How Much is Your Company’s Reputation Worth?

Warren Buffet once observed, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Buffett is recognized as one of the smartest investors in the world. He’s also one of the richest. His opinions can move markets. His investment recommendations are gold-plated. He’s called the “Oracle of Omaha” for good reason.

So when Warren Buffett offers advice about the value of a reputation – personal, professional or institutional – it pays to listen.

The truth, however, is that many business leaders devote far less time to the potential economic harm caused by a sudden crisis than they do to day-to-day operations.

In many ways, that’s understandable. The tyranny of the urgent can easily overtake hypothetical scenarios on any leader’s priority list. But that lack of preparation can exact a high cost when something unexpected happens. In an age when social media allows bad news to travel at the speed of light, failing to plan is a recipe for reputational disaster.

Just ask Target, Chipotle or Volkswagen.

All are national or international companies whose brands – and bottom lines – suffered in the past few years because of widespread attention to embarrassing or unhealthy situations.

  • Target’s computers were hacked and the credit card data of an estimated 40 million shoppers was exposed in an attack in November 2013. The Wall Street Journal estimates the incident cost Target and credit card companies at least $200 million to replace the affected cards, and that doesn’t even count the value of the fraudulent shopping. Minneapolis-based Target took a huge hit at the busiest time of the Christmas shopping season. Worse, it was an online blogger – and not the company itself – who publicly announced the hack.
  • Chipotle Mexican Grill, based in Denver, temporarily closed 43 restaurants in Washington and Oregon in November 2015 after 22 cases of coli were linked to its food. Later, 141 students contracted norovirus after eating in a Chipotle in Massachusetts. Sales fell 30% in December, the company’s stock plunged and a criminal investigation began in California. In late January, the U.S. Centers for Disease Control said it was safe to eat at Chipotle again. Still, the company announced it would close all its restaurants Feb. 8 to conduct a massive training on food preparation for its staff.
  • Volkswagen’s reputation took a heavy hit after the world’s No. 2 carmaker admitted its German engineers had found a way to cheat on U.S. diesel emissions tests. As many as 11 million cars worldwide were affected. The company faces fines in the U.S. of as much as $18 billion – and billions more in costs to fix the vehicles. A survey by Autolist found U.S. car owners’ trust in the company dropped and that they were 28% less likely to buy a Volkswagen than before the scandal.

Most companies won’t face an equivalent crisis. But think about the business concerns that keep you up at night. What would you do if one of them happened?

What if you’re hacked and your clients’ financial information is stolen, like Target? What if someone – an employee or customer – is sickened or injured because of your product, like Chipotle? What if your organization knowingly violates government standards, like Volkswagen?

A well thought out reputation management plan — created with the help of an experienced professional before a crisis hits – won’t completely eliminate negative attention. But it can provide critical guidance and structure when the worst happens. It is valuable investment in your company, just like business insurance.

The risk, as Warren Buffet suggests, is to watch decades of hard work and responsible behavior get washed away because of one critical mistake, intentional or not.

Have questions? Spiralmode Design Studio can help answer them. Let’s talk.