t be hidden for long.

It has become virtually inevitable that every large corporation will experience a reputational crisis related to irresponsible or unethical business practices. Yet it’s not clear whether building a reserve of goodwill through corporate social responsibility (CSR) activities will make things better or worse when the crisis hits. BP was once regarded as the world’s most responsible oil and gas company. The extend to which BP had worked to establish a positive reputation likely made the reaction to the Deepwater Horizon explosion and oil spill even harsher.

Ikea had a robust sustainability strategy (People & Planet Positive) and appropriate checks and balances that specified the “minimum requirements for environment and social & working conditions when purchasing products, services, and materials” (IWAY Standard). Regardless, the company now needs to reconcile the conclusions of the investigation with its vision of  “to create a better everyday life for the many people” and its corporate responsibility commitment to “taking care of people and the planet”.

If you’ve already done everything you can to optimize the social and environmental effects of your business, what can you do differently to minimize the impact of a reputational crisis like Ikea’s? Unfortunately, there isn’t a perfect answer to this question, but here are five suggestions:

1. Make sure you understand your social purpose and have integrated it operationally wherever possible. This won’t eliminate the risk of being targeted for inappropriate actions in the past, but it is the foundation for ensuring that every aspect of your business is done in as responsible a manner as is possible. What Chevron is doing to operationalize its social purpose, with “The Power of Human Energy,” is a best practice.[/entity]

2. Identify and engage all possible special interest and advocacy groups and give them the opportunity to examine every aspect of your company’s operations. For example, the Environmental Defense Fund works closely with Wal-Mart and has an office in in the company’s hometown of Bentonville, Arkansas.

3. Foster a culture of transparency. This starts with having a whistleblower policy that protects employees who report violations of rules, regulations, laws, and other unethical or inappropriate behavior. Corporations should also consider ways to reward and even celebrate employees who find and disclose unsuitable actions.

4. Use independent academic experts to assess the situation, rather than consulting firms that don’t understand the social or environmental context or consequences. “Ernst & Young has no experience with research into dictatorships and is clearly not objective,” said Ronald Lässig, chairman of the East German victims’ group DDR-Opfer-Hilfe. “What Ikea did today was little more than an event for show.”

5. Make sure your leadership is front and center. After a deadly strain of listeria was found in Maple Leaf Foods products in August 2008, the Toronto-based company’s chief executive went on national television and told consumers what the company was doing. He offered his “deepest sympathies” to Canadians whose family members had died or became ill after eating Maple Leaf products. It has only been a few days, but Ikea’s CEO Mikael Ohlsson has been missing in action in favor of sustainability manager Jeanette Skjelmose. That makes you wonder how seriously they’re taking this.

Your company could make headlines tomorrow. Make sure you’re as prepared as possible.

This article was originally posted on Forbes
Paul Klein founded Impakt in 2001 to help corporations become social purpose leaders and is considered a pioneer in the areas of corporate social responsibility.  Paul is regularly featured in the media as a corporate social responsibility source, was included in the Globe and Mail’s 2011 Leading Thinkers Series, and was recognized as one of America’s Top 100 Thought Leaders in Trustworthy Business Behaviour.  You can follow Paul on twitter at paulatimpakt