The Cost of Damaged Trust

Another study confirms what those of us in the crisis PR field know and many senior business executives acknowledge: a lot of capital destruction takes place — and it happens fast — when a company’s reputation takes a hit. 

Accenture studied more than 7,000 companies around the world and found more than half of them suffered reputation damage that cost them up to $180 billion in revenue. The study was reported in The Wall Street Journal and can be found here. 

The report defined trust as comprised of consistency, integrity and transparency.  Others have identified key elements as commitment, empathy, expertise and transparency. Whatever the exact words, the unmissable conclusions and observations are that bad news corrosive to a company’s trust travels like wildfire on social media and is magnified beyond reason. 

It can be especially devastating to companies and brands with a fiduciary or safety element: banks, utilities, airlines and car makers. The Accenture study found, for example, the a two point drop in a bank’s “trust index” score slowed revenue growth by about 22%. The impact wasn’t as great on consumer goods and the services sector. 

For many businesses, especially those not normally in the media spotlight, how they decisively handle the situation in the minutes and hours it unfolds can define their public trust, or lack of it, for months or years to come. Good executives instinctively know this and there are plenty who casually assert confidence in their management team’s ability to control any situation. 

But when a real trust busting crisis shows up what usually develops is a bad case of the Grand Klong. Symptoms include a sinking feeling, dry mouth and intestinal distress requiring multiple trips to the bathroom and an inability to act with clarity and decisiveness.

As much as business likes to criticize government as inefficient, there’s one place where the opposite is true: communications. On Capitol Hill I recall one time when my U.S. Senator boss told me he agreed to headline a news conference that started in 30 minute sand he needed a set of talking points. I wrote them and in a half hour he was in front of more than 35 TV cameras doing riffs off what I wrote. 

Ask many private sector managements to move that fast under media deadline pressure and their heads would explode — unless they had the foresight to plan for that day and practice how they would behave —  in real time.

Unfortunately, not enough do.  While they’re still debating internally about what to do, the bad news story blows out the tube and torpedoes their trust factor, market cap and revenue prospects. And while the Accenture study looked at large public companies the same dynamics can affect private firms and small to medium sized enterprises that may not have the resources to even survive. 

--Paul Jacobson