Twenty Years to Build a Reputation…
… and five minutes to ruin it.
– Warren Buffett, Chairman and CEO, Berkshire Hathaway
Is it just me, or are corporate scandals—really big ones—becoming more frequent? It seems that I read every week about companies for whom millions of dollars in shareholder value and years of good will were erased in days—not just in legal fees, recalls or liability payouts, but in brand value: that conceptual, priceless entity that helps make the best companies into household names. The situation seems to be particularly perilous for custodians of customer data, and those whose value is highly invested in their brand. Here are some reasons why this may be so:
- Perhaps most clearly, the advent of social media and the 24/7 news cycle has compressed time frames and given individuals or small groups disproportionate voice, regardless of their accuracy or agenda.
- Consumers trust corporations less than ever, according to the Edelman 2011 Barometer of Trust. (There is a silver lining to Edelman’s research, as the tech sector enjoys greater trust than any other.)
- Trust has shifted from authorities to peers, tipping the scales of reputation management away from official corporate communications toward employees and a public whose concern for the environment, sustainability, and ethics is rising. This means, as former BBC journalist Laura Kuenssberg recently said, “One careless tweet could sink the fleet.”
Some recent challenges faced by multinationals have included:
- Environmental damage
- Product safety
- Data loss
- Supply chain/partner practices
- Corruption and ethics
- Regulatory and accounting violations
…and the list goes on. Mistakes, accidents, and criticism may be an inevitable part of doing business, but in both major crises and small snafus, how a company responds to a problem can make a big difference. Poorly managed responses can be costly, and may include litigation and settlement payouts, impact on stock price, product boycotts, and erosion of customer loyalty. A “late” response may be measured in days or even hours. Moreover, as global growth shifts from the developed world to emerging markets, multinational corporations’ exposure to diverse business practices is expanding.
In the wake of the financial crisis in the US, public patience is short when allegations of corruption, fraud and greed emerge. A provision in the recently adopted Dodd-Frank Act strengthens whistleblower protections and incentives, increasing the likelihood of employee whistleblower actions. The online activities of anti-corporate activists may be particularly perilous for technology or data-dependent corporations. In some cases, the ideologically inspired hacker may be perceived as a Robin Hood-style hero in his campaign against the corporate or government heavy.
An informal survey of reputation management experts yields a basic consensus on strategies for companies with reputations on the line:
- Stop it before it happens: Corporate functions such as robust security operations and business ethics and social responsibility may no longer be nice-to-haves. Companies can start by creating a corporate culture where doing the right thing is a natural reflex.
- Be part of the conversation: Social media and insomniac news outlets will manage the story if corporations fail to get out in front and engage immediately. Experience shows that stonewalling or delaying doesn’t work.
- Take responsibility: This is the tricky part, as a public apology or admission of fault may not always be advisable from a legal perspective. Still, corporate communications may be able to express sincere concern and a desire to make amends. In some cases, admitting a mistake and apologizing may help keep a crisis from blossoming into a corporate disaster.
For more reading….
Reputation Rules, Daniel Diermeier, Kellogg School of Management
Edelman Barometer of Trust 2011