The Dangers of Negative Reputation

By Nick Puleo

“So, what?”

It’s a phrase I’ve heard too often in regard to managing organizational reputation. But, while most executives recognize the need for crisis management and general goodwill, they ignore ongoing, proactive brand reputation management at their own peril. That’s because negative corporate reputation can harm business operations and the bottom line. 

The practice of reputation management has become complex and challenging in the current media and political environments, particularly for those organizations that find themselves unexpectedly in the spotlight. Social media disseminates negative news at a rapid pace. Consumer boycotts are frequent occurrences. And media outlets are apt to cover even the slightest rumor of malfeasance.

According to Harvard Business Review, 70% - 80% of a company’s value is derived from corporate reputation, which is comprised of "intangible assets such as brand equity, intellectual capital, and goodwill." And the impact of a negative reputation can have impact far beyond temporary revenue dips. 

LOSS OF REVENUE

The most obvious and expected consequence of poor corporate reputation is loss of revenue. Some research suggests that north of 90% of consumers will not buy from companies with bad reputations. Increasingly, consumers leverage social media to organize boycotts on large scales.

LOSS OF ACCESS TO CAPITAL 

ESG investing continues to grow, and many funders, investors and donors face the same public scrutiny as the organizations they fund (i.e. “divest in” campaigns). As a result, funders and markets increasingly shy away from firms with negative reputation. A recent study by Societe Generale found that more than two thirds of companies experiencing high levels of controversy had “sustained underperformance” in stock value, averaging 12% behind global indexes.  

LOSS OF ACCESS TO TALENT

Recruiting and retaining top talent also becomes more difficult as organizational reputation declines. According to Glassdoor.com, "Sixty-nine percent of job seekers would not take a job with a company with a bad reputation, even if they were unemployed."

LITIGATION

Brand trust is a key driver in consumer decision-making, and a lack of trust among employees, consumers, and investors places an organization under a cloud of suspicion. Denied the benefit of the doubt, firms are more likely to see litigation as an outcome. One needs to look no further than the many "most hated companies" lists out there to see this in action.  

INCREASED REGULATION 

Regulators also take note when organizational reputation declines, particularly when that decline is tied to sustained media attention. And that regulatory focus could lead to legislative action that fundamentally alters the business landscape and increases costs. The most obvious example of this is the Dodd-Frank Act regulating the banking industry after the 2008 financial crisis. But examples abound in other industries, including automotive, higher education, and recreation.

Warren Buffett famously said that "It takes years to build up a reputation while it takes minutes to destroy it." That destruction does not come without cost.

Organizations are best positioned against declines in reputation when they have robust programs in place to proactively build and enhance reputation. In today’s media environment, that requires an “always on” approach to media relations, consumer engagement, and employee communications.

Nick Puleo is the president and founder of Comsint. He and his team are here to answer your questions and provide guidance on your strategic communications options. Please feel free to contact us.