A corporation suffers reputational damage when its public perception takes a bad turn. It may be a significant problem that sparks a massive PR crisis or a small flaw that goes unnoticed. However, since minor problems can snowball into bigger ones, each one must be treated attentively.
Although there are many factors that might damage a company’s reputation, the actions of its personnel or the firm itself are most frequently to blame. Sometimes it’s due to negligence, poor judgment, or even criminal activity committed by employees within the company, in addition to errors in judgment, or poor policies made by those same employees.
External factors like shifting social views, mistruths being circulated about the organization, or even personal grudges with little to no ties to the business can also cause reputational harm.
How does a company suffer reputational harm?
Though every case is unique, there are 3 primary causes that generally lead to reputational harm:
● Soiled public image
● Substandard business choices and actions
Employees frequently serve as the company’s public face and the main point of contact with customers. Employees must therefore treat consumers with professionalism and respect at all times. The reputation of a business may suffer if employees treat consumers impolitely or rudely. Typically, this leads to issues with online ratings and reviews, but matters could be far worse.
In a well-publicized incident from 2018, the manager of a Starbucks in Philadelphia called the police and had two black visitors unlawfully arrested. The coffee chain had a public relations crisis after footage of the event went viral. In response, Starbucks suspended operations at approximately 8,000 locations for a day and put roughly 175,000 staff through a training session on racial prejudice and respect.
Additionally, workers may hurt a company via social media. Although they may be blogging privately and independently and only expressing their thoughts, if it is related to a brand, it speaks poorly of the business.
Even if an individual may perceive their words or actions as harmless fun, it may be quite harmful to their workplace. Employees sometimes post recordings of alleged “pranks” they pulled on coworkers or write comments about customers online. Particularly in light of the rapid expansion of websites like TikTok, an increasing number of businesses have adopted a strict policy on these posts, which has resulted in employee termination.
Businesses, particularly many successful ones, put a lot of work into crafting a positive public image. The public may, however, have an unfavorable perception of a brand whenever its inner workings are unveiled.
Data breaches are among the most harmful events that may cause people to lose faith in organizational practices. According to estimates, 1,862 data breaches happened in the US in 2021, breaking the previous record. These occurrences can cost businesses a substantial amount of money. Customer reimbursements from the T-Mobile data leak in 2022 cost the business roughly $350 million, and that doesn’t even account for the money the company needed to spend to train its staff and secure its systems.
Not only do such breaches put sensitive customer data at risk, but they can also severely damage the image of the business. Even when the issue is addressed, internal changes are implemented, and the company makes amends, the incident may have caused permanent damage to the public’s faith.
Businesses may also incur harm to their public image due to unfavorable comments and posts regarding their name, reputation, or offerings. Even though a comment may be false or misleading, due to the way social media influence operates, it enters the public narrative and it is extraordinarily challenging to change the way the public feels.
Business choices and actions
In certain scenarios, businesses have public and private sides, though the two vastly differ. Their internal operations differ from those portrayed to the public. For instance, while some businesses claim to take environmental protection seriously, in reality, many of them are only proclaiming to be sustainable. This method is referred to as “greenwashing.”
Ryanair is well known for engaging in greenwashing. The Irish airline made a big deal about being one of the world’s greenest airlines, even making advertisements that depicted imagery of pristine wilderness and lush meadows. However, upon review, they were actually listed as one of Europe’s top 10 carbon emitters and were pressured to take down their ads and advertisements as a result of criticism from the public.
Other businesses have been exposed using unethical business tactics including price gouging. Many businesses were criticized for price gouging during the Covid pandemic for items essential for public safety at the time including hand sanitizer and face masks. Governmental bodies, including the New York attorney general, intervened, taking legal action against these organizations.
Companies that tarnished their own public image
A business could occasionally serve as its own worst enemy and cause significant reputational damage. Uber has experienced multiple problems and taken actions that have severely harmed its reputation during the course of its existence. The company has been charged with breaking local laws, failing to properly handle background checks on drivers, and a host of instances of passengers being sexually assaulted.
Uber issues with sexual harassment were not limited to their vehicles but occurred in their workplaces as well, which resulted in legal action and the dismissal of the offending workers. The ride-sharing service was able to grow even with these allegations at play, though the reputational damage gave rival businesses like Lyft, in the ride-sharing sphere, an opportunity to flourish. A leak of information finally allowed the public to see inside the business and its real perspective on workers and customers.
Another example of a business metaphorically shooting itself in the foot is Wells Fargo as it was revealed that they had been opening millions of fictitious accounts and subscribing clients to services they had neither requested nor had been made aware of.
After being exposed, the organization terminated its CEO, along with more than 5,000 employees. Additionally, it paid $185 million in penalties and established a fund for fee refunds totaling almost $300 million. The difficult work of striving to repair their reputation and reestablish the public’s trust had just begun.
Not exacerbating the reputational crisis
Certain companies incur reputational damage, but instead of correcting the issue and accepting accountability for their actions, they point the finger at their clients when it was plainly the company’s fault.
United Airlines pulled this in 2017 the airline notified a randomly selected Kentucky doctor that they would be required to give up their seat and exit the aircraft due to the flight being oversold. The passenger was forcibly removed by the police when they refused. It didn’t take long for the video of the incident to go viral on social media. The CEO, instead of owning up to the company’s mistake, blamed the passenger for the event. This obviously poor decision made matters much worse.
United’s stock price fell to less than $1 per share as soon as the public turned against it. This forced the airline to finally acknowledge its error and settle the matter with the offended passenger.
Reputational harm due to no fault of the company
A company’s reputation might occasionally suffer from no wrongdoing of its own. It could involve influencing public opinion, a person with a personal grievance, or someone who uses the business to further their own interests.
Such was the case with England’s Popular sandwich shop, Pret a Manger. A teenage client of theirs passed away in 2016 due to an allergic reaction to a component that was presumably linked to one of their sandwiches. While not legally bound to reveal the ingredients in their products, public pressure to do so after the incident caused Pret a Manger to amend their practice and start to list ingredients. While they were operating within legal bounds, they felt forced to take the action due to the reputational damage.
For years, Proctor and Gamble faced external reputational harm due to borderline fanatical circumstances that were beyond its control. Based on its logo, the business has been charged with having ties to devil worship since the late 1970s. Some people said that the business’s logo, which consists of a moon and 13 stars, symbolizes Satan. The president of Proctor and Gamble supposedly came on television to acknowledge the link, though this was just an urban legend made popular in the 1980s, such a televised appearance never took place. It was discovered that a tiny group of persons who were pursuing their own personal religious agendas were responsible for spreading it.
The company’s logo, which honors the original 13 colonies of the United States, actually goes back to the late 1800s. Although Proctor and Gamble have spent years disputing the allegations, their image has still suffered in some parts, particularly among deeply religious people. While this rightfully appears to be a false rumor, the organization has been plagued by it for decades, to the point that they have had to issue multiple press releases to refute the claim.
For a while, they even stopped using the logo. Ironically, religious groups saw this as an attempt to cover up their Satanic ties, sparking yet another round of outrage. It seemed as though no matter what they did, Proctor and Gamble just couldn’t win.
Could the harmed company sue?
f a business believes that its reputation has been wrongfully hurt, it can often file a lawsuit. However, a company should carefully conduct the cost/benefit analysis of taking legal action if such is being considered. Businesses that file lawsuits are frequently perceived as bullies, and several states have even passed Anti-Slapp legislation to make sure that consumers’ rights aren’t violated when they give reviews or express their opinions about a firm.
For a lawsuit to be successful, a company has to show that it incurred harm in the form of:
● Privacy rights violations
● Character defamation
● Contract breach
● Intentional interference with the expectancy of a business
Sometimes the best course of action is to get in touch with the upset client and try to resolve the matter, especially if it involves a Yelp review or a social media post. Customers that are upset frequently just want to be heard and their grievances to be acknowledged, and by engaging in a conversation, many of these negative emotions may be alleviated with an effective review management campaign. If the client feels they have achieved closure or at least the public will know that a corporation is making reparations, they may even be persuaded to remove a review.
Avoiding reputational harm
While certain situations may be inescapable, a company that is vigilant about sources of reputational harm could engage in the following three actions to help deal with such a scenario should it arise:
Have a strategy in place to handle negative publicity or a crisis if and when any arise, even while you are working to establish the most favorable reputation possible. To prevent data breaches, confirm that your business has provided personnel with sufficient security training. Additionally, establish a clear code of ethics that defines what workers are permitted to publish on the company’s behalf.
Get ahead of a problem before it becomes impossible to address, and keep in mind that time is a major factor. Get in touch with outside crisis management or public relations professionals if it becomes too much for internal resources to handle. The amount of potential reputational damage your business incurs is often correlated to how quickly your response to it is.
● Honesty and Transparency
Committing to a stance, if it’s anything but truthful will only make things worse. Be open with the public if you have made an error, commit to making things right, and put forward a plan that you will use to improve.
FAQs regarding reputational harm
What is defined as reputational harm?
Reputational harm is when the company’s public image shifts in a negative direction.
What is the typical way in which a business’s reputation is harmed?
Typically, reputational harm is a result of an employee’s actions, when a company’s public image doesn’t match their internal behavior, when the public deems a company’s actions as negative, or when unethical business practices are revealed to the public. It may also suffer from negative consumer feedback or word-of-mouth advertising.
What should be done by a company whose own actions put its reputation in peril?
Act with complete transparency, punctuality, and honesty. If the person is a disgruntled client, make an effort to resolve the matter. Accept responsibility for any errors or poor decisions made by the business and take steps to correct the situation.