McDonald's Serves Up PR Crisis Management

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McDonald’s is the well-known victim in a public relations crisis that could very undermine a significant portion of its marketing promotions efforts. The giant restaurateur responded quickly to the crisis and may very well turn a negative into a positive.

The Background

McDonald’s runs a variety of promotions, including an annual matching game based on the Monopoly board game. The company outsourced the promotion’s logistics to a publicly traded promotions agency named Simon Worldwide.

Companies outsource activities and functions because the function is not within their core competencies or because an outsourcer can provide more cost-effective service.

Simon is a well-known firm making hundreds of millions of dollars in annual revenue by supplying promotion services to other companies. McDonald’s and Phillip Morris were their two biggest clients. That’s before the Federal Bureau of Investigation arrested a Simon employee yesterday and charged him with a laundry list of crimes allegedly stemming from his actions defrauding the company by rigging the McDonald’s contests so that accomplices would win.

All told, the FBI and McDonald’s state that the ringleader and his accomplices received more than $13 million in goods dating back several years.

The Aftermath – McDonald’s Style

McDonald’s and here’s the crux of the matter, immediately terminated their association with Simon. The company also placed full page ads in national newspapers on Wednesday promising that more than $10 million in prizes would be awarded over the next month in a contest run by McDonald’s throughout the nation.

The clear, swift and decisive nature of McDonald’s management’s actions is a joy to watch. One wonders what level of contingency plans the company’s business continuity group had previously drawn up to allow the organization to immediately swing into full gear.

Industry watchers initially thought that McDonald’s would suffer from a public relations nightmare. Instead, the company’s prompt action and full disclosure is winning praise. Even investors are applauding the company. At midday Wednesday, less than 24 hours after the announcements, stock in the giant hamburger chain was up 28 cents.

The Aftermath – Simon

The second big issue for businesspeople and consumers to consider revolves around the responsibility Simon Worldwide has to its customers, the companies to which it provides marketing services.

McDonald’s immediately terminated the firm’s services, and despite public statements by Simon’s CEO, the home of Ronald McDonald is adamant that it will not engage Simon instead.

This week saw Simon Worldwide stock opening at around $3 per share. The company’s market capitalization was over $40 million. To be sure, the stock was a micro company, not terribly valued by the Street because of declining earnings, but still in the game.

At midday Wednesday, Simon stock was trading at record levels and had plummeted to 62 cents per share. The company’s market cap has sunk to $10 million and almost 2 million shares have traded hands in less than a single trading session. For comparative purposes, Simon’s average volume runs just over 30,000 shares.

The company, known until May as Cyrk, is reeling from a new name change, a poor second quarter, and now the loss of its largest customer in a spectacular display of self-immolation.

One might argue that the company was on a downward spiral and this merely sealed its fate. One could also argue that better controls at Simon would have prevented or discovered this alleged fraud before it occurred. And just how far should the criminal activities of a single individual go towards destroying an entire company?

Your Action Items

Some points to discuss about public relations crisis handling:

What did McDonald’s do right or wrong? Could their response have been better? What about Simon, their accounting control systems and their liability? Can the company’s CEO do anything to stop the stock slide? And what kind of crisis contingency plans does your own company have? Don’t give specifics here, but some generalities about how your company could respond in a similar circumstance.


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