Reputation Management: What to Do When Your Brand Is Hit by a Scandal

[Photograph by Quinn Dombrowski under Creative Commons]

"It takes 20 years to build a reputation and five minutes to ruin it." – Warren Buffett.

Despite this warning, companies have paid scant attention to managing their reputation. In fact, many of the companies that we admire have, knowingly or inadvertently, shown a proclivity to flirt with reputation management issues and have, in the process, faced the backlash—fall in profit, decline in market capitalization, loss of reputation, and a dent in the trustworthiness of the company and brand.

The Hall of Shame includes the likes of Cadbury India, which suffered when worms were found in its chocolate back in 2003; PepsiCo and Coca-Cola when allegations of pesticide contamination surfaced some years ago; and Uber when one of its drivers was arrested for molesting a user last year.

The latest entrant to this Hall of Shame is Nestle India with its Maggi noodles brand. It is alleged that Maggi noodles contains more than the prescribed quantity of monosodium glutamate (MSG) and lead. Both, when present in excess, are said to be harmful—MSG is supposed to be carcinogenic, while lead leads to poisoning. Truth be told, they are not considered harmful in small quantities, therefore legally, they can be present within permissible limits.

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Episode 22: New Rules of Business

If such are the dangers of consuming MSG and lead, why has Nestle, the world’s largest packaged consumer goods company and which prides itself on being a good corporate citizen, even permit these ingredients to be present in Maggi’s recipe? To gain the following advantages: MSG improves taste, while lead increases shelf life!

What has been the consequence for Nestle now that it has got entangled in a reputation management crisis? For the first time in over three decades it has posted a loss; its market capitalization has seen a southward movement; its chief executive has been replaced; and the Indian government is all set to drag Nestle India to the National Consumer Disputes Redressal Commission to seek damages for alleged unfair trade practices and misleading advertisements.

If the risk to a company or brand’s reputation is so rampant, with even big companies not being immune, it is conceivable that your company or your brand may get ensnared. If that happens, what should be your strategy to resolve it? More importantly, can you emerge form it with your reputation not only intact, but possibly enhanced?

For that, let me share with you the issues in reputation management. I believe, all reputation management issues can be divided into two categories:

1. Competency issues: A company while conducting business could make honest mistakes—unknowingly, inadvertently and without any ulterior motive or malicious intent. When that happens, the company can come clean and admit that it has made a mistake. Most likely, it will be forgiven for its transgression
2. Integrity issues: There may be occasions when people within a company knowingly take decisions that are unethical. When this comes to light, the company cannot simply offer an apology or express regret and hope to get away with it. It will have to be penalized, in monetary or non-monetary terms. In extreme case, some members of the company may even find themselves behind bars.

Having got a perspective on what the reputation management issues are, let me share with you some possible reactions if you ever find your company’s or brand’s reputation at risk.

Immediately carry out a due diligence to determine what led to the issue. If due diligence indicates that the company has made a genuine mistake, immediately come clean and apologize unconditionally.

However, if due diligence shows that the problem was due to an integrity issue, do what Jet Airways did when it found itself embroiled in one such case.

A section of its stakeholders went on strike, inconveniencing its guests. When the strike was called off, Jet Airways' management not only apologized profusely for the inconvenience to guests, but also penalized itself by offering discounted air tickets. The spokesperson announcing these measure wore sober clothes, spoke in an apologetic tone and laced his conversation with phrases like "we are sorry", "we apologize…".

Bottom Line: When faced with a likely reputation management issue, the first thing a company should do is carry out due diligence dispassionately to determine if it pertains to a competency issue or an integrity Issue. If it is a competency issue, the company should disclose it and at the same time, apologize for the inconvenience it may have caused. Most likely, the matter will end there and it will find a quiet burial.

However, if the due diligence shows that deliberate decisions were taken that were unethical, the company should:

• Immediately make a public disclosure about the incident.
• Tender an unconditional apology for the inconvenience it has caused consumers.
• Penalize itself.
• Build systems and processes to ensure that such incidents do not recur.

Why self-penalize? Because if you don't, the legal system or the people at the receiving end of your 'deliberate' mistake will strive to make sure you pay a price for it—be it monetary or non-monetary.

Has any company head paid heed to this utopian advice and prospered? Yes, Airbnb has done so. It has not only survived, but has gone on to become one of the leading unicorns to emerge from Silicon Valley (current valuation at about $25 billion).

In June 2011, in San Francisco, a host’s home was burgled and ransacked by renters. Airbnb initially put out a lackluster response stating that it had tried to help the host. The host, who went by the name EJ, rebutted the company's claim. The war of words got worse.

As Leigh Gallagher wrote in an article titled The Education of Brian Chesky in Fortune magazine (July 1, 2015):

Inside Airbnb everyone had a different opinion on how to handle it. Some argued that taking responsibility would just open the door to more complaints; others said to put the truth out there; still others said the company should stay totally quiet. The situation dragged on for weeks…."I finally had this really dark moment and I got to the point where I wouldn’t say I stopped caring, but my priorities completely changed," says [Brian] Chesky [founder of Airbnb]. "And I basically said I should stop managing for the outcome and just manage to the principle." He needed to apologize, Chesky felt, even if it might hurt the company.

Chesky composed a strongly worded letter accepting responsibility. "Over the last four weeks, we have really screwed things up," he wrote. He not only said he was sorry but also announced that the company would be implementing a $50,000 guarantee. "All of this was against advice," Chesky says. "People were like, 'We need to discuss this, we need to do testing,' and I said, 'No, we’re doing this.' "

Airbnb’s response, though delayed, is exemplary. The reaction of most companies when they are embroiled in such a crisis, particularly when it relates to an integrity issue, is:

• Step 1: Deny it
• Step 2: If denial does not work, give it a competency issue twist—and put out an apology with a fervent hope that the issue will die a natural death.

But if integrity is involved, expressing regret or apology will not prove effective. You will have to self-penalize. There seems to be no other way out.

There can also be instances where a company finds itself in crisis not due to management’s actions, but due to mistakes by its stakeholders. What can it do then?

Let me share the plight of Mattel, a Fortune 500 company. It outsources a significant amount of its toy production to China. In 2007, it had to recall 19 million of its “Sarge” toy cars when it discovered that they were covered with lead paint, which is banned for use on toys. An enquiry revealed that a subcontractor had violated Mattel’s policy and "utilized paint from a non-authorized third-party supplier."

Legally, Mattel could not be held responsible for a mistake by one of its stakeholders who had delibrately voilated a written policy. But who would suffer because of this faux pas? The sub-contractor or Mattel? From a legal standpoint the blame would rest at the doorsteps of the subcontracrtor, but in the hearts and minds of consumers, Mattel would be guilty—its brand image would be severely dented.

Lesson for us: Yes, even if the mistake—whether inadvertently or knowingly—is made by our partners, it will harm us. Be careful; do not hold to a false sense of comfort that you are legally protected from the mistakes of your third-party partner. Yes, legally they are to blame, but the damage to your brand will be incalculable. Remember, reputation management is not merely about legal issues, it is as much about perception. Once a negative perception gets created about your brand, it causes incalculable damage to your brand image.

Why is brand image critical for your business and brand? Revlon put it wonderfully when it said: "In the factory, we make cosmetics. In the drug store, we sell hope."

"Hope" is created through the brand image that Revlon creates in the minds of its customers. And if the brand image gets dented, over time it will start reflecting in the top line and bottom line.

In all this, here’s a concern you ought to keep in mind: do not try and take advantage of another brand’s misfortune. Take the Maggi imbroglio. Another instant noodles brand owner may be tempted to take advantage of Maggi’s misfortune and advertise that its instant noodles contains MSG and lead within prescribed limits. What is likely to happen? The scandal may engulf his brand, dragging it into the controversy. Worse, customers may start associating it with the scandal.

As Richard Branson said, "Your brand name is only as good as your reputation."

If you have any questions mail us at askrajesh@foundingfuel.com