By Dennis Culloton, CEO and President and our intern, Shannon O’Malley
It’s great to have a positive, customer-friendly message when your company is under fire. It’s even better when that message is accurate and holds up under scrutiny– like “60 Minutes” scrutiny.
Lumber Liquidators had its founder and Chairman Tom Sullivan go mano a mano with Anderson Cooper of the CBS investigative news program. Short-sellers filed a class-action suit and tipped off the news program that something was wrong in the production of laminate flooring produced in Chinese factories. Sullivan took umbrage with the claims:
“Our goal is to sell a good product at a good price. And we don’t get the price by skimping on anything.” Sullivan said last March. “We get the price by low overhead, huge volume and being very efficient at what we do. And we’re never gonna sell something unsafe.”
If you put your chairman of the board out to sit under the bright lights of a “60 Minutes” interview, someone on the team better have investigated the claims behind the story. In this case, that could include checking out those Chinese mills. After Sullivan guaranteed the flooring was made to California’s stringent environmental standards–generally considered the toughest in the country–Cooper showed the company founder hidden camera video of the mills where the news show says employees admitted their flooring contained high levels of the carcinogen formaldehyde–levels that exceeded California’s safety standards. One employee said making flooring that complied with California would make it too expensive.
Sullivan, to his credit, had a good answer to the surprise video: “I don’t know the whole situation here. I will guarantee we’ll be in that mill tomorrow and test it. And that is not anything we can condone in any way, to save a cent.”
Nice response by Sullivan under fire, but Lumber Liquidators CEO Robert Lynch should have started cleaning out his desk right then and there as he watched his boss get roasted. Instead, he stuck around long enough to experience a slow motion free fall that looked like the Don Draper “Mad Men” image free falling from a Madison Avenue high rise.
Lumber Liquidators stock fell too. Dramatically. The report sparked dozens of lawsuits over the health and safety of the product. This week, Lynch resigned.
There is a lot of pressure on all business executives. In many of the crisis cases I’ve handled, the failure of executives to ask one more question–of themselves and their organization–is often a terrible mistake. In this case, from the unusually cheap production costs, to the unprecedented rise in the stock price, no one inside the company seemed to take the time to stop and ask a question. Short-sellers and investigative reporters asked them instead, and rather than looking into whether those questions had merit, the company thought well crafted talking points would do the trick.
Reputation is everything. Companies can always regain market share, but rebuilding a damaged reputation requires skill and a serious crisis management effort that equals the research and reporting of an investigative reporter.