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February 23, 2017

The Top Threats To Your Company’s Reputation

In today’s volatile media and social environment, good PR comes at a premium and brand reputation is fragile. Look at Trump’s dressing down of Nordstrom, or the controversy Uber runs into just about every time Travis Kalanick does anything. (More on that later.)

Some argue that presidential tweets might actually be good for business, even when they’re negative, and recent evidence bears that out. But most types of reputation crises are decidedly unwelcome. For a startup or small business, a sudden wave of negative coverage can be fatal. According to the World Economic Forum, more than twenty-five percent of a company’s market value is directly attributable to its brand reputation.

So how should brands prepare for an unknown, uncontrollable event that could impugn its reputation? A sudden crisis can be an externally driven event that is entirely unpredictable, like the death of a chief executive or an accident by a business partner. Such was the case in 2010 when the Deepwater Horizon, under contract to BP, exploded in the Gulf of Mexico. Many crises strike closer to home; they can take the form of a rogue employee action, or a regional lapse that affects an entire brand, like the Chipotle E. coli contamination of 2015.

More often than not, a threat to a company’s reputation originates inside the organization. In some cases it’s a creeping cultural problem that turns malignant over time, like the pressure that drove Wells Fargo employees to open a few million fake accounts to earn commissions without the knowledge of their customers.

How To Spot The Worst Reputation Threats

Most crisis events are a long time in the making. Here are the most common reputation threats and how to anticipate them.

The Data Hack

A hack or security breach can have a huge PR ripple effect, undermining relations with customers and tarnishing a brand image for years. The notorious 2013 hack of Target cardholders ultimately cost the company $242 million.  Believe it nor not, that figure is relatively low as a percentage of total sales, but the loss of customer trust and public confidence is a great deal harder to measure. Even the hijacking of a brand’s social media account can be damaging. Following the Deepwater Horizon disaster, BP was impersonated on Twitter, adding to its image problems. And look no further than the hack of Sony Pictures emails in 2014 or the Democratic National Committee leaks of last summer to appreciate the consequences of private information becoming public.

Of course, there’s not much for marketing and communications teams to do to foil threats beyond insisting that their employers or clients harden their security infrastructure. But they can prepare for the risk, given that a data security breach is at the very top of common reputation threats. It’s not only possible, but likely to happen in today’s environment.

It’s the way a breach is handled that makes all the difference.  To minimize the reputation impact, every business should have a cross-functional plan for timely response in the event of a data hack or other breach. A typical task force should include the CTO, CMO, CCO, and involve a designated media spokesperson who is well qualified and prepared to update stakeholders, including press and social media.  Prompt notification and transparent communications to all affected audiences are critical elements here.

The Viral Customer Complaint

Remember when musician Dave Carroll made a music video complaining that United Airlines had broken his guitar? Or the FedEx worker caught on camera tossing a fragile package over a residential fence, ruining its contents? Those viral customer complaints are almost quaint in light of today’s environment. As public relations and customer relations increasingly overlap, the goals of each should be aligned, and employees empowered to take quick action in case of a problem. Customer service reps should be incentivized not by the volume of complaints they handle, getting customers off the phone quickly and efficiently, but by the number of complaints they actually resolve to the satisfaction of consumers. For truly sophisticated companies, customer relations managers are authorized to resolve ordinary complaints by waiving a minor charge, for example, and even equipped with talking points that help build a relationship and strengthen the brand reputation rather than letting a bad situation grow worse.

The good news is that “viral” customer service works both ways. Of course, millions of complaints are positively resolved every day, with no credit to the brand, but occasionally a smart move turns PR lemons into lemonade. The story about a young boy’s stuffed giraffe left behind at a Ritz-Carlton hotel still makes the rounds. Any parent can understand the trauma that results when a favorite toy is lost on a trip. In this case the Ritz-Carlton notified the family to say they’d found the giraffe. Not only did they send it back to the family, but they took photos of “Joshie” lounging by the pool to reassure his young owner that giraffe was safe and enjoying his break.

A Toxic Organizational Culture

It’s not the crime, it’s the cover-up, as the saying goes.  A transparent culture can minimize almost any brand threat, and inevitably, a repressive culture will make it worse. Experts call it “risk connectivity,” which is a fancy way of saying one threat will expose and compound others.

A culture that rewarded “sandbagging” of customers to make profit numbers was at work in the Wells Fargo mess, and CEO John Stumpf’s perceived failure to take responsibility for it cost him his job. Stumpf claimed he set a tone that rewarded integrity at the top, but he either didn’t recognize or didn’t address the “tone from the middle” that truly shapes organizational behavior.

More recently, there’s the letter posted by former Uber engineer Susan Fowler about the unrelenting sexual harassment and apparent retaliation she experienced during a year at Uber. Now, Uber is no stranger to criticism, with its so-called “bro” culture and accusations of sexism. (What can you say about a CEO who told the L.A. Times he calls the company “boober” because of “the salutary effect his company’s success has had on his sex life.”) Ugh.

But while Uber has in the past treated criticism casually or with defensiveness, in this case Kalanick is taking Fowler’s letter very seriously. He called the treatment she endured “abhorrent” and launched an “urgent investigation” headed by former Attorney General Eric Holder. Kalanick’s tweets and his internal memo were followed by comments from Uber investor Chris Sacca and Board member Arianna Huffington, who promised to assist the investigation. No one has questioned Fowler’s integrity and all have expressed outrage on her behalf. Most importantly, Uber seems committed to transparency regarding its problem and the outcome of the investigation, and that’s why it will survive the scandal.

Many companies never learn the virtues of transparency in tackling a deeply rooted cultural problem, particularly one like sexual harassment that can hide in plain sight. Look at Fox News; it took a clever legal strategy by anchor Gretchen Carlson’s representatives to bring down Roger Ailes. (Carlson circumvented a binding arbitration agreement by bringing suit against Ailes personally rather than Fox itself.) But once the suit was filed, the dominoes began to fall. So many women came forward with claims similar to Carlson’s that Fox was forced to investigate and confront its systemic failures, and Roger Ailes was out.

In fact, how an organization treats an employee who reports malfeasance―or how it treats any complaint that can threaten corporate brand reputation―is at the heart of its culture and the best predictor of its PR survival.  A company that has institutionalized ethical behavior and openness will be better equipped than most to identify major reputation threats before they escalate.  A culture that rewards transparency and openness, on the other hand, enables resiliency for organizations when things do go wrong.

An earlier version of this post appeared February 9 on the AMA Executive Circle blog.

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