Tarnished Reputation Case Study

775 Words4 Pages
A tarnished reputation can have serious repercussions. There are three majors issues that expose companies to reputational risk. These include: advances in communication channels, more scrutiny from regulators, and lower customer loyalty. An example of this would be the McDonald’s hot coffee case of 1994. A woman spilled coffee on herself and suffered third degree burns. She asked McDonald’s to pay her medical bills, which cost $20,000. When the company refused, she sued and won. If McDonald’s had just paid her, the case would not have gone to trial and the company’s reputation would not have been at risk. The company denied the settlement because of arrogance and greed. On top of the payment, McDonald’s had to make improvements to the cups and lids and pay legal fees. Overall, the court case cost the company millions of dollars and a loss in its reputation, which could have been avoided. Furthermore, damage to the reputation would lower the share price and lead to expensive regulatory investigations. Reputational risk can lead to financial losses, lost market share, or change in management. The employee and consumer loyalty will also decrease. Companies are willing to do a lot to preserve their reputations, even if the bad accusations are false, which is known as defamation. For example, in 2008, when a salmonella outbreak was inaccurately associated with tomatoes, Olive Garden stopped using tomatoes, even though it knew that the allegations were not true through its own research.
Companies don’t have much control over reputational risk. They do not know when, where, why, or how it will strike. The best that they could do is plan for it in advance. Concentration on reputational risk is vital for CROs (Chief ...

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... as a buffer and allow the organization to remain in business during economic shocks. A good reputation leads to more of a competitive advantage when selling products and services. Also, it increases shareholder value and attracts top talent. Good communication is essential in order to protect and repair a company’s reputation. If stakeholders hear bad news and the company does not communicate to them about the issue, they will believe what they hear; and this, in turn, will cause damage to the reputation of the company. In addition, all consumer complaints should be answered in a timely and appropriate manner. This will show the consumers that the company values them and their input. Corporate social responsibility (CSR) and ethical actions advance reputation. Transparency is extremely important if the organization wants to maintain its good reputation.
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