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By Cyril Tuohy

Scenario: Jane Granger, a part-time working mother of 5-year-old twins, Mia and Emily, was looking forward to the family festivities around Easter vacation this year in her hometown of Middleburg, Mo.

Almost lifelike, the bunnies were just waiting to be cuddled, but the animals were packed tightly inside their see-through boxes and tied down against a piece of green plastic made to look like blades of grass. Granger saw she was going to have to remove the bunnies from the backing with a pair of sharp scissors.

As she did so, her scissors slipped from Granger's right hand and pierced her left thumb as she was holding the plastic backing. The small gash started bleeding and Granger went to the bathroom to disinfect and dress the wound.

She then took her phone out of her pocket, opened her Facebook page and wrote the following status update: "Why are toys so hard to unpack. I'm literally bleeding! Thanks Easter Toy Co."

Granger looked up Easter Toy Co.'s home page and posted her complaint on the company's customer service tab. Within 48 hours, the company had responded.

"Dear Customer," the email read. "We are sorry for any inconvenience our company has caused you. We take your comments seriously and we are looking into your complaint. Please expect a call from us shortly." Within four hours Granger had received a call from John Dingle, vice president of customer service. Dingle personally apologized for the incident and took note of the process in which Granger cut herself. He offered to reimburse her for any medical expenses. Then he said he would bring the incident to the attention of the engineering department. He told Granger the company would waive the shipping and handling charges, and that the expenses would be charged back to Granger's credit card. In addition he agreed to slash 15 percent off the $60.00 purchase price of the bunnies. He even offered to send Granger a free Easter bunny.

Granger seemed appeased.

By the time she returned to her Facebook page, a dozen friends commented on her status, complaining about the same issue: the difficulty with which they have had to unpack consumer items.

Some of the stories were truly eye-opening: plastics so hard that even kitchen scissors couldn't slice through the packaging, cuts to fingers that required stitches, children's fingers getting pinched in nooks and crannies of the packaging.

Ellie McDade, Granger's college friend now living in Colorado, shared a lackluster corporate response she received about how the company was "looking into the issue." That was five years ago, McDade wrote, and she was still waiting.

The flood of complaints reawakened Granger's anger. She was not alone. Dozens of other people had been harmed. Furious, she called the 1-800 number and was put through to Dingle. Polite at first. Granger quickly turned aggressive. She asked for the company to waive the entire $60.00, and then asked for a $100.00 credit toward future purchases as compensation. Dingle offered her a $20.00 credit.

Granger wasn't satisfied. She proceeded to unload on Dingel and took on the mantle of an activist, insisting the company do something for all the other customers who had similarly suffered. She even threatened legal action, then slammed the phone down on Dingle

She returned to her computer.

As the comments on her status grew, Ganger got to thinking, Why don't I set up a Facebook group page to track the complaints? Sure enough, that's what she did Within 36 hours, the page went viral and more than 500,000 comments had poured in. By the end of the week, the number of posts had reached 5 million.

The hours wore on and Granger began a crusade. She rebranded her Facebook with attention-grabbing headers: "My Beef with Corporate Giants," "Never Again," and "Why Easter Toy Co. is a Consumer Danger." By now, Granger's Facebook page had become a weapon.

Thousands of complaints mentioned Easter Toy Co. by name. Dozens of consumers from the United States and England, from Thailand to South Africa mentioned other companies as well.

Complaints clogged the page, and not just about toy packaging, but consumer packaging in general, of household tools, sports equipment and even food. Cans were locked so tightly that many people, lacking hand and finger strength, simply couldn't open them.

People from around the world were tweeting and retweeting links to the page, and even sending links to YouTube videos of people sustaining injuries trying to open packages. Granger soon became a social media sensation.

Then local and national network television stations came calling. Granger made an appearance on the Today Show and consumer advocates were calling for investigations into packaging practices.

The company was to feel the backlash in the form of its tanking stock price. A week after Granger's post went viral, the price of the stock had tumbled 30 percent on the Hong Kong Stock Exchange.

James Chen, CEO of Easter Toys Co., said the company had ordered a temporary halt to the shipping of its toys.

"All our toys are tested in the factory and shipped in accordance with local and international laws," he said. "In light of recent incidents and feedback from customers, we are re-evaluating the way we package our products. We intend to look into every one of these incidents and sincerely apologize for all the inconvenience we may have caused."

Analysis: The question for many social media risk management experts is when exactly does social media cross into "dark territory"? When does social media become "weaponized," or reach "weapons-grade"?

It's common for consumers railing against poor customer service by venting on Facebook or YouTube.

The singer David Carroll did just that last year with his devastatingly effective parody, "United Breaks Guitars" post on YouTube. When United Airlines, whom he blamed for damaging his Taylor acoustics, refused to apologize, much less pay for repairs, Carroll took to the Internet airwaves and posted his song online. The video has garnered more than 11.6 million hits.

Other campaigns, orchestrated by activists like Greenpeace, for example, have been effective in using social media to force Nestle to change its sourcing policies, said Mark Ware, vice president and director of the technology and life sciences practice with IMA Inc., in Denver.

Corporations worried about reputation risk live in a very different era today than they were even five years ago, said Jennifer G. Smith, Global Technology and Privacy Practice leader for the Kansas City-based insurance broker Lockton.

If there were protesters, they showed up in person with placards and megaphones. Companies could see them coming, and had time to respond, usually via a press release, she said.

But today, social media is "impossible to ignore," said Tracy Knippenburg Gillis, managing consultant and Crisis Management and Reputational Risk Practice leader at Marsh. Whether it's a blogger sharing thoughts about the development of a new product, or an organized attempt by activists to change corporate policy, the speed with which news, rumors and truth travel means companies today face a very different risk.

IPOs have been postponed, corporate strategies shifted course, employees fired in the wake of the shelling from the social media barrage, Smith said.

When a posting goes "viral," when and how does the industry classify whether is has been used for "offensive" purposes? "It's really hard to define the coverage trigger," said Leib Dodell, former CEO of Think Risk Underwriting, a managing general agency now owned by RSG Underwriting Managers. "You need clear expectations of when coverage is going to be invoked."

One or two negative blog comments doesn't a weapon make, but "how many negative comments does it take before you consider it a crisis?" Dodell said.

Perhaps most bedeviling for insurers is that no one knows which postings will capture the interest of the social media network, or which "friend" is in fact an enemy, or which items will go viral. No one knows, therefore, when a social media outlet will rise to weaponized status.

Companies play on the social media battlefield as well. "Many companies are using blogs as a springboard for products and services," said Smith. "If they don't understand what they are selling or the formula of the drug, they are effectively giving away the farm."

More than one company, caught off-guard, has blundered in its attempts to use social media to respond, making the issue even worse. Others, like Domino's Pizza, have used social media to respond effectively to a crisis. And nearly all large companies use it in some way to get their message out to customers.

While reputation coverage exists within product recall policies, computer network liability policies, directors' and officers' and errors and omissions coverage, the question is whether risk transfer is the best solution.

"What we see is that this is not an issue of risk transfer, but an issue of policy and procedures," said Bob Parisi, senior vice president and national technology, network risk and telecommunications practice leader with Marsh.

Chartis last year launched Reputation Guard, which covers costs incurred in connection with the hiring of damage-control experts. With $25 million in limits, the coverage is necessarily broad-based, said Rob Yellen, chief underwriting officer for executive liability at Chartis.

John Coletti, assistant vice president of underwriting for CNA, said social media has opened up a whole "new mode of communication."

"Folks that thought of Twitter or Facebook, never really thought of all this," he said.

CYRIL TUOHY is managing editor of Risk & Insurance®. He can be reached at ctuohy@lrp.com.

April 13, 2012

Copyright 2012© LRP Publications