Fighting the reputation fire

Every major global corporation knows the drill: if it is good news, it stays local. But if it is bad news, it will go international faster than lightning – with the potential to flummox even the sturdiest of brands. In the age of instantaneous, uneditable social media, this emerging risk has never been more pronounced, meaning risk managers are now facing a threat that has the potential to ruin an entire brand with a single image or word.

On 8 September, a Thai Airways flight suffered a relatively minor incident when it skidded off a Bangkok runway. While there were no injuries, the company’s officials, on the apparent advice of German Star Alliance partner Lufthansa, rushed to paint over the logo on the damaged plane in a move they called a “crisis communication rule”. But rather than shelter the brand from damage, the cover-up move was ridiculed across mainstream and social media causing immeasurable damage to the Thai Airways brand.

But it is not just ‘as-they-happen’ incidents that can mar a brand’s reputation if not handled properly. An American-owned Dunkin’ Donuts franchise in Thailand was recently forced to pull planned advertising for its charcoal-coloured doughnut, which depicted a woman in racially offensive ‘blackface’ makeup. While Dunkin’ Donuts’ Thai bosses defended the advertising, its US parent company said it would pull the franchise into line with the brand’s key advertising strategies.

Experts say these incidents are neither new nor isolated, however the damage that is now done via instant media is exponential without proper management. Founder of reputation risk consultants Chiron Garry Honey says the reason for incidents such as the Dunkin’ Donuts blackface crisis is a lack of co-ordination in small-to-mid-sized brands, rather than the major brands.

“There’s a level of co-ordination that’s been missing there. It’s often the non-major, fast-moving consumer goods people who are caught out by this. The big brands are generally quite good at co-ordinating their advertising across the board. The smaller brands have possibly never needed that level of control or co-ordination so they’re a lot more at risk.”

Red Sea Housing chief risk officer and former advertising executive Domenic Antonucci says rogue advertising incidents remain relatively minor issues, as long as the issue is local rather than emanating from the centre of the brand. “There are generally three root causes: feral creative agencies, naïve local culture and lack of marketing control from the centre. One reason why [an incident like Dunkin’ Donuts] is fairly limited is that the threat is going in the wrong direction. By that I mean if it was the global brand doing something wrong with the negative consequences then spreading outwards, that’s a bigger problem.”

Resolving a reputational crisis is best tackled head on, according to Honey. “Once damage has been done, the first thing businesses should say is: ‘We got it wrong.’ One of the best things in any reputation repair job is admission of guilt and contrition. If you go into denial, you make it worse.” But Antonucci suggests businesses adopt a vastly different approach to quell the damage. “Even if you did authorise the ad, you tell the world that you didn’t. Those agencies will cop it because they’re not going to challenge anyone with big pockets or a big brand. You can put those sorts of fires out pretty quickly.”

In tune with local market

For major global brands operating in a variety of markets, maintaining a degree of cultural sensitivity is vital to ensuring the success of the brand. Using advertising, which is both appealing and sensitive to a local market, can backfire on companies when seen in a global context. Likewise, global advertising that is used in local markets without certain alterations can have dire consequences. While advertising not hitting the mark is not a new issue, it is the speed at which bad advertising – in fact any kind of bad news – can spread via social media that has made the risk more pronounced.

Managing director and country manager of JLT Thailand Andrew Minnitt (pictured) says that the slightest mistake by companies can put them under public scrutiny for all the wrong reasons. “The public are much more aware of their rights nowadays and what they want or demand from a provider. If that perception is let down, then there is little hesitation to lash out through social media and spread the word. Mitigating this risk is tough, but if companies have structured crisis management plans, they stand less chance of being dragged down by bad publicity.”

Executive chairman of Lockton Wattana Insurance Brokers (Thailand) Ltd Wattana Wongvisesnopakun says that the ease and speed with which bad news can travel is a growing problem. “The spread of news and rumours through social media would be the most effective means to start the avalanche; the best cure would be prevention,” he says. “Business has to make sure it has a tight operation which would not allow any mistakes to happen in the first place. A well-thought out and consistent corporate social responsibility strategy and activities have to be maintained to showcase the organisation’s good image to the public. A sensible crisis-management plan should be put in place to control and mitigate any adverse reputation issues.”

Global concern

Ensuring global brand interconnectedness means ensuring all stakeholders understand how reputations are made and damaged via social media. Honey says: “I’ve worked with major clients who still think reputation management is by country. But nowadays anything that gets published is global straight away. If it is silly, it will be seen, somebody will pick it up and broadcast it on Facebook or Twitter and then it is global.”

Preparing for an unquantifiable risk is a difficult but not impossible for risk managers. Willis Global Solutions chief executive officer Phil Ellis says: “There are ways to prepare to cushion the impact of these events. The thing is to be aware that these events happen to the best companies. All the big companies go through them so we shouldn’t treat them as black swans. The fact is that they’re going to happen, so be prepared.”

Ellis also says that having appropriate cushioning built into balance sheets through companies won’t suffer as much as a result of a reputational crisis. “In general, it takes more than two years for the share price of listed companies to recover from these events, so be aware that the risk is real.” Ellis adds small-to-medium-sized firms are at a greater risk owing to a potential lack of financial cushioning.

Not a soft issue

Reputational risk is seen by some risk managers as a ‘soft risk’ or one that is not as high a priority as other brand risks such as supply chain issues or product recalls. Antonucci says the issue of rogue advertising simply doesn’t rate for many. “Strategically there are other more important risks to brands like obsolescence, compliance breaches where you get in trouble with regulators and also the prime rate crisis with product recalls, massive withdrawals and safety alerts. Those are the things that keep risk managers awake at night, not an agency Singapore or Brazil going feral. Yes, it might happen, but you just sack them and move on. You put the fire out.”

Patterson concurs with Antonucci but says looking at reputational risk as a soft risk and one to be put to the bottom of the list is shortsighted, leaving risk managers and businesses vulnerable. “Yes, damage to reputation is an impact rather than an outcome. But it is damage to the brand, which is the outcome and this is something measurable in financial terms. If you outsource to a sub-party [for advertising] it is the unknown damage to your brand that is the issue. Ultimately, anything that impacts on your reputation is a risk to your sales and your business.”

Executive vice-president of Aon (Thailand) Ltd Yoottana Kingkawkantong says that reputational risk can be associated with product recalls, supply-chain disruptions, ethics charges against business leaders and regulatory challenges. “Since reputational events often arrive with little or no warning, organisations are forced to respond in real time and economic losses are mounting.”

Chief executive of Marsh PB Co. Ltd, a unit of Marsh in Thailand Duncan Buchanan says that the 2011 floods brought reputation risk to the fore in Thailand. “For various business sectors, the delivery of high-quality products and services needs to be carefully managed to ensure that Thailand continues to be the choice for investment,” he says. “How a business responds – and therefore protects its reputation – to a major disruption or event can often mean the difference between survival or failure of that business.”

More articles, discussions and interviews from our series of country-focused risk reports are available at our Asia Risk Report hub.