If you no longer appear to be a trustworthy company, customers will seek out one of your competitors who has a better reputation. Just think of the reputation fallout of Wells Fargo’s credit card scandal, or Volkswagens’ emissions scandal. Both lost numerous lifelong customers, cities and state agencies, and numerous other larger clients as a direct result.
You may find even long-term clients who have been with you for decades are now considering their options. In addition to losing current customers, it will become much more difficult to attract new ones. You’re now a tainted brand, at least for the short term, and people won’t want to associate with you. If the damage to your reputation came from a business partner that was defrauding clients or from an executive who cut the quality of your own products, it is likely that you could rapidly lose a large number of customers, in many instances global customers.
If you hired an executive with a history of harassment and your employees find out, you can expect to see a number of resignations come in. No one wants to work for someone who is known for creating a culture of harassment or for intimidating employees. Business partnerships can also send employees running, especially if you partner with a business that goes against your stated company morals or vision statement. For example, if you’ve promoted your business as a green, environmentally friendly company and then partnered with someone who has major oil and gas investments, it may not go over well.
Consider the reputation damage and cultural damage at Blizzard Entertainment as a result of their sexual harassment lawsuits affecting their reputation. These resulted in employee walkouts, a mass exodus of longstanding executives, and extreme backlash from customers.
Just as employees may not want to stay with a damaged company, job seekers may look for other opportunities. You may find it hard to fill your open positions with qualified candidates. This can lead to putting more stress on the employees you have, leading to more of them leaving for better opportunities. This will ultimately impact your company’s culture for a very long time.
Few other business owners want to associate their company with one that has a poor reputation. If you do something that damages your reputation or if you’re the one bringing a questionable reputation to a partnership, be prepared for any potential partner to walk away once they do their due diligence. Just as you should assess the risks from your prospective business partners, they will be assessing you. If they determine that you pose too much of a risk to their reputation, they will pull out of the partnership or refuse to enter into one.
If you’re a startup or a non-profit that receives funding from investors and other sources, these funders may decide to pull their investments. Like any business partners, investors do their own due diligence investigations and risk assessments. If they believe you’ve become too much of a risk, they may discontinue their funding. This happens more often than most people realize.
Public companies are not immune from this, either. Many publicly traded businesses have found their stock prices fall after an executive’s misconduct came to light or a partnership damaged their reputation. While government agencies may not be subject to investor pull-out or stock sales, damage to their reputation can lead to inquiries and potential criminal charges against those in leadership positions.
Damage to your business reputation may seem like it won’t have any immediate direct costs or penalties. However, that’s not always true. If you partner with a company that later is investigated for illegal activities, they may investigate you as well. Should the other company be found guilty of such activity, it’s possible you will be deemed an accomplice or a partner to their crimes. Even if you knew nothing about what they were doing, if they were using your joint project or product in their activities, it could affect you. If your new business partners have been involved in money laundering, bribery or fraud, or other criminal activity, this may have a serious impact to your business now or in the future. Even more so if there were violations of the Foreign Corrupt Practices Act (FCPA) involved.
Your company could be fined or otherwise penalized in addition to further damage to your reputation. It’s possible you could also be sued in civil court, which could result in court costs, attorney fees, and other fines.
When your reputation is damaged, repairing it can be costly. You may face losing income from customers leaving, partnerships dissolving, investors pulling out, and stock drops. Then there are potential fees and other regulatory fines. After all of that, you may also need to fund a new marketing campaign, incur a business monitorship reviewing key business decisions for several years (at your expense), invest in new partnerships, and more. The overall cost can be quite steep, and even then, it can still take months or years for your reputation to return to what it was.
If bribery or corruption were involved, your organization will need to demonstrate to federal agencies and the public that they have become good corporate citizens with a robust new compliance program in place to prevent these issues from recurring.
In some cases, you may never fully repair your reputation. Your name may always be associated with something negative. If this damage is severe enough, it can be impossible to recover. In that case, you could end up closing the company. A recent example of this is Theranos, a billion dollar startup whose CEO and COO have been convicted of fraudulent blood testing equipment. The company laid off all employees and went into bankruptcy and destroyed hundreds of millions of investments into the company. The executives await sentencing., but many lives were destroyed in the process, not only financially, but people who were sick and relied on the faulty blood tests.