Daily Archives: October 16, 2015

Societal Damnation 39: Brand

Joan Jett may not give a damn ’bout her bad reputation, because when you’re a rock star (or a bad girl movie star), that’s actually a good thing, but when you are a consumer-driven corporation, these days, that’s about the worst damnation that can be thrust upon you. Brand disasters can far outweigh the average 10%+ decrease in shareholder value found by Hendricks & Singhal back in 2003. As per a recent study by CIRANO on Corporate Reputation, not only is there an 80% chance of a company losing at least 20% of its value at least once during a five year period, a major incident that significantly impacts the brand can wipe out over half of a company’s value overnight! Just look at what happened to BP after the Deepwater Horizon disaster. BP’s share price experienced a 52% drop in 50 days. Brand has went from that crazy ethereal concept unnecessarily promulgated by marketing mad men to that very real, critical, corporate requirement that must be maintained at all costs. Why?

Bad press results in backlash and consumer boycotts.

Any indication that your corporation is not the most sustainable, ethical, and corporately responsible organization on the planet can land your organization in the news. A minor supply chain infraction will result in a back page story that will be picked up and circulated by bloggers and activists until every concerned customer notices it and decides to write you angry letters and stop buying your products, resulting in that 10% decrease in sales and value found by Hendricks & Singhal while major supply chain oversights such as using suppliers who experienced preventable (man-made) disasters such as the factory collapse in Bangladesh (which should have not only been condemned but demolished) or the Philippines factory fire (in an overcrowded factory with no fire exit) that resulted in large death tolls will get your organization in front page headlines. This will result in significant backlash and widespread consumer boycott. If consumers will boycott a franchise for its beliefs (such as the boycott of Chick-fil-A for its beliefs on same sex marriage, as opposed to an actual refusal to serve the LGBT community), imagine the backlash and widespread boycotts your organization is going to get if child labour, slave labour, or human trafficking is found in your supply chain as a result of lack of oversight.

Bad decisions result in NGO and governmental investigations, fines, and seizures.

If your company gets caught holding the bag when someone finds melamine in the milk, diethylene glycol in the toothpaste, or BPA in the baby bottle plastic, it’s going to have every governmental agency with authority investigating, watching, and looking for ways to fine it even if it was a supplier two tiers down in the supply chain that did the dirty deed. And every NGO in the sustainability and Corporate Social Responsibility space doing a 360-degree supply chain review to find out what other skeletons are hiding in your closet and what snakes are lurking in your supply chain. So, not only will the government seize any products it finds that violate any environmental laws and fine you as much as it can under environmental, supply chain, and human rights / trafficking legislation, but the NGOs will be feeding the media that will in turn be feeding the consumer backlash and consumer boycotts. Losses will multiply quickly.

And both result in lost investor confidence and severe value drops!

As soon as something goes wrong, even if Procurement had absolutely nothing to do with it because a decision was made, or forced on it, by another department and/or it followed organizational protocol in supplier evaluation and selection, it is going to be blamed by the Investors and the Board who are going to be quite perturbed at the egg on the company’s, and their, face, and want someone else to point the blame at. Procurement’s going to be hung out to dry and if the situation is perceived to be bad enough, someone is going to be made a scapegoat that will be sacrificed in efforts to appease the masses.

It’s extreme damnation, and any Procurement department that wants even the slightest hope of being able to deflect the blame is going to have to go well above and beyond the call of duty in supplier evaluation, selection, monitoring, development, and, if all else fails, dismissal if it wants to survive any attack on the corporate brand intact.