Discovery, humbled by poor crisis management, does a U-turn

Discovery Health has capitulated after its ham-fisted efforts to recoup money paid in error to some members of its medical scheme faced a staunch backlash.

Late on Sunday, the medical aid administrator released a statement claiming that “notwithstanding the validity of the recovery” of those amounts, it had “listened” to its members and decided to cover the costs on their behalf.

This caps a bruising and unnecessary saga that began when some members received calls or emails in the build-up to New Year’s Eve telling them the scheme had paid some of their pharmacy bills in error for a full year, which had to be repaid. 

It’s not the kind of cracker people were hoping for ahead of “Janu-worry”.  

In the end, Discovery did the right thing – but the fact this happened in the first place, and dragged on for a number of days, was a huge misstep for a company hugely reliant on consumer goodwill, not just for its medical arm, but for its life insurer and investment firm too.

When it comes to reputation management, even a few short days are often enough for perceptions around a company to change irrevocably. It’s a big deal, since perceptions, not reality, are the real threat that companies face. 

Of course, one crisis was unlikely to kill South Africa’s biggest private healthcare company.

But over time, resentment can compound and erode trust. Academics who study corporate crises describe this as similar to a bank account or “reputational reservoir”. A good reputation acts as a buffer; a crisis leads to leakage. 

No matter how strong a company is, there is a point at which goodwill can run dry. In a world of omnipresent risk, leaders of large companies simply have to excel at crisis management. 

Discovery wasn’t even facing a “wicked crisis” – the phrase academics coined for seemingly intractable crises linked to the racial and political divisions in the world today – but a very vanilla crisis of its own making. 

And yet it still got it wrong. 

Upside-down apology

When companies make a mistake, it’s now a given that they should apologise. A genuine apology must consist of more than words, typically requiring action too, like financial compensation, which, according to research, may even be more important than the apology itself. 

Discovery apologised initially for the payment botch-up by saying that it had made a mistake, but adding that you will have to pay for it. In other words, the liability lay with the “victims” of the crisis – the medical scheme members – who didn’t even know about the crisis until they received an apology, adding to their financial stress.

Predictably, the news coverage ramped up, and social media was dotted with complaints of people with serious ailments now facing an additional financial headache too. 

Discovery’s initial stance was that it was obliged to demand repayment to ensure “fairness, consistency and regulatory compliance across the scheme”. But in light of its backtracking yesterday, this excuse looks all the more hollow now. 

This is especially so when you consider the structure. The Discovery Health Medical Scheme is indeed a not-for-profit scheme that belongs to its members, while Discovery Health, which is a for-profit company, administers the scheme. 

But since the administrator was the one charging members thousands annually in fees, it should never have considered making them pay for an administrative error it made in the first place. 

There is another critical factor too. Beyond the apology, the person who delivers it counts. Bringing out the big guns shows respect. 

Initially, Discovery Health’s chief operating officer, Karren Sanderson, was quoted, before its CEO Ron Whelan began conducting interviews. Yet Whelan should have been taking the heat from day one. 

Stephen Greyser, the long-time Harvard Business School professor, says that while the causes of crises are “legion”, when a crisis threatens the essence of a brand, the top leader should be the spokesperson. 

A medical aid exists to protect its members from financial shocks around healthcare. But since Discovery was the one delivering the financial shock in the first place, it had exposed its very own brand essence to this disaster.

Speaking to journalists, Whelan sounded more apologetic than the company’s initial statement implied, so it would be interesting to know if he was involved in the decision to recoup the money from members at the outset. 

The lesson to all company leaders is that they should never abide by any decisions they don’t believe in wholeheartedly, because when the media lights switch on, they will have to defend the decision. Their integrity is on the line.

Minimising the debacle

Apologies, of course, can be ruined by excuses, equivocation and justification. 

Discovery, like many South African companies that have faced crises, couldn’t seem to help itself from implying that it “wasn’t all that bad”.

In an early press statement, Discovery said that “while only a small proportion of scheme members were impacted, we sincerely apologise”, which attempted to downplay the error before the apology. 

However large the group, its customers were impacted, with many more potential clients looking on. When things go pear-shaped, anything that minimises the issue in defence of the company inevitably comes across as spin.

Discovery claims it is South Africa’s most-loved medical aid. If so, it should learn a lesson from love: many in romantic relationships have learnt the hard way that if their partner is angry, it’s unhelpful to suggest they’re overreacting and the whole thing is “no big deal”.

A crisis of this sort calls for something beyond open communication; it calls for radical transparency. To return to the romantic analogy, when one party wants forgiveness, the other one often needs to understand what happened and work through it. 

Details like “who started the affair” or “who said what” counts. A crisis is not a time to be scant on detail or make omissions that only lead to further questions. 

In Discovery’s case, it was an astounding error that the medical aid members who received unwanted calls were only told what they owed, without details of the transactions or evidence of the overpayments. 

Even now, after Discovery’s attempt to defuse this crisis, the explanation for its errors may still not be fully accepted because it hasn’t explained exactly what happened and exactly what is being done to ensure it never happens again.

To be radically transparent, a company has to tell the truth. But Discovery Health was treading dangerous ground when it said it was “working closely with each affected member to manage this in the most appropriate and supportive way”.

This implied a sweet consensual agreement when in reality medical aid members were telling journalists that the scheme was paying itself back unilaterally, rather than paying them out when they claim. This incongruity was central to the backlash Discovery faced. 

Only now, as it does a U-turn, has Discovery clarified that 16,507 members were affected. The early attempts to downplay the number are thankfully gone, but it was a mistake to leave out these sorts of details initially, only fuelling speculation.

This amounts to a confluence of bungling that others would do well to avoid, if only because, as Discovery now knows, there is profound truth in the adage that you can win in the courts, but lose in the court of public opinion. 

Even progressive lawyers know that what happens on the media streets – be it on social media or in traditional outlets – can be exponentially more costly than any legal loss. 

It would have been surprising if Discovery had tried to let this play out in the courts, when its trust relationship with consumers, who have made it the biggest health company in South Africa, is really where the company’s real value lies.

Francis Herd anchors business news at eNCA, having appeared on several of South Africa’s most credible broadcast platforms. She holds an honours degree in politics and an MBA. Her academic interest is reputation management in times of crisis, and she trains company leaders on how to deal with crises.

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