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Earlier this month, the FAA notified Southwest Airlines that it was going to fine the company an unprecedented $10.2 million for violating safety inspection rules. Gary Kelly, the company’s CEO, immediately responded, saying the fine was unfair because his company had “acted responsibly.”

As it turned out, that wasn’t the case. In 2006 and 2007, Southwest operated 47 planes – almost 10% of its fleet – without inspecting them for fuselage cracks. The planes flew a total of 61,000 flights before they were finally grounded for inspection. Cracks were discovered in six of the planes, with some of the cracks as long as four inches.

Within a week, Mr. Kelly had apologized to customers and regulators for the company’s “poor judgment.” Three Southwest employees were placed on administrative leave, and the CEO vowed to make Southwest “the safest airline in the world.” He acknowledged “there are some that have lost trust in Southwest Airlines,” and that the company would “have to regain that trust.” Now, with several FAA inspectors alleging Southwest tried to control the inspection process, Southwest is facing a full-scale crisis – its response will dictate the sincerity of Mr. Kelly’s words.

In the spirit of transparency and full disclosure, I have long admired Southwest for far more than its excellent, 37-year safety record. Today, safety has been refined to near perfection, and like every other process, it has been reverse engineered to a point where it no longer provides an opportunity for distinction.

Instead, the thing I have admired is Southwest’s corporate culture. The company has, in my mind, shown itself to be a great example of a self-governing enterprise. Employees recognize and work toward a common goal based upon shared principles of doing business. Pilots jump in and help load bags when help is needed not because it is demanded of them but because they are inspired to do it.

So knowing what I know about Southwest’s culture, I have to ask, what happened here? Were these safety violations a compliance failure? Seems like it. A failure of inspiration? Probably. Someone, somewhere along the way wasn’t enlisted in the big picture. This happens in business. There will always be bad apples. There will always be compliance failures. How systemic the issues are, we will likely soon find out.

What struck me was CEO Gary Kelly’s initial response to the FAA. Most companies are still in the process of moving from an emphasis on customer service to customer experience. However, this is Southwest – a company built on its relationships with customers – a company that owes its success to the experiences and interactions its customers have had with the brand. Yet only after a problem was uncovered did Kelly put himself in an empathetic position with his customers.

A few months ago, I would have said that there was no better example of viral marketing and customer loyalty than Southwest. The company has long understood the power of story telling – having experienced time and time again the transformative power of doing the right thing. A good experience for a customer meant the story would travel to friends, neighbors, and, given the transparent nature of our world, to others across the country and the world, all with the click of a mouse.

Southwest understands the ways in which a company engages with its customers – the authenticity, openness and the consistency of those engagements – provides a competitive advantage, building the kind of trust that earns a reputation and keeps customers coming back. Mr. Kelly has done some great things in this regard as CEO. However, he missed an opportunity in a moment of crisis to look through a new lens, to lean in to the conditions of our more connected and transparent world. Surviving a crisis sometimes means bending over backwards for customers, even when a company isn’t entirely responsible for the problem at hand. It is my hope that Mr. Kelly keeps this perspective close at hand over the days and weeks to come if he expects to fly through this latest crisis without significant harm.

Johnson & Johnson’s open response to the Tylenol scare is a famous example of the ways in which corporations need to respond during moments of crisis. A less well-known, but equally compelling example was highlighted in a recent paper published by Michael Pirson of the Kennedy School of Government and Deepak Malhotra of Harvard Business School.

As the authors report, in June 1999, more than 240 people in Belgium and France reported intestinal problems after drinking Coke. Although there was absolutely no evidence that Coke’s products caused these problems, the company recalled 17 million cases in five European countries, the biggest recall in Coke’s history. At the time, CEO Douglas Ivester said, “For 113 years our success has been based on the trust that consumers have in… quality. That trust is sacred to us.” Later, it was confirmed that the problems were not caused by Coke, but the company still offered to cover health care costs for all those affected, along with offering free products to each of Belgium’s 4.4 million homes. They also invested heavily in new marketing campaigns to thank customers for their loyalty. Within two months, research indicated that Coke’s core consumers reported the same levels of intent-to-purchase as before the incident.

This is well and good, but what really struck me in Pirson’s and Malhorta’s paper was a comparison they made to a similar situation involving Coke in India. In this case, a report by an environmental group accused Coca Cola and other beverage makers of selling products with high levels of pesticides. Despite the hindsight Coke had gained from their crisis in Europe four years earlier, the company decided to disprove the claim. They enlisted their own researchers, threatened lawsuits and began a full-scale PR assault on the environmental group. India’s Health Minister eventually questioned the initial study and independent research labs cleared Coke of the allegations, but the result wasn’t a net positive for the company. Instead, they were stuck with the label of corporate villain – a company that cared more for profits than the health of its customers. There were state-sponsored bans of the product and sales dropped significantly. In 2006, years after the incident, Coke still hadn’t regained the trust of consumers. It reported declined sales volumes and losses that far exceeded the investments made.

With the world a more transparent place, fear of exposure is a real concern for companies, particularly in our litigious society. But leaders need to understand that transparency is not the problem. It is part of the solution. Instead of increasing damage, transparency helps to mitigate a crisis. You see a lot of other airlines today voluntarily grounding planes, even prior to an official discovery by safety experts.

I’ve talked before about the way in which another airline, JetBlue, successfully responded to a massive grounding of their airplanes during February 2007. In record speed, the company accepted responsibility and acknowledged its failures head on. In the end, I found JetBlue’s solution to this crisis less than compelling. The “Customer Bill of Rights” that came out of this crisis promised customers refunds the next time they were inconvenienced, while creating still more rules for customers to follow. Still, I was impressed in the authenticity of the company’s apology, the way in which it communicated its concern for its customers, and, particularly, the ways in which it harnessed new media to communicate its concern and authenticity quickly.

Yet another example that illustrates the benefits of responding openly to crisis can be found in Travelocity.com’s reaction to a tough situation in 2005. An incorrect fare was posted on its Web site, listing a price of $0 for a ticket from Los Angeles to Fiji, and before the error was caught, 400 bookings had been made, at a total cost of $2 million.

It would have been easy to cancel the fares, and the user agreement on the Travelocity site gave the company the right to do so. But that kind of response would have damaged the company’s credibility with customers, something it could ill afford to do in such a competitive environment. To make matters worse, Travelocity was about to embark on a new branding campaign – one that emphasized the company’s error-free reservation process.

In the end, CEO Michelle Peluso and her executive team decided to honor the fares, and Travelocity retained the consumer loyalty it had been working so hard to build. And what is more impressive here is the impact that decision had on the company’s employees. Travelocity’s IT group recognized the issue had occurred outside company walls, but the team pulled an all-nighter anyway, modifying the company’s software to cut down on such mistakes in the future.

That is the power of inspired decision-making during a crisis. Such inspiration pays dividends in both the short and the long term.

It’s hard to tell what the future holds for Southwest. I have long held that a strong corporate culture provides fortification in the hard times and enables fast recoveries. With this belief in mind, I’m fairly confident Southwest will come up on top.

What has always made Southwest great is that they have never demanded compliance from employees – it has always been given. The company has never asked flight attendants to wear silly costumes, juggle or dance around. They’ve never put a sign on the wall that says “Shake everyone’s hand” or “Tell at least three jokes on each flight”. Southwest has always inspired such behavior by extending trust to its employees, allowing them to take risks with the aim of creating the best possible experience for customers.

This includes the fast turnaround times for which the carrier is known. Obviously, no matter how desirable fast turnarounds may be, safety should never be sacrificed. To be true to its brand, however, Southwest needs to make certain that safety is not simply based upon a set of rules, but that safety is instead incorporated into the very heart of the company’s culture.

According to the Southwest Airlines Safety Commitment (a document available on the company’s Web site), “It is the Culture of Southwest Airlines for Employees to follow The Golden Rule and ‘do the right thing.’ When it comes to Safety, this is all the more important.”

The next time I jump on one of Southwest’s airplanes, I’d hate to see a sign that says “Don’t forget, safety first”. Instead, I hope that the company’s employees will find a little more of that soul and inspiration that has made Southwest such a great company, one in which employees go the extra mile and never, ever compromise their values in the process.

Last 5 posts by Dov Seidman
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Dov Seidman  posted April 03, 2008 10:25 am