The changing face of crisis management in China

Recently Johnson Controls Inc. found itself in the midst of a public relations nightmare. A routine pre-kindergarten health check had found elevated levels of lead in the blood of 21 children who were living in a community 700 meters away from its Shanghai battery factory.

After a week of complaints to the government officials and exposure on Weibao, China’s version of Twitter, the story finally broke in the press on Sept. 15 and 16. Covered by Xinhua, China’s leading news wire service, Shanghai Daily, the South China Morning Post and Global Times, it was quickly picked up by AP and Reuters, where it ended up in almost every major U.S. newspaper.

For a company which had announced on Oct. 7, 2010, that it was investing $118 million to build its third battery plant in China, it was a potentially cataclysmic threat. Alex Molinaroli, president of Johnson Controls Power Solutions, had outlined what was at stake in China for the world’s largest supplier of automotive batteries: “In three years we will be growing from a single plant to three plants that will produce more than 18 million automotive batteries annually. These plants support our plan to install capacity for 30 million batteries annually in China by 2015.”

If there was a finding that lead from Johnson Controls plant had poisoned these children, it could result in the revocation of its Chinese corporate and/or operating licenses and expose the company and those responsible to civil and criminal liability. Keep in mind that, unlike in the United States where such matters result in a slap or two and some civil fines, in China these matters are extremely serious. A number of high-ranking Communist Party officials and corporate executives were put to death in the melamine/milk and fake pharmaceutical scandals. It is doubtful if there would be much sympathy for an American company, or its employees, if they were found to have been responsible for poisoning Chinese pre-school children.

In this instance, 21 pre-school children are receiving medical treatment. The problem is that while treatment can reduce lead levels in the blood, due to the nature of lead poisoning, it is impossible to reverse damage already done; meaning many of these children face permanent injuries.

Outside of China, the story was a one-day wonder. Inside China, it became a firestorm. Angry Chinese netizens flooded, and continue to flood, the social media with a firestorm of anti-Johnson Controls sentiment. At the moment, the pot is simmering, but given the angry, often violent, reactions which have accompanied these types of incidents, it could flare up again at any moment.

Over one third of Chinese children have elevated lead levels in their blood. In 2007, China was subjected to harsh international criticism for the “lead toy” poisoning scandal. The role of foreign companies in creating these hazards is a tinderbox which has already resulted in violent riots. In terms of the “lead toy” scandal, the Chinese perception was that the toys were produced either by or for foreign companies which cared more about profits than safety. Many felt that foreigners overlooked the fact that these toys were also sold in China and affected Chinese children. Many are also dissatisfied with the government, which they believe has sacrificed long-term health for short-term wealth.

In this scenario, Johnson Controls had two basic public relations moves; circle the wagons and work with the local, provincial and national government to smooth things over, or try to engage the local citizens by inviting them to be part of a transparent investigative process. Johnson chose option one. In an e-mailed statement, the Chinese Johnson Controls Chinese division stated: “We acknowledge and take these concerns very seriously. We are working with the government to understand and address these issues. However, we have no reason to believe we are the source of the issue.”

In the past, this would have been the smart play, the power of a coordinated government response and a submissive media would have ensured the desired result, regardless of the realities or morality. But, in China’s rapidly changing environment, it is no longer the sure bet. Heightened central government concerns about pollution and safety, growing nationalist sentiment, social media and a more aggressive press has made putting the inside fix in difficult and in some cases impossible. Circling the wagons could also have dire future consequences for Johnson if the company or its employees are found to have been culpable, as China has its own version of “accessory after the fact.”

The Chinese government officials are also increasingly less willing to play ball. In this case, Ju Chunfang, a senior official from Pudong’s Environmental Protection Department, publicly stated that Johnson Controls is likely the source of the lead poisoning. He cited the company’s use of 20,060 tons of lead in its manufacturing process during the nine months prior to its shut down. The shutdown itself, coming at the same time as the complaints, was curiously coincidental.

Time will tell, but in the future, companies in China may have to expand their crisis responses to include more inclusive options which address the citizenry as well as the government. The upside is that, properly handled, it will preserve the company’s ability to continue business in China. It may require those who made poor or illegal decisions to face consequences, but that may be the price of doing business, and it may help ensure better compliance with goals and operating procedures.

Also, it is worth noting that China has fewer lawyers than judges and settlement options are a fraction of what they would be in the United States. At the end of the day, to preserve your reputation and economic opportunities, it might be worth taking a longer, less defensive view.

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