What the horsemeat scandal tells us about risk

February 20, 2013

By Kathleen Brooks. The Opinions expressed are her own.

The developing horse meat furore is a keen reminder how companies need to always be on the lookout for the next big scandal that could rock their business. Take Findus, the frozen food company. It’s 100% beef lasagne, it turned out, was 100% beef free. The company who owns Findus –private equity firm Lion Capital – spent GBP 1.1 billion acquiring the firm in 2008.

The numbers may have added up when Lion did its analysis prior to the sale, but in hindsight it would have been more expedient to check the supply chain and ensure that Findus did what it said it did on the pack. The Findus brand has been in financial trouble for some time, including breaching debt covenant deals last year. However, through a complicated debt-to-equity deal with some of its lenders, Lion managed to hold onto the business. Maybe the effort wasn’t worth it. Lion will have to fight hard to dissociate its image form dodgy processed food companies flogging horse meat dressed up as beef to the unsuspecting consumer.

It’s not just a company’s products that can negatively impact a brand. Take sports companies and sponsorship deals. Nike only dumped Lance Armstrong once it had been proven beyond doubt that he used performance-enhancing drugs to win on the global cycling circuit. They had not only paid him millions of dollars over the years, but they lauded his image (and the charity that he founded) as an example of succeeding in the face of adversity.

Nike also had a problem with Tiger Woods.  When news of rampant infidelity threatened to topple the world’s most iconic golfer, Nike must have held its breath. As his performance on the golf course tumbled and he took time out, the relationship between Nike and Tiger was stretched to its limit.

The sports brand is also caught up in the tragic Oscar Pistorious case as one of his main sponsors. At this stage it is unclear what happened and how his girlfriend died. The Paralympic and Olympic superstar, at the time of writing, has been charged with murder, but not yet faced trial, so it is not right to draw any conclusions. However, the media will continue to delve into the nooks and crannies of this case to try and speculate on the factors behind his girlfriend’s death.

Pistorious’s sponsors will no doubt get dragged into the fray and they will be asked if they plan to stand by their man. They also need to decide what to do with current promotional material and products that feature him. If they stand by him and the decision ends up being the wrong one, it could backfire badly. Likewise, if they drop him they could also find their name dragged through the mud. These are not insignificant decisions.

All of these events are a keen reminder how the marketing machine can, from time to time, slap you in the face. If a company puts a message out there then it has to accept the consequences when things go wrong. Lion and Findus may find it can’t reel its way back from the horsemeat scandal. We will know more in April when its covenants get tested again. Likewise, Nike would be wise to think long and hard before it embarks on another huge athlete endorsement.

Image — A sample of minced meat is placed on a spoon in the food control laboratory institute Eurofins in Ebersberg, eastward of Munich February 18, 2013. The samples of minced meat are tested for the presence of horse meat as a precaution. REUTERS/Michaela Rehle

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