Bad Business: 10 Outrageous Company Image Busters

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As all CEOs know, today's companies operate in glass houses. Given the free flow of information across both official and unofficial (read: social media) channels, there is no unjust policy change or illegal act that will fly under the radar. Customers will discover the truth, and most will speak up.

What's surprising, then, is to discover just how many public incidents still happen that badly damage a company's image, or how often a business will choose to follow a new practice that clashes with the public's idea of the corporation. Here, 10 accounts of unusual image-busting events.

1. Starbucks

Coffee shop or battlefield? In accordance with state laws, Starbucks (SBUX) currently permits the carrying of weapons in its stores in 43 states, and the carrying of concealed weapons in its stores in 49 states. Protest organizations the National Gun Victims Action Council (or NGAC) and  The Brady Campaign to Prevent Gun Violence and their political opposition Open Carry and the National Rifle Association (or NRA), have consequently chosen Starbucks as their battlefield of choice.

The Starbucks gun controversy began in January 2010 in the California Bay Area when marchers carrying weapons entered local stores to test the application of new “open carry” legislation. Of the various businesses approached by the gun owners, only Starbucks admitted entrance. When news of Starbucks' surprising move reached the media, it spurred an online debate and physical protest that continues today.

Starbucks insists that while it will continue to welcome openly armed customers where state law permits, it would prefer it not to be publicized. “We woke up one day and all the sudden Starbucks was in the middle of this political crossfire between the people who want to bring a gun into Starbucks and the people who want to prevent it," Starbucks CEO Howard Schultz told Nightline. "It is a very difficult, fragile situation. We're trying to abide by the law."

The sanity of that law has been put into question by violent events that have taken place in American coffee shops. Four police officers were shot and killed in a Washington state coffeehouse in 2009.  An underage girl accidentally fired a gun in her purse at a Starbucks in Cheyenne, Wyoming, and another woman accidentally shot herself in a Sacramento Starbucks parking lot in 2011.

Today Starbucks remains under scrutiny from liberals who oppose “open carry” and from conservatives against the company’s support for gay marriage legislation.

2. Pinkberry

A frozen yogurt store usually doesn't have to work hard to exude a cheerful, pleasant persona -- feeding people frozen yogurt tends to do the trick. Pinkberry goes even further, carefully crafting a pink-tinted, lighthearted, and "fun" atmosphere in every one of its modern stores. 

That almost Disneyesque image couldn't be more out of keeping with the allegations that currently stand against one of Pinkberry's founders: Young Lee, the franchise's co-creator was arrested by the Los Angeles International Airport Fugitive Task Force last month. His alleged crime? Assaulting a homeless man.

 

The incident allegedly happened June 15, 2011, when the homeless man approached Lee in his automobile on LA's Vermont Avenue, near a freeway ramp. When the man showed Lee a sexually explicit tattoo, Lee and another man left the vehicle, chased the homeless man, and beat him, police claim.

Lee pleaded not guilty to several counts of assault for allegedly striking the man numerous times with a tire iron, breaking his arm, and lacerating his head, according to LA Police Department Lt. Andy Neiman. Lee will face several years in prison if convicted.

According to reports, the defense will argue that the homeless man threatened Lee as if he were armed and that Lee acted in self-defense. But prosecutors intend to produce witnesses who will testify Lee demanded the homeless man kneel and apologize for disrespecting him. When the man consented, Lee is said to have continued to beat him.

Lee opened the first outpost of the frozen yogurt chain in West Hollywood in 2006. The franchise counts among its investors venture fund Maveron, founded by Starbucks CEO Schultz. It also recently partnered with M.H. Alshaya Co., a Kuwaiti retail conglomerate, to open stores in the Middle East. Currently there are more than 100 Pinkberry locations worldwide.

Fortunately for the company, the founder is no longer attached to the franchise. Pinkberry Senior Vice President of Marketing and Design Laura Jakobson made a statement on January 17 to explain that Lee had severed ties with the corporation formally on May 1, 2010, and has had no involvement with Pinkberry since.

3. Twitter

If coolness is the ultimate goal of a social media platform, then Twitter just invited the world over to play Dungeons and Dragons.

Twitter announced new censorship technology last month that has caused an international backlash. The popular micro-blogging site reports that any tweet breaking a law in one country will be removed by the company, but only in that particular country. The need to expand its market is the primary reason that Twitter gives for the technology change. CEO Dick Costolo justifies this new approach, claiming it will encourage freedom of speech by making tweets more widely available.

Critics now accuse the privately owned San Francisco company of putting profits before freedom of speech. Reporters Without Borders has appealed to Twitter Chairman Jack Dorsey to repeal the new technology. One year ago, the same organization championed Twitter’s role in Arab Spring, a role the reporters claim the new censorship policy will eliminate.

Twitter helped spur a nationwide protest in India against government corruption last summer. The Committee to Protect Journalists reports 16 Indian journalists have been killed since 1992 -- two-thirds of them while attempting to uncover corruption. Activists fear that in losing their uncensored social media platform, they have lost their primary resource for open communication.

 

Thailand was the first nation to endorse Twitter censorship. The Thai government would soon be contacting Twitter to "discuss ways in which they can collaborate," Communication Technology Minister Jeerawan Boonperm reported to the Bangkok Post. In Thailand, it is a crime to insult the royal family and can be punished by 15 years in prison.

The change also has critics speculating whether Twitter will now attempt to run in China, a nation whose censorship laws Twitter has openly criticized.

4. Whole Foods Market

Whole Foods just wants you to be healthy, right? In 2009, CEO John Mackey famously argued in the Wall Street Journal against nationalized health care, writing, “our health-care problems are self-inflicted: Two-thirds of Americans are now overweight and one-third are obese.” He claimed that most lethal diseases “are mostly preventable through proper diet ... and other healthy lifestyle choices.” 

Mackey's real problem was with a proposed health-care system that resembled socialism, however. For many of his loyal customers, his stand came as a surprise; most green-living Americans lean toward a liberal universal health-care program as a more compassionate answer to America's health insurance problem.

In reality, Mackey's pro-business stance is not that surprising considering he runs the largest health-food retail store in the US. But Whole Foods Market (WFM)  may not be as healthful as its CEO would have us believe.

Whole Foods claims to promote a healthier national economy by supporting small farms and businesses, but do their charitable acts balance their aggressive pursuit of the competition? Not only has the conglomerate purchased most of its significant competitors, but it has also encouraged monopolization in organic food production. In 2002, the University of California-Davis reported that 27 growers accounted for more than half of the state’s organic sales. Outspending smaller businesses to “crush the competition” is one of Whole Foods' primary growth tactics, according to a report from the Federal Trade Commission. 

 

For the promise of healthier foods, Whole Foods shoppers willingly pay inflated prices that translate to a 3% profit margin for the company, compared to more typical retail profit margin of 1%, seen at stores such as Wal-Mart (WMT). But as much as two-thirds of Whole Foods' products are laden with genetically modified organisms and misleadingly labeled as “natural,” according to the I-Team at ABC News.

Whole Foods has also ignored requests from shareholders for information on products, such as baby bottles,  that might contain toxic chemicals, according to GreenAmerica.org. There have also been reports of E. coli breakouts caused from meat purchased at Whole Foods.

While Whole Foods continues to expand, the majority of its employees never see the profit. Mackey is famously anti-union, and his tactics for insuring Whole Foods remains union-free include “Union Awareness Training” for staff, where leaders accuse unions of coercion. When workers attempted to unionize in Madison, Wisconsin, the company stalled negotiations for a year until it could legally vote to decertify the union, as reported by Mother Jones. Salaries have remained in the $8 to $13 range for two decades, and the turnover rate of 25% insures “team members” rarely earn seniority or significant pay raises, reports CounterPunch.org.

But Mackey sees himself as a father figure rather than a profiteer. In "Whole Foods Market’s Consumer-Driven Health Plan," a speech Mackey gave at the State Policy Network 12th Annual Meeting, Mackey told fellow executives, “Everybody’s pulling at me saying, 'Daddy, daddy can we have this, can we have that, can we have this, can we have that?' And I’m either like the kind, generous daddy or the mean, scrooge daddy who says 'No'."

5. Lululemon

Lululemon (LULU)markets itself as more than an athletic clothing store for women. Through flattering and practical yoga pants, CEO Chip Wilson hopes to inspire excellence and change the world. His ambition to change lives has resulted in some encouraging, some tragic, and some baffling manifestations.

Health experts bemoaning the state of American well-being can look to Lululemon profits for a boost. In its third quarter 2011 earnings report, the company announced sales a little shy of $1 billion, with a market cap of about $10 billion, which translates to the purchase of a lot of workout clothes.  If Americans are actually working out in the clothes they buy from Lululemon, there surely must be signs of hope.

But many yoga enthusiasts have been confused and turned off by the capitalistic streak that drives Lululemon's famously cultish corporate culture. Most recently, the store's new shopping bags, featuring the slogan “Who is John Galt?”, have raised many the yogi eyebrow. According to Wilson, Galt, the fictional protagonist of Ayn Rand’s capitalist manifesto Atlas Shrugged, is a major source of inspiration. Some might think that the pursuit of yoga and its ideals exists as an alternative to consumerism, but for Wilson, it’s all great.

Shockingly, a Lululemon store was the site of a horrific crime last year. In the spring of 2011, former Lululemon employee Brittany Norwood, 29, attacked coworker Jayna Murray in a Bethesda, Maryland, mall outlet where both women worked, inflicting 330 stab wounds. Last month Norwood was sentenced to life without parole for the murder. 

She later claimed to the police that both she and Murray had been attacked by masked intruders following the store's closing. Norwood was arrested when evidence suggested a cover-up, and in November 2011 she was charged with first-degree murder. The motivation? Norwood had shoplifted a pair of yoga pants and was concerned that Murray was about to report the theft, according to prosecutors.

Following Norwood's verdict, Lululemon issued a statement that began:

We are pleased to see justice done, and hope that this verdict brings a small measure of peace and closure to the tragic events that occurred last March. We have all been deeply affected by the loss of Jayna Murray and the violation of our safe and loving store environment. The actions of Brittany Norwood that night are the antithesis of the values of our company and are not reflective of the outstanding people who work for Lululemon.

6. Goldman Sachs

Here's an example of reverse image-busting, when the facts about a company make it look better than expected.

Goldman Sachs (GS), the big bad bank that huffed and puffed and blew our house down (or at least bet against it), actually has a few philanthropic tricks up its sleeve. Though CEO Lloyd Blankfein has been called everything from the Dr. Evil of Wall Street to a glorified bookie, he has also been known to give back some of what he gets.

Sure, charitable contributions are often made for tax-deduction purposes rather than out of the kindness of a corporation’s heart. Or to ebb the tide of public outrage for bloated executive bonuses. Regardless of motivation, Goldman has positioned itself at the top of the giving heap and has even mulled over policies requiring top workers to pay a percentage of their salaries to charity.

The Chronicle of Philanthropy ranked Goldman as the second-highest corporate donor with $315.4 million in cash gifts, beat out only by Wal-Mart, which gave $319.5 million in 2010. However, last year Goldman was three-quarters less generous -- with donations not even reaching the $80 million mark -- while its compensation bill dropped by only 21%.

Blankfein may be trying to personally compensate with his free and very public endorsement of gay rights. Though he doesn’t personally seem to have a dog in the fight, Blankfein has become the Wall Street face of marriage equality. The “unlikely messenger” is the Human Rights Campaign’s first national corporate spokesman on the issue.

Reaction to the news has been mixed. Rolling Stone's Matt Taibbi writes: This is an extremely unfortunate error by the HRC, which in making Blankfein a spokesman for this important political campaign has allowed one of the most relentless enemies of the poor and the disadvantaged to use the gay and lesbian community to buy moral credibility.

7. Apple

The long-standing public perception of Apple (APPL) was perhaps best epitomized by a 2008 Duke University study that found even the briefest exposure to the company logo makes people behave more creatively. But after the lid was blown off the atrocious labor violations in its Foxconn plant in China, this gold standard of corporate innovation is now making many of us “Think Dickensian.”

For a country whose work force is certainly no stranger to militant factory conditions, it takes a special kind of abuse by an employer to inspire the saying, “they use women as men and men as machines.” Just when we thought it wasn’t possible to slide farther down the pecking order from “1 million animals.” Likewise, the use of suicide nets to catch jumping workers is so outside the realm of understanding that our outrage had to be expressed in late-night parody.

In response to the backlash, Apple recently became the first tech company to join the Washington, DC-based Fair Labor Association, which is now auditing Foxconn. Foxconn also announced a pay hike for its China employees, the third increase since 2010. Still, Apple can't escape the ongoing controversies; for the latest, see Apple Under Fire for Poisoning iPhone Makers.

The uproar over Foxconn hasn’t affected Apple’s bottom line by a single stock point. The world’s most valuable company, sitting on $100 billion in cash, is still enjoying an amazing run. Apple continues to shatter its own all-time high records, and its market cap is now at a mind-blowing $437 billion.

8. JetBlue

JetBlue (JBLU), the customer-centric airline founded on a mission to “bring humanity back to air travel,” elicited quite a different quote about humanity from its passengers during a monster snow and ice storm in February 2007. While bad weather is certainly no Hindenburg disaster (about which the phrase was first uttered by a radio reporter), being trapped on a tarmac for eight hours isn’t exactly a picnic, either. In all, the operational meltdown resulted in nearly 1,100 canceled flights and stranded thousands of passengers and crew members.

Then, in 2010, JetBlue had another kind of meltdown when an employee -- one whose very job it is to ensure passenger comfort and satisfaction -- unleashed his air rage in flight. Though overworked flight attendant Steven Slater was considered a folk hero by some, his unprofessional and aggressive behavior called into question the hospitality standards of his airline. He cursed out a passenger over the PA system, grabbed a couple of bottles of Blue Moon, and very ceremoniously ended his 20-year career in the industry with a slide down the emergency chute onto the tarmac.

While the stunt earned Slater a year of court-mandated counseling and substance abuse treatment and even a Halloween costume, it got JetBlue a $10,000 restitution reward and little to no PR damage. The airline received its seventh consecutive J.D. Power and Associates’ Highest in Customer Satisfaction Among Low Cost Carriers in North America designation in July 2011 and boasts a four-star rating from Skytrax.

Recently, JetBlue's quarterly net income beat analysts’ expectations, climbing from $8 million the same time last year to $23 million, and its revenue has risen by 22% to $1.14 billion.

9. Google

The de facto search engine. The propagator of a mobile army marching across the entire globe. The conduit to virtually all recorded human knowledge.

Google (GOOG) is the technology superpower that amassed its success while operating under the self-subscribed ethical code “don’t be evil.” Morality would trump money, and doing the right thing would simply have to come at the expense of a higher profit margin.

It’s been years since Google threw its arms around these ideals. In fact, if we accept George Orwell’s definition of evil, Google may very well be a case study in corporate cognitive dissonance. Once its new privacy policy goes into effect, the Ministry of Truth won’t have anything on Mountain View.

By streamlining the privacy settings of all 60 properties under its umbrella, Google will aggregate a giant database of users’ most personal information (including all searches and websites visited) and share it with advertisers. And there’s no way to opt out. That is, unless the FTC buys the Electronic Privacy Information Center’s argument to stop it.

While Google remains one of the highest-priced stocks on the market, closing at 609.85 in Tuesday’s trading, its average price has decreased by 8% from a year ago.

10. David's Bridal

Spray painting and trashing a $6,000 Vera Wang wedding gown sounds like the impulsive act of a jilted bride. But destroying brand-new designer dresses was a practice actually mandated by America’s largest bridal retailer.

When a downturn in the wedding market forced David’s Bridal to shutter the doors of its pricier Priscilla of Boston boutiques, the chain instituted an "everything must go... into the garbage" policy. Under contractual obligation to designers, all of the stores’ unsold inventory -- including stockpiles of high-end gowns -- were tagged with the scarlet letter “X” and pitched into dumpsters.

Short of willfully scratching a Tiffany’s diamond, nothing offends the sensibilities of the matrimonially minded like wasted taffeta and tulle. So after bearing witness to the carnage outside a Priscilla of Boston Minnesota location, the trauma-stricken bystanders made sure to make their protest known.

David’s Bridal responded to the uproar with an apologetic statement that promised to end the policy and ensure unsold dresses will go unharmed and be donated to charity.



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