Starting a business is tough enough without a scandal. You need to have the right product or service, the right market, the right cash flow and business plan, and the right team to work out that plan. Even if you have all of that, you may not make it unscathed. Take, for example, the case of SoFi, a student loan and refinancing business that is quickly restructuring in the wake of public sexual harassment allegations.
CEO Mike Cagney Steps Down
Almost immediately after the news hit, CEO Mike Cagney announced he would be stepping aside both as chief executive and as a member of the company board. Cagney is the focus of a pending lawsuit filed by representatives of a former SoFi employee who claims he was fired because he reported incidents of coworkers being sexually harassed by their managers.
Cagney announced his departure from the company in a letter to the staff in which he said the allegations have “shifted more toward litigation and me personally… The combination of HR-related litigation and negative press have become a distraction from the company’s mission…”
What “negative press,” exactly? Well, the New York Times blasted the company for its “frat house” culture, which, according to the article, came from the top down.
Initial Attempts Can’t Stop Media
Initially, SoFi responded to the reports by claiming they were filled with inaccurate facts and misstatements. But the media coverage was relentless. That led the company to announce Cagney would be stepping down by the end of the year. That wasn’t good enough for the critics, and the pressure just intensified. In response to the increased pressure, the board decided it was time for Cagney to go now, rather than in a few months.
This case is a clear example of the power of the press to create policy and force decisions within a company either unprepared for public scrutiny or ill-prepared to face a growing PR crisis. When the news hit that SoFi’s problem was a top-down cultural issue, that needed to be addressed immediately, rather than brushed aside. The company read the consumer market a bit too generously. The current mood is not one that is forgiving of misbehavior by corporate heads, especially where it concerns harassment. Decisions and attitudes that were shrugged off not that long ago are costing CEOs their jobs left and right. This is a fact companies need to reckon with. Questions of severity and fairness are fine to consider, but they are secondary to the business realities. In any PR crisis, companies need to weigh the risk vs. reward factor of their initial response.
In this case, SoFi, for their own reasons, misfired on the initial response, later amending its decision to be more in line with the mood of their customer base. As a younger company, marketing to Millennials, they need to be very careful with their response to this particular issue as this situation continues to unfold.
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