I’ve been pondering reputation risk a lot lately, especially when I consider that around 75% of a company’s market value today is tied to intangible assets like reputation. Every organization is under scrutiny every day, and reputations are at stake.
How well are companies and non-profits managing their reputation risk? What kind of reputation risk oversight do they have?
This issue also came to mind after reading an article from Dr. Mark Beasley of NC State University’s ERM Initiative. While attending a conference in Italy, Dr. Beasley noticed some common ERM challenges that organizations were dealing with regardless of where they do business.
The number one challenge on Dr. Beasley’s list was how our interconnected, instant news world is impacting organizations’ reputation and brand much faster and more intensely than ever before. In the past, a company had time to craft a response to negative press about a particular risk event.
With social media, the internet, and 24-hour cable news, this window of time no longer exists. In fact, it is becoming increasingly common to combine unrelated risk events into the same story, which of course serves as a double whammy.
Below are two examples of risk events that quickly spread and became a migraine headache for the particular company.
- United Airlines Passenger Forcibly Dragged Off Flight
Earlier this year, United Airlines became ensnared in a PR nightmare after dragging a man off of an overbooked flight. Overbooking is a common practice among air carriers in anticipation that a few will not show up for the flight. If everyone shows up though, someone has to give up their seat. Airlines will solicit volunteers first, but if no one steps forward, they will pick someone and “bump” them to a later flight.
The passenger who was chosen, David Dao, was allowed to board and then refused the leave the aircraft. After a few minutes, the police were called, and the situation became progressively worse. Several passengers shot video of the incident (see below) and posted it online where it went viral. National news outlets also grabbed the story.
United CEO Oscar Munoz went into damage control over this incident. Although the airline maintains it was following protocol, pictures of Mr. Dao’s bloodied face is what the general public will remember. Many long-term customers of the airline have decided to take their business elsewhere. Southwest Airlines, a competitor of United, has since decided to end overbooking so they can avoid similar problems.
NOTE: The video contains some graphic images. Viewer discretion is advised.
- Chipotle Food Poisoning Outbreak
The story first broke in 2015 after several high profile cases involving norovirus, E. Coli, and salmonella were reported at Chipotle locations across the country. According to this map, over 200 individuals fell ill after eating contaminated food from the popular chain. A separate outbreak in July 2017 led to a stock selloff worth over $516 million in market cap!
Although most recover from these illnesses within a few days, individuals with weakened immune systems such as the elderly and young children are at higher risk.
Social media is playing a big role in how fast companies recover from incidents like this. To compare, let’s consider a similar outbreak from the pre-internet dark ages…
An E.coli outbreak involving a popular fast food chain (Jack in the Box) in the early ‘90s affected over 500 people and claimed four lives. At the height of the crisis in the 2nd quarter of 1993, restaurant sales for the Jack in the Box chain fell by 22.2%, but by the end of the year, the decline had slowed considerably.
In comparison, sales at Chipotle dropped a stunning 36.4% monthly following the first outbreaks in 2015. Fortunately, no one died in these cases, but you wouldn’t know it based on the sales decline and painstakingly slow recovery when compared to the outbreak 20+ years ago.
On a positive note, Chiptole has taken significant steps in improving their oversight over food safety. In fact, earlier in 2017, they closed a restaurant for failure to comply with safety guidelines.
Improve Reputation Risk Oversight
I could easily list more examples, but the point should be clear now. With most people having what amounts to a TV studio in their pocket now, the speed at which a negative story spreads is much faster and the time that it persists is much longer than before. If stories like the United passenger or Chipotle food poisoning go viral, major media outlets are going to take notice…
What can a company do to better safeguard its reputation in today’s technology-driven, instant news world?
First – Don’t forget that if you have (or cultivate) a positive risk culture, your organization may be able to avoid (or at least minimize) those damaging incidents!
If avoidance doesn’t work, Dr. Beasley explains in his article that some organizations are developing responses to top risks before something happens, which I completely agree is a smart move for an organization to safeguard its reputation. In fact, I wrote an article on the topic, Practical Steps for Preparing and Responding to Risk Events.
Some organizations even develop a “playbook” containing different response strategies that helps them respond quicker in the event something happens. Since time is of the essence, having prepared responses that can be referenced and easily modified to the specific situation will help minimize the damage. If your organization decides to create playbooks, I highly recommend having realistic tabletop exercises to make sure the plans work. And a word of advice, please have someone outside of “communications” or “marketing” read the messaging, because perspective is key. After all, how many times have I written something and realized I made invalid assumptions about the reader?!
Also, I provide several methods for an organization to have an enhanced view into key audiences and stakeholders in my recent article on 5 Ways to Better Understand and Quantify Reputation Risk. Organizations can get ahead of the game and improve ongoing communications with key stakeholders.
Has your organization suffered additional reputation damage because of social media and around the clock news?
Have you developed a response playbook for top risks so your organization is better prepared?
Please feel free to leave a comment below or join the conversation on LinkedIn.
And if your organization is reeling from a damaged reputation or would like to get ahead and minimize the impacts of any future incidents, I urge you to take action now address your organization’s reputation risk or contact me to discuss your individual situation and how I can help.
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