Reputational damage
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Reputational damage is the loss to
Reputational damage can result from an adverse or potentially criminal event, regardless of whether the company is directly responsible for said event, (as was the case of the Chicago Tylenol murders in 1982).[3] Extreme cases may lead to large financial losses[4] or bankruptcy, as per the case of Arthur Andersen.[5]
Reputation is recorded as an intangible asset in a company's financial records.[6] Hence, damage to a firm's reputation has financial repercussions.[7] Minor issues can be amplified by external social processes which lead to even more severe impacts on a firm's position.[8]
Examples of reputational damage
Wells Fargo
The CEO (John Stumpf) and other executives were dismissed. Regulators subjected the bank to fines and penalties, and customers reduced, suspended, or discontinued activities with the bank. The company suffered from heavy reputational damage and financial losses.[10]
Reputational risk was further worsened in 2019 when new legislation was introduced by the House of Representatives. The new legislation uncovered Wells Fargo's practice of offshoring thousands of American jobs and forcing soon to be unemployed workers to train their foreign replacements.[11]
Toyota
More tangible financial harm became evident in 2014, when Toyota and the U.S. Justice Department agreed on a settlement of US$1.2 billion and a public admission of guilt from Toyota for neglecting the defects. The reputational aftermath of these events was measured by Rasmussen, who found that despite 59% of Americans finding Toyota at least somewhat "favorable", there was a significant portion (29%) who found Toyota "very unfavorable".
Boeing
A Boeing 737 Max jet crashed in 2018 in Indonesia[14][circular reference] killing 189 people then in 2019 another jet crashed[15][circular reference] killing 157 people. Boeing initially blamed lack of training and pilot error. Later it was discovered the aircraft had a secret pitch adjustment system called MCAS[16][circular reference] that would override pilot input. This was never disclosed to the operators or pilots. It was discovered that Boeing had offshored the software development to low pay overseas Indian software programmers with no experience in flight critical code.[17] Boeing, grilled in congress for safety lapses, eventually fired the CEO for putting "profits ahead of safety".[18] The planes were grounded for over a year while defects were corrected and airworthiness could be re-certified.[19][circular reference] He was replaced by then Boeing chairman Dave Calhoun.[20][circular reference] In 2024 a door plug fell off a Max 737 airplane operated by Alaska Airlines.[21][circular reference] United Airlines - one of the major customers of Boeing stated they no longer have confidence in Boeing to meet its contractual obligations.[22] Southwest Airlines stated they were turning to Airbus - a Boeing competitor - for new airplanes.[23] The persistent and ongoing quality lapses have tarnished Boeing's reputation.[24][25]
"The 737 MAX crisis severely damaged Boeing’s reputation and eroded trust among key stakeholders, including airlines, passengers, regulators, and the general public. The accidents and subsequent revelations about the aircraft’s design and certification processes raised questions about Boeing’s commitment to safety and transparency."[26]
Reputational risk management
Proposed frameworks to manage reputational risk include:
- Systematically tracking evolving stakeholder expectations.[27]
- Identifying stakeholder risk factors as part of a general risk management process.[28]
- Transforming risk management processes to become more proactive rather than reflexive.[28]
- Regularly auditing the catalysts of corporate reputations using the most recent reputation monitoring technologies and services.[29]
See also
- Audit
- Center for Audit Quality
- Continuous auditing
- COSO framework, Risk management
- Quality audit
- Reputation management
References
- .
- ISBN 9781118266298
- ISBN 978-3-642-01629-5, retrieved 2021-04-05
- ISSN 0017-8012. Retrieved 2021-04-05.
- ^ Brown, Ken; DuganStaff, Ianthe Jeanne (2002). "Arthur Andersen's Fall From Grace Is a Sad Tale of Greed and Miscues". Wall Street Journal. Retrieved 2019-04-22.
- ^ AASB 138 (2018). "Intangible assets" (PDF). Retrieved 2019-05-10.
{{cite web}}
: CS1 maint: numeric names: authors list (link) - ISBN 9780749477363.
- doi:10.1108/eb023001.
- ^ Levine, Matt (9 September 2016). "Wells Fargo Opened a Couple Million Fake Accounts". Bloomberg. Retrieved 6 May 2017.
- ^ Kenton, Will. "Why Reputational Risk Matters". Investopedia. Retrieved 2019-04-21.
- ^ "House debate on offshoring practices of Wells Fargo". youtube. Archived from the original on 2021-12-15.
- ^ "Toyota to recall 436,000 hybrids globally-document". Reuters. 2010-02-09. Archived from the original on March 4, 2016. Retrieved 2019-04-22.
- ISSN 0882-7729. Retrieved 2019-04-22.
- ^ "Lion Air Flight 610".
- ^ "Sriwijaya Air Flight 182".
- ^ "Maneuvering Characteristics Augmentation System".
- ^ Robison, Peter (2019-07-02). "Boeing engineers blame cheap Indian software for 737 Max problems". ThePrint. Retrieved 2024-01-30.
- ISSN 0362-4331. Retrieved 2024-01-30.
- ^ "Boeing 737 MAX groundings".
- ^ "Dave Calhoun".
- ^ "Alaska Airlines Flight 1282".
- ^ Josephs, Leslie (2024-01-23). "United CEO casts doubt on 737 Max 10 order after Boeing's recent problems". CNBC. Retrieved 2024-01-30.
- ^ Josephs, Leslie (2024-01-25). "Southwest Airlines takes Boeing Max 7 out of 2024 plans because of certification delays". CNBC. Retrieved 2024-01-30.
- ^ Segal, Edward. "Boeing Faces New Challenges To Image, Reputation And Credibility". Forbes. Retrieved 2024-01-30.
- ^ Sindreu, Jon. "The 737 MAX Blows Another Hole in Boeing's Reputation". WSJ.
- ^ "Boeing Crisis Management Case Study: A Detailed Analysis".
- ^ Toni, Laura (November 28, 2014). "Managing reputation risk" (PDF). Deloitte. Retrieved April 21, 2019.
- ^ ISBN 9781118266298.
- S2CID 259438031