Arnott's doesn't crumble under pressure

By Holly English

This article was published in Living Ethics: issue 28 winter 1997

When faced with an extortion threat early this year, Arnott's Limited confronted a problem of gigantic proportions. Apart from the strategic complexity of how to balance concerns for the safety of consumers, and still ensure the wellbeing of the company, Arnott's had to consider issues which would challenge the foundations of any organisation.

How Arnott's responded, demonstrates the flexible thinking and commitment to principles which set the survivors apart from those who might collapse under the pressure. City Ethics asked Managing Director, Chris Roberts about how his company dealt with the crisis, and how Arnott's is faring today.

In February of this year, Arnott's Ltd faced a crisis when extortionists threatened to poison Arnott's biscuits in New South Wales and Queensland unless demands to release a prisoner, held in a Queensland jail, were met. The company was forced to remove all its products from the shelves for eleven days at a cost of at least $10 million.

Managing Director Chris Roberts explains how the company integrated their stakeholders into the decision-making process, and illustrates the tension that can exist between concerns for the community versus the financial health of the company. His reflections can perhaps serve as a model for other companies who might face such a crisis at some time.

According to Chris Roberts, dealing with a deadly serious extortionist is actually simpler than it may seem: “All you have to do is give yourself some guiding lights. A bit like steering your yacht at night; if you've got a beacon, you've got no problem. We established our beacon on the first day, so it wasn't hard.

"The 'beacon' for Arnott's consisted of our principles. The first was we wanted to ensure that whatever we did was to protect the safety of our consumer. Second, we wanted to protect the value of our trademark and the reputation of Arnott's. The third principle was to protect the interest of the shareholders of Arnott's. And the fourth principle was we wanted to do everything we could to terminate the incident.”

Thus the basis for the company's response was a set of clearly articulated core values that could orient those dealing with the crisis even in a chaotic and turbulent setting.

Thereafter, Chris reported, Arnott's response has broken down into three phases. Phase one consisted of forming a management committee and deciding whether to take the biscuits off the shelves. In Phase two, Arnott's determined how to handle their position while 'in exile'. And in Phase three, which is still going on, the company has worked to regain its market position.

Grave threat

Phase one began with a jolt immediately upon receiving the extortion threat on 3 February. Arnott's quickly formed a management crisis team.

“The chairman of that committee was one of our senior management team,” Chris explained. “The reason I didn't want to be chairman was I knew I'd be running around talking to the police and talking to the press, so I was an ex-officio member. So this committee met two or three times a day and reported to me and all the decisions of the committee were sanctioned by me or okayed by me every day.”

Thereafter, the company had to assess the gravity of the threat. “We did a forensic evaluation of the poisoned biscuits that the extortionist sent to us”, says Chris. “We had to discuss with the police the likelihood of the perpetrators to actually poison people. In the first instance, the forensic analysis showed that one biscuit would be enough to kill a child of up to 10kg, in other words, up to two and a half years. So it was clearly deadly. “We then had to consider our response.” Chis continued.

This prompted heated internal discussion. Some argued for less drastic options than taking all the biscuits off the shelves; for instance, some said that the company should only remove Monte Carlo biscuits, since that was the poisoned brand that had been sent to Arnott's. Others felt that the threat involved Arnott's biscuits in a generic sense. “And there was some argument to take the biscuits off all over Australia,” says Chris, rather than in the states named by the extortionist.

The police had their own views on how Arnott's should proceed. “The police weren't much interested in us taking all our stock off the shelves, because they weren't interested in setting that precedent”, Chris reported. The Health Department, for the record, actually couldn't help because relevant legislation allows intervention only when a product is in fact contaminated, and on the shelf, not because of a threat alone.

Also playing into the biscuit manufacturer's decision were some facts and figures about extortion that the company was in the unenviable position of having to learn. As Chris explained: “48% of extortion ends up with the extortionists fading away, because of the complexity of trying to collect the booty. 48% of extortionists are caught or are entrapped in the mechanism of collecting the money. And 4% get away with the money and are never caught. So armed with that information, we therefore were faced with the full knowledge that there was nearly a 50% chance of the extortionists' threats fading away in time”.

This left Arnott's with the dilemma of having removed products from the shelves but having no justification to return them.

Against this background, Chris determined that it was preferable for Arnott's to direct the decisions about when the products came on and off the shelves, rather than having retailers making individual decisions. Three days before the extortionists' deadline, Arnott's announced to the public that they would remove all biscuits from the shelves in New South Wales and in Queensland, the two states identified as the ones as risk.

“The decision we got to, was the right one”, Chris says firmly. The company had balanced concerns about the wellbeing of the company with concerns for the consumer, with reference all along to the four principles, the core values that guided their actions. Phase one was over.

The Importance of listening

Next began Phase Two, the tense period of waiting, or “managing the market in exile,” as Chris put it. The company reached out to its stakeholders by tracking community response to the crisis with a hotline and with polling. “We listened every night by way of a 1800 number – we were fielding 2,500 calls a day, as to what our customers were saying”, Roberts said. “We also did polling every night in five capital cities. So every day we knew from the previous day's information what the community was feeling. That would influence the way we would conduct ourselves each day”.

These differences were reflected in the company's advertising during the 'off-the-shelves' period. For instance, television ads in New South Wales assured viewers that Arnott's was doing all they could to bring the biscuits back, and that any products they had bought before the crisis broke were safe. In Victoria, however, the ads showed Arnott's in 'business-as-usual' mode, with Arnott's bakers saying that all was well because there was no extortion threat in Victoria.

The other aspect of Phase two was to work out when the company could put their biscuits back on the shelves. As Chris noted wryly, “It's easy to take your products off the shelf. The hard part is getting them back. And so I kept that initiative at my feet. We kept saying in our ads that we had taken our products off because our number one priority is safety of consumers and we will not return to the market until it's safe”.

“So the initiative obviously was with us”, Chris went on. “Because in talking to consumers through our ads – and I was on television almost every night, addressing the same messages coming from our consumer research – our credibility built up very well. We knew that something like 98% of consumers, which is a very high percentage, believed that if we said it was safe to go back, they would believe that”. The company invested heavily in keeping its customers in the loop and in building up its reputation and credibility so that customers would trust the company and have faith that the decisions Arnott's made were sound.

Whereas, he pointed out, if the police or media made such a judgement, the public wouldn't necessarily believe it. This demonstrated to Chris the value of public consultation via extensive market research and polling. “Of all the lessons I learned through this, it was the importance of listening”, he said.

Ultimately, Arnott's was assured the threat was over. “I can't tell you what information it was that led us to believe it was safe”, Roberts said, “but I can tell you that we worked very closely with the police. And at a particular time, we had information that enabled us to say that the extortion threat was over. Phase two ended as a result of our assessment, made in collaboration with the police and our professional advisers that the threat was over. At that point we announced that we were returning to the market”.

Phase three, the hard slog, continues today – regaining the lost business. “We have over 300 products, and we had a very short time in which to take back those 300 products from about 30,000 outlets”, Roberts said. “So then it became a huge logistics exercise, and that took nearly three months to get back to normal. The logistics pressures were enormous.”

Although Arnott's have not regained their previous market share of 60%, their systems are largely back in place, Roberts reported.

Comparison with past extortion attempts provided little guidance. For instance, in Roberts' view the Arnott's crisis represented a much bigger logistical challenge than did the Tylenol poisoning that hit Johnson & Johnson. Although the Tylenol exercise is often quoted as being “a terrific example of crisis management”, Roberts argues that the Arnott's challenge was much more formidable from a business standpoint, since Johnson & Johnson only had to remove one product taking up a small amount of shelf space. Arnott's had 300 products and a huge portion of shelf space.

Additionally, Chris said that he didn't consult with other companies who have faced similar troubles, such as Kraft's, which last year had to remove tainted peanut butter from the shelves. “We didn't have time”, he said flatly. “I've read that we must have had a plan for this. But you never have a plan for something like this. We obviously have a product recall plan, but not for all 300 products in a certain area”.

People pulled together

As in any crisis, there were some positive outcomes. The first was the effect the emergency atmosphere had on Roberts' staff. He had only been at Arnott's for about a year when the crisis struck, and 80% of the top eighty people had been changed or brought in from the outside in the last three to nine months.

As Roberts put it, “I'm not steeped in Arnott's culture, and nor are the majority of my senior management team.” Thus the extortion attempt rocked a newly formed management team still struggling to forge a working style and identity.

“Although the extortion was awful, every dark cloud has a silver lining,” Roberts said, “and the silver lining, as I was very much aware of during the extortion crisis, was the way it galvanised our new management team.

We were in a state of war here. In that state, people are thrown together, and everybody co-operates, everybody really works to the one cause, and forgets, or puts aside, the petty things that impede our daily progress. For instance, when people are newly working as a group, there's often a lack of trust. But when you're thrown together in a crisis, people really pull together”.

The core values and principles shaping the response allowed the new team to develop a shared understanding of the company's values and to proceed confidently with their tasks. The experience “stretched some people, stretched our system and our management team”, Chris said. The strains did prove too much for at least one staff member, who wound up leaving as a result.

Another positive dimension was the rock-solid support Arnott's won from its loyal customers. “Throughout the crisis we had literally thousands of letters of support. We had pensioners sending in cheques for $7.00 saying "I'll send you a cheque every two weeks since that's how often I get my cheque and that's what I spend on biscuits". We had children sending in money stuck to their letters. We had women writing poems. It was just huge, widespread, strongly emotional support” Chris explains.

On the basis of an established reputation, and one that was strengthened during the crisis by including stakeholders as much as possible, Arnott's could draw on its 'bank account' of support with the public at a time when the company was itself in need.

Did Chris have any nightmare scenarios that kept him awake at night?

“No, not really.” He said. “If you follow those four principles that I announced up front, you go to sleep without any trouble each night. And we're still following those principles today because the challenge isn't over yet and won't be until we've gained our market share back”.