Using Apologies to Strengthen
Your Business Relationships

By Lauren M. Bloom, J.D., LL.M.

Nobel Prize-winning physicist Niels Bohr once quipped, “An expert is a person who has made all the mistakes that can be made in a very narrow field.”  Professionals like doctors, lawyers, clergy, architects, accountants and actuaries enjoy remarkable expertise in their respective fields.  No matter how capably they practice, though, professionals are only human and can, on occasion, make mistakes.  Here’s an example:
 
L&L Co. was a small, privately-owned company that produced high-end children’s toys.  Its signature product was “Little Lulu,” a dress-up doll with a realistic face and figure designed to discourage eating disorders in young girls by offering a fun, fashionable alternative to the anatomically impossible dolls produced by big toymakers.  L&L Co. remained a minor player in the toy industry until a famous Hollywood child star was hospitalized with anorexia.  The Little Lulu doll was prominently featured on several national TV talk shows, and sales skyrocketed.

Seeing the potential for profits, ToyCo, Inc., a huge national toy manufacturer, offered to buy out L&L Co.  Overwhelmed by the unanticipated demand for Little Lulu dolls, L&L Co.’s owners decided that selling out to a bigger company made good business sense.  The two companies approached an actuarial consultant named Matt L. Hasbrough and asked him to calculate the value of L& L Co.’s pension plan so the parties could agree on the price for the company.

L&L Co. gave Hasbrough little hard data to make his calculations.  The companies were eager to consummate the sale, though, and pressed Hasbrough to finish work as quickly as possible.  Working to a tight deadline with the flawed information that was available to him, Hasbrough estimated the cost of the plan’s obligations to participants at $1.5 million.

Using Hasbrough’s numbers, L&L Co. and ToyCo, Inc. representatives negotiated a $6 million sale price for L&L Co., and the transaction was consummated.  Hasbrough was delighted when ToyCo, Inc. thanked him for his speedy service and offered him a lucrative contract to serve as the actuary for its various pension plans.

About a year later, Hasbrough was cleaning out files when he came across a document from L&L Co.  Reading it, Hasbrough remembered that L&L Co. had a second group of employees who produced and marketed a line of children’s books and board games. Those employees were also participants in the L&L Co. defined benefit plan but Hasbrough worried that, in his hurry to finish work on schedule, he might have accidentally left them out of his analysis.  After doing a quick “back of the envelope” calculation, Hasbrough came to the distressing conclusion that he had underestimated the plan’s future obligations by approximately $1 million.

At this point, Hasbrough had several alternatives, none of them very attractive.  He could call his attorney and hunker down for a million dollar lawsuit.  He could resign from the ToyCo., Inc. account and hope that his successor never discovered the error.  He could say nothing, continue working on the ToyCo., Inc.’s pension plans and, over time, quietly modify his assumptions and methods so that ToyCo., Inc.’s management would never realize that they had taken on a much bigger pension expense than they thought when they bought L&L Co.  Or he could admit to his mistake to his client and apologize.

What should Hasbrough do?

In our ultra-litigious society, admitting to a million dollar mistake and apologizing for it might seem crazy.  But if Hasbrough wants to retain his professional integrity, he can’t just ignore the mistake and hope it will go away.  Trying to cover it up would be even worse.  And, if Hasbrough wants to stay on good terms with ToyCo, Inc., waiting to address the problem until someone else discovers it is not the way to go.

Delivering a timely, thoughtful and sincere apology may well be Hasbrough’s best strategy to manage his litigation risk and strengthen his relations with an important client.  By admitting to his mistake and apologizing for it, Hasbrough will demonstrate his honesty and professionalism, traits that are essential to maintaining client trust.  If he delivers his apology effectively, the chances are good that ToyCo, Inc.’s management will come away feeling even better about Hasbrough than they did before.  Still, it will be important for Hasbrough to carefully navigate this difficult situation to maximize his chances of success.  Here’s how:

Confirm and quantify.  As American folk hero Davy Crockett famously said, “Be sure you’re right, then go ahead.”  Before apologizing for his mistake, Hasbrough should check his figures and make sure that he really did make a mistake.  If his initial fears prove to be true, Hasbrough should do a more thorough calculation so he can provide a reliable estimate of what his error cost.  Apologizing for one mistake could demonstrate to his client that Hasbrough has the honesty and integrity to acknowledge his errors and make amends.  But if Hasbrough has to admit to yet another mistake in identifying or quantifying his original error, ToyCo, Inc.’s management may seriously question his competence.

Call for back-up.  Before apologizing to his client, Hasbrough would be smart to enlist a fellow actuary to help him think through the likely impact of his mistake and come up with viable solutions.  It’s not that Hasbrough isn’t bright or capable, just that a colleague might bring a fresh perspective to the problem, suggesting things Hasbrough hasn’t considered.  If Hasbrough has any concern that ToyCo, Inc.’s response to his apology will be to file suit, Hasbrough should call his lawyer, too. 

Hasbrough’s lawyer will probably tell him at first not to apologize, and with good reason.  Lawyers who have to defend their clients in malpractice suits are understandably reluctant to have their clients openly admit mistakes to potential plaintiffs.  However, recent studies have suggested that clients appreciate candor from their professional advisors and recognize that even the most hardworking and capable professionals make honest mistakes.  Indeed, studies of the medical profession suggest that an effective apology can significantly reduce a doctor’s risk of getting hit with a malpractice suit.  Making an apology could also help ToyCo, Inc.’s management take steps to minimize the damage caused by Hasbrough’s mistake, reducing or even eliminating his potential liability.  Once Hasbrough is sure that apologizing is his best strategy, Hasbrough’s attorney can help him word his apology in a way that puts his mistake in perspective and lessens his litigation risk.

Develop potential solutions.  Sometimes where a professional makes a mistake, one solution clearly stands out as the best possible way to make things right.  Much of the time, though, several workable alternative solutions exist.  Before approaching ToyCo, Inc.’s management, Hasbrough would be wise to develop at least a couple of ways to correct his error, then estimate what each of those alternatives is likely to cost ToyCo, Inc. in time, money and employee good will.  Hasbrough’s apology will be much more effective if he can present ToyCo, Inc.’s management with reasonable solutions and not just a million-dollar problem.

Hasbrough would also be smart to decide in advance what he’s willing to do to make things right.  Part of delivering an effective apology is making reasonable amends for his mistake.  For example, Hasbrough might offer to return his fee for the mistaken valuation, to provide actuarial services at a reduced fee or free of charge to implement the solution, or to meet with ToyCo, Inc.’s Board of Directors in person to apologize and explain what happened.

Don’t dawdle.  Hasbrough has some heavy spadework to do before he can deliver his apology; getting it done quickly and well needs to be a priority.  If Hasbrough delays unnecessarily before contacting his client, ToyCo, Inc.’s management may be inclined to question his integrity, his competence, or both.  As former Secretary of State Colin Powell once observed, “bad news isn’t wine.  It doesn’t improve with age.”  The sooner Hasbrough can finish his analysis and contact ToyCo, Inc., the more effective his apology will be.

Meet face to face.  Once Hasbrough has completed his analysis, it’s time for him to deliver his apology.  Hasbrough has the best chance of apologizing effectively if he travels to his client’s office at his own expense and meets in person with his designated contacts.  An apology delivered by telephone or mail (or, worst of all, e-mail) is much less likely to be effective, and charging ToyCo, Inc. for his time and travel to disclose a million dollar mistake could seriously damage Hasbrough’s future relations with the company.

During the meeting, Hasbrough should clearly and succinctly describe what happened and sincerely apologize.  If faced with tough questions, Hasbrough may have to resist the temptation to get defensive or point fingers at someone else.  Yes, L&L Co.’s data was faulty, but Hasbrough’s mistake was a product of his memory failure, not L&L Co.’s flawed data.  A straightforward explanation of what went wrong, accompanied by a sincere and direct “I’m sorry,” is most likely to meet with a good response.  ToyCo, Inc.’s executives may have a few tough things to say at first – if so, Hasbrough’s best strategy will be to listen quietly and avoid getting defensive.

Collaborate with the client.  Once Hasbrough has explained his error and apologized, it’s time for him to offer potential solutions.  If Hasbrough’s apology has been effective, ToyCo, Inc.’s executives may be happy to forgive the mistake and work with him to pick and implement an appropriate solution.  If their first choice is different from Hasbrough’s, so be it – it will usually be easier to get ToyCo, Inc.’s management to buy into the solution if they’ve taken a leading role in choosing it.  They may even suggest alternatives that didn’t occur to Hasbrough.  If Hasbrough and his client can collaborate in crafting a solution, forgiveness and a stronger relationship are more likely to be the result.

Follow through.  Once Hasbrough and ToyCo, Inc. have decided what to do, Hasbrough should quickly and thoroughly do his part to implement their preferred solution.  If Hasbrough gives great service now, it will enhance his client’s confidence in his professional abilities and trust in his integrity.  But if Hasbrough delays or produces slipshod work at this point, he can anticipate that ToyCo, Inc.’s management will not react well.  At best, he’ll probably lose a client; at worst, a lawsuit may ensue.

Clean house.  After resolving matters with ToyCo, Inc., Hasbrough should take a fresh look at his company’s internal procedures.  Implementing a peer review program, redesigning work flows, or even reorganizing his filing system might make it easier for Hasbrough to avoid similar mistakes in the future.  Reporting back to ToyCo, Inc. on the changes he makes may also help Hasbrough demonstrate that he is working hard to improve the quality of the professional services he provides.

Move on.  As Winston Churchill once said, “all men make mistakes, but only wise men learn from their mistakes.”  The same can be said of apologies.  An effective apology will not only strengthen Hasbrough’s relations with his client, it will give him the opportunity to learn better business practices.  Hasbrough may never be glad he made the mistake, but he’ll almost certainly be glad over time that he handled it well.

Lauren Bloom