Don’t worry: reputation damage doesn’t kill companies

How many times have you heard that your organisation’s reputation is it’s most valuable asset?  How many times have you heard social media cited as a new way to be crucified by public opinion?

Then we set you this challenge:  Name three companies that ceased trading only because their reputation was trashed?

Could you do it?

We reeled of a long list of companies where it felt like their reputational damage should have caused them to fail but, in all the cases we came up with, they nearly all continued trading successfully.  (Oh, and if you came up with Enron, we’re arguing they failed due to fraud not reputational damage!).

Here we share three that made our list and are still trading:

 

1. Firestone Tyres 

Firestone Tyres have come into serious public disrepute twice.

In the 1970’s the leaders of Firestone were made aware of a problem with the Firestone 500 tyres.  It was effectively ignored by the company despite evidence of road accidents attributed to the defects.  An official investigation was launched and Firestone was made to pay millions of dollars via multiple law suits.  They lost sales at the time, but Firestone continued as a successful brand.

In 1998 the Bridgestone Corporation purchased Firestone for $2.6 billion, but retained the Firestone brand.  But in 2000, following 250 deaths and 3000 incidents, the Firestone tyres on Ford Explorers were recalled.  A review showed Firestone had been aware of the problems with the tyres since 1992, but they didn’t act nor inform anyone outside the company in the interim 8 years.

Firestone remains a well-known, successful, global brand.

 

2. Ford Pinto

We all know Ford hasn’t gone out of business since we see their cars on the road all the time.  But do you remember the Ford Pinto issue?

In the 1970’s Ford launched the Pinto car which was perfectly sized for a small family.    However, a number of accidents revealed the possibility that the Pinto’s fuel tank was more likely to rupture if it was hit at a certain speed and angle than other cars. Ford was made aware of this, but did not reveal the information.

Instead, in 1977, claims were made that though Ford were aware of the flaw in the design, they refused to alter it after conducting a cost-benefit analysis that it would be cheaper to settle lawsuits resulting from claims.  The magazine publishing the article, called Mother Jones, obtained a document that became known as the Ford Pinto Memo.  It said that Ford had compared the $11 per car alteration against the potential settlement costs and decided that it made better financial sense to settle the cases instead.

The accident most often cited as an example of Ford Pinto lawsuit happened in 1972.  A Pinto was rear ended the problem with the fuel tank killed Lilly Grey while her 13 year old passenger, Richard Grimshaw, suffered severe burns.  The courts awarded Mr Grimshaw damages worth millions of pounds, in part because Ford was aware of the defect but had decided against changing the design.

In 1991, a paper by Gary Schwartz questioned the whole premise of the case against Ford and their Pinto.  Whatever the truth of it, the reputational damage suffered by Ford because of the Pinto did not kill the company.

 

3. White Star (Titanic, 1912)

Who doesn’t know the story of the “unsinkable” Titanic that hit an iceberg and sank on its maiden voyage, killing more than 1500 people?  Even before Kate and Leo did their thing, it was the most famous ship of all time.

Records show that the incident could have been avoided in a number of ways.  For example, the ship received at least 6 warnings from other ships in the week before the disaster and the design engineer had asked White Star to install 64 lifeboats – instead of the mere 16 required by law – to ensure that all passengers could be carried to safety if required.  White Star refused to increase the number of lifeboats and the ship didn’t take evasive action to following the warnings it received.  1500 people would likely not have died if either of these actions had been taken.

However, the sinking of the Titanic in 1912 did not cause the sinking of White Star.   Twenty-two years later, in 1934, White Star merged with Cunard but retained the White Star identity and branding.  White Star’s name was only lost in 2005 when the Cunard and White Star ships were collectively rebranded and became known as Carnival Lines.

There are lots more examples of companies suffering serious reputational damage and continuing – in terms of appearances to many – almost as if it never happened: Exxon’s 11m gallon crude oil disaster in 1989,  Eurostar’s handling of passenger trains breaking down in 2005, the UK MP’s expenses scandal in 2009, BP’s Deepwater Horizon well crisis in 2010 and Blackberry’s outages in 2011.  Even a top ten of online reputational incidents in 2010 lists ten entities that appear to be thriving.

So. having considered all these cases, we’re struggling to decide what our conclusions regarding reputational damage should be.  We know it’s never a good thing, but is it as bad as – say – losing a key customer or supplier or being subjected to fraud?  This one has certainly given us food for thought.

 

Quotes from academics may give us an insight:

  • Wilson (2009) says the public memory has “a short half life” unless the problem is sustained for a significant period after it’s revealed
  • Combes (2002) says, “reputational threats simply tarnish a reputation, something stakeholders will forget fairly quickly
  • Palenchar & Heath (2002) suggests consumers may expect less of companies than they have in the past

 

There are, of course, some cases where companies fail because their reputation is damaged beyond repair.   For example, in 2002, one of the top five accountancy firms, Arthur Andersen, voluntarily surrendered its licenses to practice following the Enron scandal.  We also imagine that much smaller companies rely more heavily on their reputation than those that make the news when something goes wrong.  That we can’t find details of them may be simply because they are small.

So we set you the challenge: can you name three companies that have ceased trading following reputational damage (excluding Enron and Arthur Anderson)? Can you name one?  If so, please join the discussion by sharing below.

 

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5 comments on “Don’t worry: reputation damage doesn’t kill companies

  1. Rob Osborn on said:

    The most famous one in the UK is Ratners jewellery. The chairman Gerald Ratner called his own products “complete crap”. Consequently people stopped shopping there and the company collapsed.

    • Yep, you’re spot on! (He actually said a particular item was ‘crap’ and the press generalised it, but that’s just semantics. Any more?

  2. J Bailey on said:

    University of Wales following the visa scam: http://www.bbc.co.uk/news/uk-wales-15410424
    Delorean: Whilst its collapse was a financial one the failure to secure needed funding was partly attributed to his drug bust, some comments he made following the trial and the damage it all had on his reputation. (will find ref)

  3. Ian Charters on said:

    Jarvis. Their competence to undertake construction projects was questioned after the Potters Bar train crash then the derailment at Kings Cross. Their claims of sabotage were not believed and confidence was further eroded as the cause of the crash was found to be poor maintentance.

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