In short, mapping scenarios in a more detailed way, it would have been clear to anyone that “censoring” Facebook comments might create a backlash. Conventional media wisdom also tells us that “the cover-up is worse than the crime”. By quickly going over the schematic to see what there is “to win” and “to lose” for every response strategy, it would have been clear that the backlash scenario was far worse than a “do nothing” or “make a statement” scenario.
In the end, Nestlé not only suffered reputational damage, but also financial losses from reduced sales and stock prices as well—a large price to pay for a dilemma that is rather straightforward if you take the time to map it out.
While this seems a straightforward exercise, this type of mistake is still quite common.
Using a simple model like the one we presented in the visual can show why some responses might be tempting if you only focus on the upside, but that every scenario has a downside too.
In crises, it’s exceedingly rare to find a silver bullet that will solve all the organization’s problems. More likely, the organization needs to be guided through careful weighing up of the potential upside of different responses as well as the potential negative outcomes.
2. Game theory can show that apparently attractive scenarios are highly risky
Part of what makes a crisis so difficult to handle is that the company in question may not know all the facts.
It can be difficult to plan for negative outcomes when the outcomes themselves are a matter of uncertainty, or when the motivations of the “opposing” player are not fully known. But in public relations crises, the key stakeholders are often media, and they typically follow a predictable logic: they want to find facts and break news.
The same goes for regulators and parliamentary hearing commissions, NGOs and consumer interest groups.
Most of your “opponents” will be highly motivated to bring out information, because they know that reputational damage on your side will make it more likely that you will adopt an accommodating position, as Timothy Coombs calls it in his Situational Crisis Communication Theory. In other words, making you look bad is the best way to get concessions from you.
In a crisis, therefore, it’s always healthy to assume that there is at least a chance that information that you thought was safe or hidden will get out. It also makes sketching scenarios a little easier. Often, your worst-case scenario will be the one where all the information about the crisis and the organization’s response to it becomes public.
Case: a financial institution is hacked
Facts: a financial institution, which was one of our clients, was hacked, which led to financial loss for some of their B2B customers. The losses were significant for the customers involved, but limited to a handful of victims. The victims were notified of the breach, as was a trade federation representing those customers to warn them about the problem.
Our advice was to proactively notify all customers by newsletter and press release, to explain the circumstances of the hack and to explain how to protect against it.
Our arguments were that phishing and hacking attempts occur daily, and it’s inevitable that some will slip past the defenses of consumers and financial institutions. We argued that the media would not be surprised by the fact that hacking exists, that it sometimes succeeds, and would be relatively underwhelmed by the amounts and number of victims.
The client, however, considered the customers to be at fault for the hack (which had occurred on the computer of the customers rather than the systems of the financial institution), and considered the case to be contained: all parties had been notified, and they had upped the security of their systems to avoid further breaches. They updated their website with general advice on “how to keep your account safe”.
They regarded proactive communication as ‘too risky’ because it would invite all sorts of scrutiny. In short, their mental model looked like this:
Two weeks later, the breach was front page news in a prominent newspaper. The customers vehemently disagreed with the notion that they had been responsible for the hack, and had taken the initiative to notify the press, accusing the client of lax security and of not wanting to take (financial) responsibility for what had happened. Going to the press was clearly a move to put pressure on the client to obtain reimbursement for the victims.
The problem here was twofold: first, our client saw only two scenarios – one that would lead to a ‘win’ and one that would lead to a ‘loss’. Secondly, the client underestimated the fact that the stakeholders had a motivation to put the screws on the organization by leaking the news of the breach. Reputational damage would make it harder for the client to deny the victims compensation.
The most difficult task for communication advisers in these situations is to convince management that if some stakeholders know of the breach, then it will inevitably percolate through to the media. And if the news leaked, then all the ‘bad’ outcomes would materialize – but with a worse impact than if the company had communicated proactively. The real model looked like this, with Scenario 1.2 being a mirror of Scenario 2 (but with extra damage):
If the chance of leaks is high, this situation comes very close to what is called a ‘dominated’ strategy in game theory, where a certain move will lead to equally bad or worse outcomes for the player, whatever crisis response strategy the player chooses.
(Note: in a real “game” or decision tree, you should assign a value to all the payoffs and use the probabilities of each scenario to obtain the expected value. We didn’t add this to make the decision tree easier to read.)
If there is a high chance of a leak, then intuitively you can feel that this is a dominated strategy. This has been proven in theory and practice time and time again. Mapping the decision tree like you would in game theory helps the executives weigh the outcomes better.
Key insights & conclusion
1. Game theory can help C-level understand how stakeholders behave in a crisis
Classifying crises and crisis responses can go a long way towards explaining reputational crises to executive teams. By taking them through a few examples and showing the outcomes, C-level might gain a better understanding of the dynamics of a crisis.
Our experiences have shown that C-level grasp these concepts quite easily and often enjoy the intellectual challenge of thinking through different scenarios and trade-offs. By introducing these types of crisis “games” in crisis preparedness settings, executive teams acquire a vocabulary that can be used to manage crises when they occur.
2. Game theoretical concepts can help map realistic scenarios
Organizations tend to associate certain scenarios with “wins” and others with “losses”, whereas in reality, every scenario will require trade-offs. Also, every crisis response choice can have repercussions on the next ‘round’ of the crisis – either because of an opponent reacts to it (media, NGO, regulator,…) or because new information becomes available that sheds another light on the crisis response.
A step-by-step process that lists things “to win” as well as things “to lose” for every response strategy, and that thinks through the next round of events or countermoves from stakeholders, might help avoid that mistake.
3. Game theory concepts can show “dominated strategies”
A core concept of game theory is the ‘dominated strategy’. This is a strategy that will result in an equally bad or worse outcome, in any scenario. In many cases, hoping for the crisis to blow over can be regarded as a dominated strategy, and yet we see that organizations favor it. A good scenario can show that a certain strategy is dominated and help the organization avoid a bad crisis response.
4. Using a strong process allows organizations to take charge
The worst thing that can happen in a crisis is when the crisis communication team is stalled because it cannot agree on a response strategy, or because there are long discussions over payoffs. Using a strong process to create a shared decision tree allows the team to make visible progress and work together towards the least damaging response strategy.
We look forward to your thoughts in the comments or on Twitter.