AOL’s Armstrong Joins Parade of CEOs Apologizing

AOL Inc. Chief Executive Officer Tim Armstrong is on a long list of corporate bosses who put their trust in an apology to contain fallout from an embarrassing public statement.

Armstrong said he was sorry and backtracked on a 401(k) policy change days after he cited the cost of “distressed babies” on the AOL health-care plan as a reason the company needed to save some money. That came six months after he expressed his regrets for firing a creative director on a conference call as thousands of employees listened.

The best outcome for Armstrong will be if the uproar blows over, as it did for American International Group Inc.’s Robert Benmosche and Google Inc.’s Eric Schmidt after they said things they publicly regretted. In some cases, chef Paula Deen’s among them, even multiple apologies don’t take. In others, a faux pas is a sort of last-straw for already eroding confidence, as it was for Lululemon Athletica Inc. founder Chip Wilson when he said his company’s pants “don’t work for some women’s bodies.”

Now that blunders move at the speed of the Internet, even executives with strong boardroom support sometimes can’t bounce back when they trip up in a very public way, said Davia Temin, head of the Temin & Co. crisis management firm in New York.

“It is about judgment,” she said. “Boards are charged in governance in reviewing what a CEO’s judgment is. What he says in public is considered a window on what he says in private.”

‘Just Move’

Benmosche, AIG’s chief executive, kept his job after he apologized for equating congressional criticism of the insurer’s bonuses during the financial crisis with lynchings in the Deep South. Schmidt, Google’s chairman, recovered with an apology for saying when he was CEO that people who worried Google Street view was invading their privacy by taking pictures of their homes should “just move.”

There are probably as many instances where no apology could suffice, said Jay Lorsch, a professor at Harvard Business School who has studied boards and management for 25 years. “There are all kinds of examples of people who said dumb things.”

Wilson, Lululemon’s founder, said he was sorry a week after he made the remark about women’s bodies in a November interview on Bloomberg Television. Analysts said the widely reported quote played a role in the perception that his involvement in the business was hindering the search for a new CEO. Lululemon said Dec. 11 that Wilson will step down as chairman before the company’s annual meeting in June.

Tipping Scales

While Deen made several apologies, she lost her Food Network TV show and Wal-Mart Stores Inc. and Target Corp. dropped her cookware line after she said in court documents that she had used racial slurs.

In May 2010, Tony Hayward, then CEO of BP Plc, said he’d “like my life back” as he and BP struggled in the spotlight in the wake of an oil rig explosion that caused 11 deaths and polluted the Gulf of Mexico. He apologized for what he called a “a hurtful and thoughtless comment,” and also appeared in a TV spot saying he was “deeply sorry” for those affected by the spill, before he was replaced in October 2010.

An unfortunate statement from a CEO can force a company to change a policy because of the backlash, even if the original decision made sense, said Temin, the crisis management expert.

At AOL, Armstrong “would have gotten pushback anyway with this decision, but his gaffe gave much more credence to the criticism,” she said. “It tipped the scales of the critique.”

‘I Apologize’

The 43-year-old CEO had said last week that the media company needed to tweak its 401(k) plan to help offset its rising health-care costs, such as those associated with two pregnancies that resulted in “distressed babies” with more than $1 million each in medical expenses.

Following an outcry -- and an article on by one of the babies’ mothers -- he wrote a memo to employees over the weekend saying he’d reversed the decision to match their retirement contributions in one annual lump sum, which would have benefited AOL at the expense of workers.

“We heard you on this topic,” Armstrong said in the memo. “I made a mistake and I apologize for my comments.”

The uproar overshadowed AOL’s fourth-quarter earnings results, which were released Feb. 6 and exceeded analysts’ sales and profit estimates. The shares have more than doubled under Armstrong since AOL was spun off from Time Warner Inc. in 2009.

He might want to write a check to support a charitable cause to show he’s truly contrite, said Temin, pointing to a Stanford University study that found corporations can regain “reputation capital” if they make goodwill efforts.

So-called reputation-repair actions lifted share prices on average 2 percent, according to the study of 898 announcements from 1997 through July 2006 from 94 companies that restated their accounting after intentional misreporting of facts. Shareholders were more likely to believe future statements from companies that took repair actions, the study said.

What Armstrong really needs to do is show better judgment in the future, said Harvard’s Lorsch.

“If I were a director and I kept seeing a CEO who made these kinds of statements, I’d start to have questions about him,” he said. “He’s speaking for the company.”

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