United We Stand

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
– Warren Buffett

In the March 17, 2017 publication of PRWeek, the CEO of United Airlines, Oscar Munoz, was named Communicator of the Year 2017. After swooping in from the United board, as well as from the Presidency of rail giant CSX in September of 2015 to save United after the embarrassing revelation of its improper deal making with the Port Authority of New York and New Jersey, Munoz suffered a catastrophic heart attack and underwent emergency surgery, followed soon thereafter by a heart transplant. Munoz returned to United after a miraculous recovery in March of 2016, and has ridden a wave of success since that time. Major increases in revenue for the industry as a whole, had Munoz lauded as a visionary executive, working on United’s brand (naming a “Chief Storyteller” for example), opening up about his health, and launching an online platform connecting Munoz to staff and customers.

Less than a month later, that reputation was gone—perhaps forever. On April 10th, a video captured a passenger being dragged off a United airplane when the passenger refused to leave his seat because of overbooking. In response to consumer outrage, and threatened boycotts, inexplicably, Munoz’s first reaction was to seemingly attack the passenger, Dr. David Dao, saying he “defied” officers after refusing to be “re-accommodated”. A second, and then third apology, followed over the next several days. Now, two weeks later, after unmerciless criticism, a large cash settlement was reached with the passenger who suffered significant injuries from the incident, and United has now offered a new incentive plan for voluntary rebooking up to $10,000 as well as a “no-questions-asked” $1,500 reimbursement policy for lost bags.

Munoz’s inelegant response underscored a persistent public relations problems airlines were already suffering as airlines push to make money from baggage fees, food, rebooking seat reservations, and other services that used to be included in a normal plane ticket. In addition, Munoz has now “voluntarily” waived a provision of his employment contract that would have allowed him to be exercise an automatic right to be named Chairman of the Board on top of his CEO position.

Munoz’s story is yet another example in a long line of corporate PR disasters that have caused enormous harm to CEOs as well as long lasting brand name harm to the companies involved. Whether it be something like BP or Exxon, the reflexive reaction by CEOs to stand up and respond to embarrassing corporate incidents is a lesson that seems to have to be relearned over and over again. CEOs are generally not suited to handle public communications in a crisis. They are not trained to handle such incidents and are often constitutionally ill-equipped to show the remorse and empathy needed, especially when engaged in a consumer-sensitive industry. The United example is particularly poignant given Munoz’s personal story. And, from a business perspective, particularly damaging when the public relations snafu directly aligns with how the public already is predisposed to view the foibles of a particular industry. The long term reputational damage to United from this incident is uncertain. But it certainly was preventable with better training and preparation.

As inside counsel, it is critical that you represent the company’s key stakeholders in the midst of a corporate crisis. You are in many respects the only gatekeeper that truly represents those stakeholders—shareholders, the public, employees, customers, the board—because of an attorney’s unique professional, ethical and fiduciary duties. The advice is clear: let professionals handle a communications crisis and make sure that the board and senior management have a coherent plan in place that has been developed and tested on how to handle such a crisis. This is the key role of inside counsel working closely with the communications team.

Jonathan Broder is Vice President and Chief Legal Officer of Conrail