Tag Archives: Reputation Risk

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Paula Deen and the Impact of Reputation Risks

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Further illustrating how important reputation can be to a business enterprise, Paula Deen’s rapidly crumbling empire took another hit this week when Ballantine Books announced that it was cancelling the publication of the celebrity chef’s latest cookbook, Paula Deen’s New Testament: 250 Favorite Recipes, All Lightened Up, which was scheduled to be released in October as the first in a five-book deal signed last year. Even more surprising, was that, based on pre-orders alone, the book was already Amazon’s number-one best seller (Interestingly enough, the book was replaced at the top spot by another Paula Deen cookbook, Paula Deen’s Southern Cooking Bible.)

The book cancellation brought the total of business deals killed by Deen’s admission that she had used racial slurs in the past to 12. According to the Consumerist, the tally includes:

  1. Food Network
  2. Target
  3. Sears
  4. Kmart
  5. Walmart
  6. Smithfield Foods
  7. Caesar’s Entertainment
  8. Home Depot
  9. Novo Nordisk
  10. Walgreen’s
  11. JCPenney
  12. Ballantine

QVC has also decided to “take a pause” in its relationship with Deen, but stopped short of saying that it would permanently sever ties. According to a letter from QVC CEO Mike George:

“Paula won’t be appearing on any upcoming broadcasts and we will phase out her product assortment on our online sales channels over the next few months…Some of you may wonder whether this is a “forever” decision – whether we are simply ending our association with Paula. We don’t think that’s how relationships work. People deserve second chances. And we always strive to do the right thing.”

Deen’s misstep could come with a hefty pricetag. Deen earned a reported $17 million in 2012, according to Forbes, making her the fourth-highest paid celebrity chef after only Gordon Ramsay, Rachael Ray and Wolfgang Puck. But the possible losses don’t end there. Burt Flickinger III, president of retail consultancy Strategic Resource Group told the Associated Press that Deen’s annual revenue from her endorsement business generates about $100 million a year. He estimated that the controversy has cost her at least half of that so far and that she could lose up to 80% by next year as other suppliers cancel their agreements as well.

Last year, in the pages of Risk Management, Ted Tafaro and Frank Zuccarello wrote about the big business of celebrity chefs and how companies needed some sort of contingency plan in place in case one of these chefs were to be laid up with an injury and couldn’t perform. What the article didn’t cover, however, was that a damaged reputation can be just as catastrophic for the business. The Deen controversy serves as a sobering reminder of how important it is to have a plan to deal with these reputation risks as well.

Gerald Baron at Crisisblogger offered some helpful advice on what those involved in “reputation wrecks” can do to mitigate the damage. In the end, as Baron writes, it’s about character. “Those responsible for [organizational] reputation have to take very seriously the character and integrity of those who represent and make decisions for the organization.”

Guy Fieri Neglects to Register His Restaurant’s Domain Name; Hilarity Ensues

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In the January/February issue of Risk Management, I wrote about how celebrity chef Guy Fieri’s new Times Square restaurant, Guy’s American Kitchen & Bar, seemed to be finding a certain level of ironic success, despite being panned in a notoriously scathing New York Times review.

Well, yesterday the restaurant has made headlines once again – this time for a rookie marketing mistake that produced hysterical results. It seems that for some unknown reason Guy Fieri’s people never bothered to register the domain name guysamericankitchenandbar.com, instead opting for the shorter guysamerican.com. Their oversight did not go unnoticed, however, and an enterprising computer programmer named Bryan Mytko snapped up the longer domain and put up an amazing parody menu on the site that looks very much like the real thing, until you read about dishes like:

  • Honky-Tonky Double Barrel Meat Loaded Blast: A Sammy Hagar lookalike pushes your face into a leather bag filled with oil and if you eat the whole thing, you get to eat a 13 pound burger.
  • Reno!!!: Popcorn crusted popcorn chicken stuffed inside Guy’s Nuthin’ Fancy meatloaf and superbanged in a volcano of Tabasco butter We pour it into a Lucite heel, smother it with our own special jalapeno sugarbrew, and set it on your lap on a neon sign. Served drunk and on fire. Add a Cinnabon and two more Cinnabons 4.95
  • Football: The Meal: Warm, broken hamburgers, served in a clear plastic bag enclosed in a larger, black trash bag. Thrown at you from 40 yards.
  • Panamania!: Deep fried snake with a printed out picture of David Lee Roth stapled on it and a sparkler sticking out of each eye. Served with a side of Bud Light you have to wring out of a Hawaiian shirt.

There’s even a salad for the health-conscious:

  • The Olive Garden: 22 pounds of wine-stunned Kalamata olives tumbled over chopped iceberg lettuce and served in a trough, family-style. Ranch hose optional, but recommended.

As parodies go, the site is definitely more funny than malicious. But Mytko has already gotten blowback from the internet community when it was revealed that he stole most of the jokes from various people on Twitter. On top of that, I’m sure Guy Fieri’s legal team is taking note.

Of course, the greater lesson here should be obvious by now, but evidently it bears repeating: If you don’t take control of your image online, the internet will be more than happy to do it for you. And you may not like the results.

 

The Reputational Risk and IT Relationship

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With more visibility and vulnerability in today’s business landscape due to social media, online commerce and doing business through mobile devices, it only makes sense that there would be more potential risks to a company’s reputation and brand. In fact, now more than ever, executives are attempting to protect their brands from these security threats by being more proactive and looking for blindspots in their risk management program. That’s according to findings from the “2012 IBM Global Reputational Risk and IT Study,” conducted by the Economist Intelligence Unit, which analyzed responses from 427 senior executives from around the world, representing nearly all industries.

Respondents indicated that cybercrime is more of a reputational threat than systems failure — a finding that clearly illustrates how cybersecurity is a growing concern among executives, as shown in the following graph from the report.

What’s more, 64% say their company will put additional effort into managing its reputation in the future while 75% of respondents say their IT budget will grow over the next 12 months due to reputational concerns. “Underestimating the cost of reputational risk greatly exceeds the cost of protection,” said one U.S.-based study participant. “Being proactive is preferable to being reactive.”

As the report states:

Going forward, assessing potential blind spots and new technologies will likely be accelerated through the use of case studies and scenario analysis rather than waiting for direct experience. “To use new technologies like cloud you need trust,” says Andrea MacIntosh, director of quality with Alpha Technologies in British Columbia, Canada. “How do you build trust? Either by demonstrating performance or through looking at comparable organizations that are using it with good success. I think there’s a lot of referential data for companies like ours, but as with any new technology, you’ve got to be cautious.”

So how does a company avoid data breaches and strengthen the public’s trust in its brand? The respondents feel that integrating IT into reputational risk management, along with having a strong IT risk management capacity, is the best bet.

Gone are the days when a customer inherently trusts that a company’s IT capabilities are sufficient. In fact, customers are taking a more proactive approach when it comes to understanding a current or potential business partner’s IT infrastructure. “We’re seeing more requests from our customers for details of our IT infrastructure and security, along with on-site audits, as part of the supplier qualification process,” said MacIntosh.

Organizations of all sizes across all industries are devoting more time and attention to potential cyber threats that could harm their reputation. “This concern is reflected in more integrated, enterprise-wide approaches to risk management led from the C-suite and increased attention being paid to the direct reputational impacts of IT risks,” the report states. This study, along with many others, point to the conclusion that cyber and data security has earned top billing in the list of biggest risks posed to businesses. How is your company responding?

How to Avoid Reputational Harm

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Reputational risk is often overlooked and underestimated, but it may be the most potentially devastating threat to a company today. One only needs to look at the recent trials and tribulations of firms like BP, Toyota or Sony to see the impact that a scandal can have on public perception of a company and its overall revenue.

In fact in a session at RIMS 2011 Vancouver, entitled “Reputational Harm: Pushing the Envelope,” John Eltham of Miller Insurance Services, Kieron Russell of Lloyd’s syndicate RJ Kiln and Co. and Angela Matherly of Synder’s-Lance, Inc. pointed out that since the 1950s intangible assets like reputation have steadily become more important than even the tangible products that a company sells. Put simply, “reputation drives business results,” said Eltham. In a case like Toyota, while their recent recalls may have seemed to be strictly a product issue it was actually intangibles like bad governance and lack of citizenship in their awkward and slow response to the issues that were the keys to their damaged reputation.

Given that reputation is so important to the entire company, Matherly pointed out that it is a perfect risk for a ERM framework. Since the whole company can be affected, the whole company needs to help manage the risk. “Do sweat the details,” she said.

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This involves making sure that crisis management and crisis communication plans are in place, PR firms are engaged before an issue occurs, executives and spokespeople recieve media training and that a business continuity plan is in place.

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Companies can choose do it themselves or they can turn to an insurer to help transfer the risk. Either way, successful mitigation is all about “maximizing the ‘Golden Hour’,” said Russell–the time between when the event occurs and when the media gets a hold of it. (And these days, that “Golden Hour” can sometimes be more like “Golden Minutes.

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” ) By considering this important time period, which means being prepared beforehand, companies can the reduce the time it takes to regain whatever revenue might be lost because of a reputational event.

It may take a lot of good deeds to make up for a bad event, but considering the stakes, it seems that a sound reputational risk management program is essential to making sure that you will need fewer of those good deeds to make things right.