According to a survey by Deloitte 87% of executives rate reputational risk as more important than other strategic risks.1 Despite this fact, both awareness and active reputation management are still vastly misrepresented in corporate environments, especially in medium-size enterprises. Reputational realities, hence, are not yet there where they actually belong to.
The internal culture, value systems and specific organizational and of course historic context up the perceived and actual comportment of a company. A positive or a negative reputation strongly depends on the behaviour of an organization. It is, therefore, reasonable to assume that good behaviour equals good reputation. Manners make the brand rep. However, as in the words of Prof. Einstein: “Everything should be made as simple as possible, but not simpler.” Especially when it comes to such complex systems as corporate reputation.
“So as much as reputation management by today can be called a science, it, unfortunately, still is not an exact one.”
There are plenty of precedents in economic history that have taught us that reputation is indeed made up of non-linear, highly complex corporate fabric. The conundrum here is despite a company doing its best to behave well, reputational crisis can hit even those corporations that deserve it the least.
Given that a corporation is, in many ways, a living organism it is very analogical to the human body with its complex structure. Even those of us who take care of their body, eat well, exercise regularly and live a healthy lifestyle can still get severely ill. How is it that some people who had lived a very healthy way of life actually die younger than those who had smoked, drunk and eaten carelessly so often? The medical explanation for the suffering of those who don’t deserve to suffer lies at least partially in their predisposition towards certain diseases. The same explanation applies to today’s corporations and indeed entire industries. Some have a particular reputational predisposition that others don’t have.
If a corporation has a predisposition to reputational crisis, does it mean that whatever move it makes its investments in reputation building will fall short? Not quite. There are tried and tested ways of overcoming difficult situations. What are the measures to take before and after a crisis? How can communications professionals reduce reputational complexities to a minimum?
“No matter how complex an issue appears to be at first sight, there is always a solution.”
In some cases, the predisposition is not even inherent in the corporation itself but in the industry the company is in. Take the banking industry as an example. How many industries do you know which are described with such terms as ‘cartel’, ‘led to the global economic recession’ or ‘shadow system’ in legitimate academic textbooks? Despite the banks’ efforts to manage their reputation during the post-recession period, the ‘banking image’ began falling again in 2018 - after years of rebuilding and recovering from the 2008 financial crisis.2 The priority should be in being pro-active rather than reactive. Bad reputation management tends to react in turbulent times and overreact to almost every other thing good reputational management start in good times, prepares and when needed, responds adequately.
The returns on investment will increase if all communication that affects reputation is crafted in a way that it appeals not only to customers but also to the other stakeholders (i.e. employees, shareholders, partners etc.). It is important to remember that corporate reputation gains and retains strength only when it is applied holistically. In other words, along with the corporate communications department, all other departments such as HR, IT, board of directors, and C-Suite need to be held responsible for possible reputational realities. Culture drives integrity – especially present within long-term, often family and value-oriented companies. Almost half of the top ten brands with high reputation are from the luxury industry.3
Overcoming reputational crisis might require taking a risk to build trust. Leader and decision-makers in charge to prevent or solve problems related to reputational risk need to adopt lateral thinking. If it is not a common reputational reality then it requires uncommon sense. Integrity in this context is about making the right decision to take the right step. ROI here stands for Return On Integrity.
If you are interested in learning more about reputational realities and how your company can prepare better, get in touch with us.
Turning a Reputational Crisis Into a Movement
Most leaders in the business world know both what reputational crisis’s and movements are. A crisis on its own doesn’t lead to a movement, though, and only few know how to turn a reputational crisis into a movement. Recent political and social dynamics have once again shown, how a crisis turns into a movement: Black Lives Matter. While this might be one of the most important movements ever, history teaches us that there are three ways on how such reactions can be triggered.
The protagonist from Wag the Dog who knows a thing or two about movements tried to explain emphatically saying: “We remember the slogans; we can't even remember the wars. (…) Naked girl covered in Napalm. 'V for Victory'. Five Marines raising the flag, Mt. Suribachi. You remember the picture 50 years from now, you'll have forgotten the war.”1 In many ways the protagonist of the film was right. The historical course of events, reasons or details of those wars are almost forgotten by the majority, whereas the impact of the movement triggered by these symbols is eternal. When we analyze history, we find that all those crisis-to-movement developments can be assigned to either of three typologies:
Throughout history, there are examples of how not just a general crisis but also an organization’s own crisis can be turned into a movement. Movements need not necessarily be global. They can be local, too.
In April 1967, a disaster befell on Switzerland’s biggest charter airline at the time, Globe Air. One of their airplanes crashed in a thunderstorm close to Nicosia, Cyprus. As a result, 126, mostly Swiss, passengers died. One of the pilots had insufficient training on the aircraft and both of the pilots had violated the limits on operating hours. The owners of the airline – who were connected to Basel – were sued severely but they didn’t have enough insurance to pay the victims. The only way to pay was through selling their art. When word got out about the art being sold urgently to new owners outside of Basel in order to fund the claims, the people of Basel became deeply proprietary about it.
The city took the decision to let the people vote about the rising tension over letting go of many valued pieces of art. As Simon de Pury, the Swiss auctioneer, wrote: “What followed was one of the most colorful campaigns in history. Politicians dressed as harlequins to get out the vote. There were huge street fairs. (…) bands played “All You Need is Picasso,” to the Beatles’ “All You Need is Love.” People wore “I Like Pablo” badges, evoking the “I Like Ike” buttons of the Eisenhower presidential campaigns in America. (…) It was the first time in democratic history that a city had voted for art in this way. This was Basel’s finest hour.”4
The movement resonated strongly. Even Picasso himself was so touched by the spirit of the locals that he donated four more paintings to the Kunstmuseum. It then inspired avid patrons of the art to make donations, too. As a result of all of this, the Globe Air tragedy was turned into a triumphant movement for the history of Basel. It wasn’t a general crisis but an organization’s own financial and reputational crisis that was transformed into a movement. This is a typical example of Type A.
Black Lives Matter, for example, may be the largest movement in US history. Recent polls suggest that about 15 million to 26 million people in the U.S. have participated in recent protests.2 Black Lives Matter was founded back in 2013 and yet the majority of the world didn’t know about it until very recently - when it became a global movement. The moment of crisis was triggered by the lethal police brutality against African American George Floyd. However, the moment when the movement began was after those black screens were posted all over social media and even more so by the image of the huge graffiti art that went viral all over the world. Songs, video clips, documentaries, articles, posters were spread... “I can’t breathe!” were his last words that will never be forgotten. This is a typical example of Type B.
We all witnessed how Black Lives Matter turned the on-going crisis in the US into a global movement beyond the US. The reverse effect (Type C) demonstrates how the very movement turned into a potential crisis for brands.
Today, brands such as Adidas, Nike, YouTube, Amazon and Netflix have been expressing solidarity with the Black Lives Matter movement. Johnson & Johnson has announced it is to stop selling its skin-whitening Clean & Clear Fairness line of products, which are marketed in India, Reuters reports. Quaker Oats says it will change the branding and name of its Aunt Jemima pancake. Colgate-Palmolive is the latest brand to announce change, saying it will review the name of its toothpaste Darlie – labelled “Darkie” up until 1989 – which in Chinese means “Black People Toothpaste”.3 Cass Business School, a university in London, is changing its name because of its associations with Sir John Cass, a 17th Century merchant and proponent of slavery. These are typical examples of Type C.
A crisis usually doesn’t turn into a movement by itself. The missing link is the collective, perhaps even creative, response to a crisis – this is what turns or spins it into a movement.
Any organization (business, state or government) should have adequate monitoring systems in place in order to rapidly grasp dynamics. These generally include a combination of active media monitoring, social media listening tools and semantic tools to analyze tonality and direction of an evolving crisis
No reality is ever as planned. But having a plan, a structure and the capability in place that allows an organization to deal with an evolving situation rapidly and in the most efficient manner possible. Developing an awareness of how reputational strategies are pro-actively built over time is an important steppingstone.
Not every crisis is avoidable, and not for every crisis is there a positive net effect for an organization. However, the outcome and resilience (i.e. the ability to ‘bounce back’) are very closely correlated to how a crisis is managed in the first place and this, in turn, is something that should feature in every leader's curriculum.
The rise of Facebook seems to be one of the most successful stories ever. What began in 2004 as a platform for Harvard students became popular and conquered the world in a very short period of time. Within 15 years, Facebook has become one of the most powerful corporations in the world, playing a major role in shaping the online environment. Although the company has had to deal with criticism again and again, nothing hit it as hard as the (un)voluntary cooperation with Cambridge Analytica. Most likely the most famous data scandal the world has ever seen, the aftereffects and reputational damage are still very difficult to assess.
2018 did not start well for Cambridge Analytica and its CEO Alexander Nix. In February – just one month before the bomb dropped – Mr. Nix told the British parliament that CA did not receive data from Facebook, which very soon turned out to be a lie. Only days later, several news outlets published a secretly taken film where Nix talked about “beautiful Ukrainian girls” to discredit political opponents in Sri Lanka. This was not the first secret recording in which Nix boasted about CA's (illegal) activities.
A few days later, on March 17, 2018, the scandal was about to fully hit the fan when The Guardian and The New York Times simultaneously published a story, based on insider information received from a whistle-blower, about how a British consultancy firm helped the Ted Cruz presidential campaign in 2015. Within a week, the story became the perhaps biggest scandal about data mining to date, with newspapers worldwide writing about data misuse on Facebook and the manipulative activities of CA. The two main protagonists saw themselves, at least at the beginning, in the role of the victims. It took both companies several days before they finally broke their silence. CA denied to have broken any laws and also denied using the data during the US presidential election in 2016. Facebook, on the other hand, apologised to users with a letter in various newspapers but only called the scandal a “breach of trust”.
The apology came too late, though, and it didn’t address the issue in detail. As a consequence, it wasn’t perceived as honest. The public outrage was immense – Google alone listed 129 million findings addressing the term “Facebook data scandal” and 1.92 million results for “Cambridge Analytica data scandal”. The bosses of both companies felt compelled to take a public stand for the second time. Alexander Nix's was suspended from Cambridge Analytica on March 20. Next up was Facebook's CEO Mark Zuckerberg. In early April 2018, he stated that Facebook would undergo a reform in its policy to prevent a similar breach. Facebook also decided to implement the new EU data protection regulations (GDPR) in all areas of operations worldwide on a voluntary basis. Ye,t the reputational damage was severe and as it turned out not just for the short run. On April 10, 2018, Mr. Zuckerberg had to endure an uncomfortable testimony before the US Congress and one month later, he also had to stand trial before the EU Parliament.
In late April, Facebook had to reveal its first quarterly report after the scandal broke out. Despite an immense fall in Facebooks stock prices between March and April 2018, the report showed that Facebook has had the second strongest quarter in its history, generating a revenue of $11.97 billion in the first quarter of the year. Shareholders seemed to be relieved about the fact that the share price not only stabilized, but it even reached a new all-time high in July 2018. However, the joy was short-lived when, on July 26, it became public that 3 million European users had deleted Facebook as a consequence of data abuse. Facebook was caught up by its recent past for a second time and the share price literally collapsed and plummeted by $109 billion – with no end in sight. Still in July, UK’s “watchdog”, the ICO (Information Commissioner’s Office), announced to fine Facebook with £500,000 for the data scandal, which was the maximum fine possible under the old data protection rules. “Even after the discovery of data misuse in December 2015, Facebook did not do enough to ensure that those who continued to hold the data had taken adequate and timely remedial action, including deletion,” was the verdict of the ICO. Cynics might argue that this fine was a modest price to pay – a mere 0.05% of the company’s free cash flow.
While the consequences for Facebook seemed to be very unpleasant, Cambridge Analytica and its mother company SCL Group, were hit even harder. Within the first days of the scandal, both companies lost many clients who left as a response to the public pressure. The reputational damage was perceived as too heavy to continue operations. On May 1st, 2018, just about 40 days after the data scandal peaked, CA and the SCL Group both had to announce the closing of their doors with immediate effect. Neither Cambridge Analytica nor the SCL Group were legally convicted at this point. Once again, history seemed to prove that restoring a damaged reputation – regardless of whether a moral or legal problem arises – is in the best case a long-winded project and in the case of untrue statements and bad crisis management, a thing that often ends with the demise of the company.
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