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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:

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

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  1. Really, this does all boil down to one thing: “Companies can start by creating a corporate culture where doing the right thing is a natural reflex.”

    This is paramount.

    BTW, if a company is paranoid enough to put systems in place to monitor what employees might “leak” out onto the twitters and whatnot… there is something *wrong* with the *company*.

    The closer companies get to transparency, the more success and loyalty they’ll find.

    Just my 2 cents.

  2. Very good content piece. An organization’s reputation, and particularly their online reputation is critical to the failure or success. Social media and other real-time information platforms make it all the more crucial to have systems in place should an event or decision go awry.