Critical takeaways

  • Companies often accept litigation based on the behavior of others but are unaware that the behavior and actions of their associates can also affect their reputation.
  • This reverse halo effect means that your clients, suppliers, staff, and associates can all have a negative effect on your reputation, even if the link is tenuous. 
  • Include these associations in your risk mapping and crisis preparedness to ensure that you are properly prepared for these very real threats.

 

Not long ago, we received a call from an energy firm that supplies natural gas to a company in another state. This client had had a major incident at one of their facilities during which an explosion destroyed 4,000 homes in a 1/4 mile area. In fact, the effects were so severe, that the client firm had declared bankruptcy rather than deal with the pending litigation. 

Meanwhile, the energy firm that called us has deep pockets and isn’t going anywhere. Unfortunately, that means that they are likely to be named in any lawsuits and may seem like a more attractive target for litigation than the bankrupt firm.

While we chatted, the overwhelming sense I got was that they seemed to accept that litigation was par for the course. Still, they felt the negative coverage was unwarranted. They wanted all the negative coverage and reputational damage to go away magically with one pithy set of talking points. That’s not our approach, so I politely declined, but I was left thinking about this odd contradiction.

Why were they ok with the idea that they had some financial liability because of the relationship – and therefore felt lawsuits were fair – but thought that it was unreasonable that their reputation also suffered?

Firstly, I think that working through the supply chain until you find someone to sue isn’t fair. Unless there’s some culpability, the concept that ‘someone must pay, no matter whom‘ doesn’t seem right to me and sets a dangerous precedent. Nevertheless, that is the process in many jurisdictions and businesses seem to accept that they are fair game for lawsuits, even if some of these may be a stretch legally. 

However, given that they accept that financial liability, I don’t understand why companies treat their reputation differently. Why accept that your day in court will come but ignore the court of public opinion?

I suspect that this is a symptom of a less mature view of reputation and typifies companies that still see it as an afterthought or solely the purview of communications. Because they don’t understand what contributes to their reputation, they can’t draw a parallel between financial liability and reputation liability. 

On top of that, they don’t appreciate the halo effect: the idea that the behavior of your associates reflects on you.  The halo effect is a good thing when these reflections are positive but it can also work in reverse. So not only have you to worry about your actions, but the actions of your clients and other associates can also impact your reputation and your license to operate. 

However, even if you understand the importance of reputation and the halo effect, the idea of secondary or vicarious reputation damage might still be unexpected. So what can you do about it?

First, you need to map your secondary risks and think about where your reputation might be affected by the relationships you have, the companies you serve, your supply chain, and the actions of your staff. Cathy Pacific probably hadn’t identified the participation of staff members in the Hong Kong protests of 2019 to be a strategic risk, but that’s what happened. Similarly, Joi Ito may have thought that Jeffery Epstein’s money could do good at the MIT Media Lab, despite Epstein’s unsavory past. Many energy firms have learned the hard way, through Alien Tort cases in the US, that your activities and associations abroad will come back to haunt you, yet many still overlook this risk. Therefore, make sure you consider your supply chain, clients, and associates in your reputation risk mapping exercises.

Secondly, treat your reputation as an asset. Hopefully, as someone who is reading the Kith Blog, you’re already doing this, but you need to make sure that your organization’s leadership also appreciates the value of your reputation. If the company isn’t treating this as something to be built, invested in, and nurtured, then you won’t take appropriate steps to protect it.

Which leads to the third point: protect that asset. Run exercises and simulations, build a crisis communications capability, and engage outside help. Make sure that you are just as able to defend and protect your reputation from threats that originate from your associations as you are for ‘own goals’. This is your insurance policy for your reputation.

Organizations that accept some potential liability and anticipate lawsuits based on their relationships shouldn’t struggle to extend this idea to their reputation, yet many do. Ensure that you aren’t one of these companies that get caught out by the behavior of others and remember, the halo effect also works in reverse.

 

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