What Is Reputational Harm? Definition, How It Happens, Avoidance
Companies spend years and countless dollars crafting their public image and reputation. A positive reputation can translate to higher profits and a healthy bottom line. However, it all can come crashing down in an instant.
If a business’s reputation is harmed, it could be the result of misguided actions taken by the company, an employee, or even through something the business had nothing to do with. No matter the cause, reputational harm can inflict incredible damage on a company.
What is reputational harm?
Reputational harm occurs when the public image of a company shifts in a negative way. It can be a large issue that leads to a major public relations crisis or a small misstep that might even be disregarded. However, small issues can grow into larger ones, so they must all be treated with care and attention.
Reputational harm can be the result of several factors but are most often the actions of the company or its employees. Sometimes it is caused by mistakes, decisions, or poor policies from within the business, whether it be negligence, bad judgment, or even illegal activities.
The damage can also be created by external influences such as changing social attitudes, untruths being spread about the business or even a vendetta that has little to nothing to do with the company.
How can a company’s reputation be harmed?
While each case is different, reputational harm can usually be broken down into three main causes:
Employees
Often employees are the face of the company and the main way a business interacts with the public. So it is vital that employees maintain a professional and respectful relationship with customers. If employees treat customers rudely or with disrespect, it can cause harm to a company’s public reputation. Most often this results in problems with online reviews and ratings, but it can get much worse.
A famous case occurred in 2018 when the manager of a Philadelphia Starbucks had two black patrons arrested without cause. Video of the incident went viral, and the coffee chain found itself in the middle of a public relations nightmare. In response, Starbucks closed about 8,000 stores for a day and implemented a training program on racial bias and respect for about 175,000 employees.
Social media is also a place where employees can bring harm to a company. They may be posting personally on their own accord and simply expressing their opinions, but if it is tied to a business, it reflects on the company.
While they are individuals, sometimes what a person might see as light-hearted fun, could actually be extremely damaging to their employer. A common occurrence is when employees make online statements about customers or post videos of so-called “pranks” in the workplace. More and more companies have taken a hard-line stance on these posts, especially with the exponential growth of sites like TikTok, leading to the termination of employees.
Public image
Most successful companies work very hard to craft their public image. However, there are times when the inner workings of a brand are exposed and lead to the public viewing them negatively.
One of the most damaging situations leading to an eroding of trust in business practices is data breaches. It is estimated that in 2021, 1,862 data breaches occurred in the United States, setting a new record. These incidents can be incredibly costly to companies. The 2022 T-Mobile data breach cost the company about $350 million in customer payouts. This doesn’t even include what they had to pay internally to secure computer systems and train staff.
These breaches can not only cause legal headaches and put customers’ information at risk but can cause devastating harm to a company’s reputation. Even when a company handles the issue and makes internal changes and restitution, the event can cause potentially irreparable damage to the public trust.
As mentioned above, companies can also see their public image damaged through negative reviews and posts about their brand, service, or product. Even if a comment isn’t true, it becomes part of the public narrative and, due to the nature of social media and public sentiment, is very difficult to change.
Business practices
Some companies have a public side and a private side. What they present to the public is not the same approach they take behind company walls.
For example, some companies put a green foot forward when it comes to the environment. However, the truth may come out and show that these companies are just paying lip service to sustainability. This practice called is called greenwashing.
A famous culprit of greenwashing was Ryanair. The Irish airline touted that they were one of the most environmentally friendly airlines in the world, even creating ads that featured green pastures and pristine wilderness. In reality, they were named one of the top ten carbon emitters in Europe and forced to remove their commercials and advertisements after public backlash.
Other companies have been discovered practicing bad sales techniques such as price gouging. During the Covid pandemic, numerous companies were accused of price gouging for products such as face masks and hand sanitizer. Government agencies stepped in, such as the New York attorney general and pursued legal cases against these businesses.
Companies that damaged themselves
Sometimes a company can be its own worst enemy and bring a lot of reputational harm upon itself.
Throughout its existence, Uber has faced numerous issues and activities that have heavily damaged its reputation, the majority of them from their own actions. The company has been accused of skirting local regulations as well as multiple accusations of not properly handling driver’s background checks and multiple occasions of sexual assaults on passengers.
Uber also faced sexual harassment issues within their offices which led to lawsuits and the firing of offending employees. While the ride-sharing company has continued to grow, these accusations have tainted its public image and allowed competitors such as Lyft to thrive in the market. A leaking of documents eventually gave the public a look inside the company and its true attitude toward employees and passengers.
Wells Fargo is also an example of a company metaphorically shooting itself in the foot. In 2016, it was discovered that Wells Fargo had been creating millions of fake accounts and signing up customers for services that they not only didn’t ask for but also weren’t even aware of.
After being caught, the company fired over 5,000 workers and its CEO. It also paid $185 million in fines and created a fund of nearly $300 million to refund fees it had fraudulently charged. This was just the beginning of the daunting task of trying to rebuild their reputation and regain the public’s trust.
Don’t make it worse
Sometimes companies find themselves in trouble, and their reputation takes a hit. However, instead of fixing the problem and taking responsibility for their actions, they place the blame on the customers when it was obviously the business’s fault.
In 2017, United Airlines did just this. Due to the overselling of a flight, the airline informed a Kentucky physician chosen at random that they had to give up their seat and deboard the plane. When the passenger refused, they were forcibly removed by officers. The video of the incident went viral on social media. Instead of admitting their mistake, the company CEO blamed the actions on the passenger. Things went from bad to worse.
Public opinion quickly turned against United and its stock price plummeted to less than $1 a share. The airline finally admitted that they were in the wrong and settled with the passenger.
Companies that suffered from things they didn’t do
There are times when reputational harm is brought on a company through no act of its own. It could be shifting public opinions or an individual with a personal axe to grind or using a company to reach their own goals.
Pret a Manger is a popular English sandwich shop. In 2016, a young customer died from an allergic reaction to an ingredient that was thought to be tied to one of their sandwiches. While Pret a Manger was not legally required to disclose the ingredients, the public was demanding this change. The eatery found its reputation damaged even though it was following the law, so Pret a Manger changed their policy and began to list ingredients.
Proctor and Gamble is an example of a company that has fought external reputation damage for years for something that was out of its control and bordering on fanaticism.
Since the late 1970s, the company has been accused of connections to satanism based on its logo. In certain circles, the company’s logo of a moon and 13 stars was said to be a symbol of the devil. People even claimed the president of Proctor and Gamble had appeared on television to admit the connection was true. However, there never was a television appearance, although in the 1980s the urban legend was strong. It was found to be spread by a small number of people looking to advance their own personal religious agendas.
In reality, the company symbol dates back to the late 1800s and pays homage to the original 13 colonies of the United States. Proctor and Gamble has spent years pushing back against the claims, but its reputation did suffer in certain circles, especially among religious consumers. While to some it might seem like a silly unfounded rumor, it has dogged the company for decades, so much so they have had to put out numerous press pieces to fight the accusation.
For a time, they even got rid of the logo, but this created a firestorm in religious communities who saw it as a way that Proctor and Gamble was trying to hide their satanic involvement. The company just couldn’t win.
Proctor and Gamble brought the logo back in 2013, and for the most part, the accusations ceased, with the occasional flare-up on the Internet.
Can a company sue?
A company can usually sue if it feels its reputation has been wrongly harmed. However, if you or your company is considering legal action, make sure to weigh all the options.
Often companies that sue can be viewed as bullies, and some states have even implemented Anti-Slapp laws to ensure that customers’ rights aren’t infringed when they leave reviews or speak their minds about a company.
In order to win a lawsuit a company needs to prove it suffered from:
- Defamation of character
- Libel
- Slander
- Intentional interference with business expectancy
- Violations of privacy rights
- Breaches of contract
If the issue is a review on a website such as Yelp or a social media post, sometimes the best action is to reach out to the dissatisfied customer and work to fix the situation. Much of the time, angry customers just want to be heard and by opening a dialogue, many of these bad feelings can be rectified with a solid review management campaign. The customer might even be convinced to remove a review if they feel they have received closure or at least it will be seen publicly that a company is working to make amends.
How can a business avoid reputational harm?
Be prepared
Even though you are creating the best positive reputation possible, have a plan to deal with bad publicity or a crisis if and when it occurs. Make sure your company has trained employees in proper security practices to avoid data breaches. Also, have a clear code of ethics and description of what employees are allowed to post about or on behalf of the company.
Be quick
Time is of the essence. Get out ahead of an issue before it grows too big to handle. If it is too much to address in-house, reach out to professional crisis management or publicity experts. The faster you respond, the less potential damage may occur to your reputation.
Be honest and transparent
Don’t double down. Be honest and transparent with the public. If you made a mistake, admit it and show how you are going to change things.
What is reputational harm FAQ
What is reputational harm?
Reputational harm occurs when the public image of a company shifts in a negative way.
How can a company’s reputation usually be harmed?
Usually, it occurs through the actions of an employee, when the public image doesn’t match a company’s internal actions, when the actions are deemed negative by the public, or business practices are exposed that are not to the liking of the public. It can also be harmed by dissatisfied customers through reviews or word of mouth.
What should a company do if it finds its reputation is in jeopardy due to its own actions?
Act quickly and honestly with full transparency. If it is a dissatisfied customer, reach out and work to rectify the situation. If the company made a mistake or bad judgment, admit to the fault and work to make things right.
