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Martin Riley, ex-CMO of Pernod Ricard, once warned, saying that in today’s world every brand can have its own “Tahrir Square or WikiLeaks moment. Any ill-thought out commercial promotion in Thailand or Peru can come back and bite you in the UK or Australia. Today, brands are only as strong as their weakest link.” [1]

“Today, brands are only as strong as their weakest link.” - Martin Riley

Today it is much quicker and easier for an empowered consumer, informed stakeholder, or a disgruntled employee to expose or do more damage to a firm than any time before in history. A leak about a brand’s illegal activity can go viral in a matter of minutes. Conversely, hiding a brand’s semi-illicit activity somewhere along the supply chain or at C-Suite level has never been so difficult. And it’s a good thing: the era of radical transparency creates a highly risky environment for the reputation of brands.

“Increasing complexity paves the way for the butterfly effect.”

Individual action can have a serious impact on the reputation of the whole corporation. It may be an employee from the team, a farmer who supplies the source of the product or anyone from the C-Suite. This is because in our hyper connected world the unprecedented and increasing complexity paves the way for the butterfly effect. The butterfly effect is the sensitive dependence on initial conditions in which a small change in one area of a complex system can result in large differences in the whole at a later state. Something as small as the flutter of a butterfly's wings can ultimately cause a typhoon halfway around the world. Leaders, managers and executives of global brands have witnessed this effect many times particularly in the realm of reputational crises.

Employee’s Action

Firstly, it’s necessary to acknowledge that today 75% of an average corporation’s value is intangible – or in other words, its brand and its reputation are a business’ most valuable asset [2]and according to a survey by Deloitte 87% of executives rate reputation risk as more important than other strategic risks. [3]

Individual action can result in various societal effects. So, the butterfly effect is not the only consequence. Employee or ex-employee action can lead to reputational impact stemming from:

As mentioned above, the butterfly effect is when a small change, for instance, in the internal culture of a firm causes large typhoons of scandal, crisis and disaster. The domino effect, like a negative spiral, is when, for example, a communications problem results in an ethical problem which then becomes a societal problem and when the societal problem becomes an economic problem and when the economic problem becomes a crisis for the corporation etc. The bandwagon effect is when different stakeholders begin following in each other’s footsteps in regards to decision making on the ongoing issue.

Ex-employees have more freewill today than ever when it comes to leaking information or speaking out. They are willing to participate in interviews for investigative journalists or even start campaigns against a particular corporation. Frances Haugen is an exemplary whistle blower. A person from inside Facebook (now Meta), who decided to speak out about the ill motives of the tech giant. [4] Similarly, in a Netflix documentary series called ‘Dirty Money’, former employees of the largest banks expose the dirty inner workings during interviews with investigative journalists.

“By failing to prepare, one is preparing to fail.” - Benjamin Franklin

In addition to the individuals within the workforce, a crisis can arise from an individual throughout parts of the supply chain, too. One can easily think of a scenario in which the manufacturing factory in i.e., Bangalore is seen by a tourist-like person who then using a mere smartphone films an underage worker who was not on any official payroll approved by the Headquarters. If it wasn’t clear whether supervising this is among the responsibilities of the HR director and if in general other responsibilities of other relevant departments weren’t clarified, the ground for such a leak to happen has been prepared. As the polymath Benjamin Franklin formulated: “By failing to prepare, one is preparing to fail.”

CEO’s Action

We live in an age when the spokesperson for a corporation is not a spokesperson or, say, the director of corporate communications. Increasingly, it is the CEO himself. The ambassadorial and, for some companies, activistic role of CEOs, the increasing need for radical transparency, social media responsibility and personal branding are only some of the factors driving this dynamic. As Mat Zucker wrote, “the most successful CEOs have one thing in common: they understand the power of effective communications in shaping their companies’ brands, reputation and culture and they invest significant time and brainpower in communicating their vision, values and value. In the face of market disruptions and intense public scrutiny, the CEO is now expected to play a greater role than ever before in being the heart, soul and face of their company.” [5]

“The reputation of a brand is strongly linked to the reputation of a CEO.”

Today CEOs face heightened risk to personal reputations and the reputation of a brand is strongly linked to the reputation of a CEO. A survey done by Weber Shandwick estimated that 44% of a company’s market value is attributable to CEO reputation. [6] Another survey found that 95% of financial and industry analysts said they would purchase stock based upon a CEO’s reputation. [7] And 94% said they would recommend the stock to others based on the CEO’s reputation. [8] Corporations today can also go through what i.e., Papa John’s went through in 2018. As a result of just one comment by their CEO the stock plummeted 13% and erased $96.2 million in market value in a few hours of stock trading. [9]All in all, the impact of a CEO’s action on corporate reputation must not be underestimated. Not to mention … Elon Musk.

Pro-Active Steps and Tools

Reputation, by definition, is what others are saying about the organization. This is why it is necessary to take the following steps continuously:

Positive reputation starts from within and then spills over. It’s inside out. This is why it is necessary to measure the following internal factors so that if something goes out of order, it is spotted on time:

Individual action can either make or break the reputation of an organization. It’s not only the CEOs action but also the actions of every employee. The current economic and systemic signs indicate that this is the WikiLeaks moment for brands’ reputations. For brands, it is not a matter of “if” but a matter of “when”. Take pro-active steps now to build, protect and above all: strengthen your reputation.


References

[1] Charles, Gemma. “Brands Must Guard against 'Wikileak' Moment in Digital Age, Says Pernod Ricard CMO.” Campaign UK, CampaignUK, 28 Aug. 2014, https://www.campaignlive.co.uk/article/brands-guard-against-wikileak-moment-digital-age-says-pernod-ricard-cmo/1287257. 

[2] Linssen, Alexander F. Brigham Stefan. “Your Brand Reputational Value Is Irreplaceable. Protect It!” Forbes, Forbes Magazine, 19 June 2013, www.forbes.com/2010/02/01/brand-reputation-value-leadership-managing-ethisphere.html#5c0f008b3790.

[3][email protected] | Deloitte | Survey, Global, Reputation, Risk.” Deloitte, 30 Oct. 2018, www2.deloitte.com/global/en/pages/governance-risk-and-compliance/articles/reputation-at-risk.html.

[4] Perrigo, Billy. “Why Whistleblower Frances Haugen Decided to Take on Facebook.” Time, Time, 22 Nov. 2021, https://time.com/6121931/frances-haugen-facebook-whistleblower-profile/. 

[5] Zucker, Mat. “The CEO Content Strategy-Your Chief Executive as a Reputation Channel.” Forbes, Forbes Magazine, 26 June 2020, https://www.forbes.com/sites/matzucker/2020/06/23/ceo-content-strategy/?sh=48a6a292f32a. 

[6] “81% Of Global Executives Report That External CEO Engagement Is Now a Mandate for Building Company Reputation.” Weber Shandwick, 17 Apr. 2018, https://www.webershandwick.com/news/81-percent-of-global-executives-report-external-ceo-engagement-is-a-mandate/. 

[7] Gaines-Ross, L. CEO Reputation: A Key Factor in Shareholder Value. Corp Reputation Rev 3, 366–370 (2000). https://doi.org/10.1057/palgrave.crr.1540127

[8] Erskine, Ryan. “Does Your CEO Have a Personal Brand? If Not, It Could Be Affecting Your Bottom Line.” Forbes, Forbes Magazine, 17 Dec. 2017, https://www.forbes.com/sites/ryanerskine/2017/12/17/does-your-ceo-have-a-personal-brand-if-not-it-could-be-affecting-your-bottom-line/?sh=7a4e3b0f2f09. 

[9] “How CEO Reputation Impacts Corporate Reputation.” ReputationManagement.com, 26 Oct. 2020, https://www.reputationmanagement.com/blog/ceo-reputation-management/. 

The Facebook-Cambridge Analytica Scandal

The scandal erupts

 

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.

2018: The aftermath

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.

Facebook-Cambridge Analytica data used

Read Part I of the Facebook and Cambridge Analytica Data Scandal

The Facebook-Cambridge Analytica Scandal
Timeline of a reputational disaster

 

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, which is most likely the most famous data scandal the world has ever seen – resulting in an unprecented loss of trust and reputation.

When extensive Wikipedia pages are dedicated to a “breach of trust”, and Google displays 2,690,000 results for this “breach”, it is a safe bet to say that something definitely has gone (very) wrong. And that, perhaps, there was more than just a breach of trust. In this specific case, though, it took almost three years after the first articles were published until the big media scolding and the resulting consequences occurred. Three years in which one would have had the chance to actually prevent reputational damage. This is the story behind the Facebook-Cambridge Analytica data scandal and its implications for the reputation of two of the world's most influential companies.

2013: How it all began

“This is Your Digital Life”is the innocent name of an app which Aleksandr Kogan developed in 2014 at the Cambridge University. An app that was different than others, though. It was designed to vacuum up the data of the people using it. And the data of their friends – including the data which they hadn’t intended to share publicly. Mr. Kogan provided the app to a young British political consulting firm called Cambridge Analytica (CA), which combined data mining, data brokerage and data analysis with strategic communication in electoral processes. The London-based agency had developed a profiling system using online data, such as Facebook interactions and smartphone data. As a political consulting agency, CA mainly focused on voters demographics, consumer behaviour, internet activity and other private and public sources. Cleverly combining strategic advice and new newly acquired technological capability, CA was quickly able to run a Facebook survey that silently aspirated the data of people participating – and their friends. The entire operation was mainly orchestrated and run by two key people: Alexander Nix, Director of the SCL Group – CA’s mother company – and CEO of Cambridge Analytica, and Steve Bannon, vice president of Cambridge Analytica, executive chairman of Breitbart News and former chief strategist of president Donald Trump.

2014 – 2015: Data misuse and first newspaper articles

In 2014, CA actually started harvesting data on Facebook. Data which was used in the 2014 midterm elections in the US and in 2015 for the presidential run of Ted Cruz.While Cambridge Analytica later admitted to collecting 30 million Facebook user profiles, Facebook itself estimated that around 87 million profiles were affected by Mr. Kogans App.

A Bloomberg article reported in November 2015 that CA was hired by the pro-Brexit campaign group Leave.EU, headed by Nigel Farage. As it turned out, Alexander Nix and Nigel Farage were friends, and this operation was done pro bono. It was the first time microtargeting was raised to a public level and used to influence an election campaign.

On 11 December 2015, the Guardian first published an article on Cambridge Analytica and its methods. The journalist Harry Davies was already able to show that the election campaign of the Republican presidential candidate Ted Cruz was driven forward by data from Cambridge Analytica. It was also known at the time the data was being collected via an application of Facebook, which led to the first time that Facebook had to take a public position on the issue. Their comment on this article was very general: “[M]isleading people or misusing their information is a direct violation of our policies and we will take swift action against companies that do, including banning those companies from Facebook and requiring them to destroy all improperly collected data,” a Facebook spokesman said. However, nothing in this direction was actually undertaken by Facebook – apparently this simple intervention was enough and no further media outlets caught on to the story at this stage.

2016 – 2017: Ongoing operations

2016 and 2017 was a busy year for the SCL Group and Cambridge Analytica. After the Ted Cruz campaigning team lost against Donald Trump, CA was hired by Donald Trump’s presidential campaign in 2016 to help them win the national election against Hillary Clinton. Meanwhile in Europe, another firm with close ties to the SCL Group, AggregateIQ, helped the second pro-Brexit group “Vote Leave”.

During that time, media attention lay almost exclusively on the surprising election results and not on CA and its Facebook data. The calmness continued until December 15, 2017, when CA was again mentioned in the media, this time in a Wall Street Journal report, stating that Robert Mueller, the American Special Counsel to investigate potential Russian interference in the US presidential election, had requested files from Cambridge Analytica. Once again, however, this did not get the attention of other media and neither Cambridge Analytica nor the SCL Group nor Facebook had to face any further negative press. This was about to change drastically, though, in early 2018.

Facebook-Cambridge Analytica data used:

Read Part II of the Facebook and Cambridge Analytica Data Scandal

According to a survey by Deloitte, 87% of executives rate reputation risk as more important than other strategic risks.1 Despite the fact that the global business class has come a long way in its efforts to linearize reputation management, it still doesn’t change the reality that, inherently, much of its nature is non-linear. It is due to its complex nature that corporations come across numerous unexpected and inconsistent veracities in relation to reputation.

Manners Make the Brand Rep?

The internal brand culture and holistic performance make up the behavior of a company. As any insider would agree, a positive or a negative reputation strongly depends on the behavior of an organization. This then gives way to the reasonable conclusion that good behavior equals good reputation. Manners make the brand rep. However, as in the words of Albert Einstein: “Everything should be made as simple as possible, but not simpler.” This is especially true when it comes to such complex notions such as corporate reputation.

“So as much as reputation management, by today, can be called a science, it, unfortunately, still is not an exact one.”

So as much as reputation management, by today, can be called a science, it, unfortunately, still is not an exact one. Precedents in economic history have taught us thus far that it is a non-linear or complex component. A widely known situation of such complexity that is frequently evident in the corporate world today is when a corporation finds its reputation under threat, despite its model behavior. In other words, reputational crisis, in some cases, hits even those corporations that deserve it the least.

A Living Organism

With its complex processes a corporation is, in many ways, a living organism analogous to the human body. Even those who take care of their bodies, eat well, exercise and live a healthy lifestyle can still fall severely ill. How is it that people who have lived very healthily can actually die younger than those who smoked excessively, drank heavily and ate carelessly? The medical explanation for the suffering of those who don’t deserve to suffer lies in their predilection for certain diseases. The same applies to today’s corporations and the industries to which they belong. Some of them 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 all investments in reputation building will fall short? No, it is not so. Regardless of how complex this issue appears to be at first sight there are still solutions for it because it is not the first time this has occurred in the world of commerce. There is a well-trodden road or a tried and tested way of overcoming this in order to improve business results. It’s a matter of knowing what measures to take before and after. It’s also about communications professionals being able to reduce complexity to the minimum.

“No matter how complex this issue appears to be there are still solutions for it because it is not the first time this has occurred.”

In some cases, the predisposition is not even of the corporation itself but in the industry the corporation belongs to. Take the banking industry as an example. How many industries do you know that are described with terms such as ‘cartel’, ‘led to the global economic recession’ or ‘shadow system’ in legitimate academic textbooks? Despite efforts to manage reputation during the post-recession period, banks began seeing their reputation again in 2018 after five years.2 In any case, the priority should be in being pro-active rather than reactive. Amateurs tend not to do their homework and in turbulent times tend to react, if not overreact to almost every little thing, while responsible professionals prepare and, when the time is right, respond.

“The returns on investment will increase if all communication that affects reputation is crafted in the way that it appeals not only to customers but also to the other stakeholders.” 

Returns on investment will increase if all communication that affects reputation is crafted in a way that appeals not only to customers, but also to company stakeholders  (i.e. employees, shareholders, partners etc.). It is important to remember that corporate reputation gains and retains strength only when cared for holistically. In other words, along with the corporate communications department, all other departments including HR, IT, the board of directors and the C-Suite need to take responsibility for all possible reputational realities. Examples of best practice are common within the cultures of many luxury brands. In fact, a study in the UK revealed that almost half of the top ten brands with high reputation were from the luxury industry.3

Return On Integrity

Overcoming reputational crisis may require taking risk to build trust. This indicates that decision-makers there to prevent or solve the problems 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, which can be an unpopular one. ROI here stands for Return On Integrity.

References:

  1. [email protected] | Deloitte | Survey, Global, Reputation, Risk.” Deloitte, 30 Oct. 2018, www2.deloitte.com/global/en/pages/governance-risk-and-compliance/articles/reputation-at-risk.html.
  2. Garver, Rob. “Bank Reputations Fall for First Time in Five Years: 2018 Survey.” American Banker, 28 June 2018, www.americanbanker.com/news/bank-reputation-survey.
  3. “3 Surveys Summarised: Reputation Institute, Watson Helsby and Vuelio.” PR Measured, 18 Apr. 2016, prmeasured.com/3-surveys-summarised-reputation-institute/.
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