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News & Events

CBS and 'Memogate'

By Daniel Diermeier

9/28/2004 -

IT'S PERHAPS NOT SURPRISING that in this era of corporate crises the news media has now experienced its own fair share of scandals: first the New York Times and Jayson Blair; now CBS and "Memogate." What went wrong and why?

Clearly, in its initial handling of the crisis, CBS committed a series of strategic blunders. CBS News perceived the issue primarily as an instance of partisan pressure and circled the wagons. The document in question was authentic, and there would be no internal investigation.

Of course, partisan battles are a key component of any story about the president's National Guard service. How can they not be? But for CBS News and "60 Minutes" something else is at stake: its reputation and credibility -- the core assets of its business.

Protecting the "60 Minutes" brand must now be the No. 1 priority for management at CBS News. Brands are about perception, and the mere perception that the reporting was inaccurate or that the "60 Minutes" producers were either careless in authenticating the documents or politically motivated is damaging in and of itself. The battle over media bias will no doubt continue -- but for CBS News the most serious charge is not bias but incompetence.

True, CBS News initially did not know whether the documents were forgeries, but full information of relevant facts is a luxury that few companies experience in a crisis situation. But when the facts are not known it is even more critical to establish trust in the process of getting the facts. That is why the long delay and the staunch initial denials were so damaging. It is important to realize that while "60 Minutes" has a strong reputation for aggressive investigations and accurate reporting it has little credibility when investigating itself.

Nobody trusts a company during a crisis whether it is CBS News or Martha Stewart Living Omnimedia. That is why the establishment of an independent investigation is a necessary but belated step. For CBS News the key issue now is to re-establish public credibility in its core competency: thorough and accurate reporting. It is not enough to acknowledge a mistake; CBS News must demonstrate to a skeptical public that it has put safeguards and processes in place that will prevent any similar incident in the future. This is not very different from Coca-Cola having to re-establish trust in its product after, say, the contamination scandal in Belgium.

Will heads have to roll? This will be unavoidable if the independent investigation confirms the reports that concerns by hired document experts fell on deaf ears or that the production process was rushed. That is why the public criticisms by Morley Safer and others are so damaging. They suggest that with declining ratings and influence standards suffered as well. Their criticisms point to management problems that go beyond Memogate.

On the other hand, scapegoating must be avoided at all costs. While necessarily being focused on managing its external environment, CBS News leadership needs to maintain the loyalty of staff and other stakeholders, especially its affiliates. The first task is to clearly communicate its next steps to all internal audiences. During a scandal, employees fight their own private crises with friends, neighbors, etc. If they are left in the dark they will create their own hypotheses and lose faith in management, which could result in damaging leaks and unauthorized media contacts.

The fact that much of the initial press coverage was full of unnamed CBS sources suggests that this aspect of their crisis management strategy is in dire need of improvement. The bigger management issue for CBS is a re-evaluation of its business practices.

It is often overlooked that crises present supreme learning opportunities. But too often the lessons learned are wrong or incomplete. After settling with the SEC in the Waste Management accounting fraud case, Arthur Andersen changed its document retention policy. Of course, there is nothing wrong with adopting internal policies that limit a company's exposure to legal action. More important are the lessons Andersen did not learn. It did not sufficiently investigate its culture, value system, or incentive structure. Perhaps had it done that, Arthur Andersen would still be around today.

In a crisis a company's values are its guide for action. A crisis, in turn, is a great opportunity to see whether these values still govern day-to-day business practices. CBS News should not miss this opportunity.

Mr. Diermeier is IBM Distinguished Professor of Regulation and Competitive Practice, and director of the Center for Business, Government and Society at the Kellogg School of Management, Northwestern University.