The top 10 bad publicity stories, and how social media has changed reputation risks

Social media and the era of austerity are working together to put reputational risk on a par with national catastrophes in terms of the potential losses that could occur.

While social media means that bad news can come from any quarter and that it travels fast, these stringent times have cast a more critical light on corporate ethics than ever before.

Consultancy Hill & Knowlton’s lead counsel on crisis management Tim Luckett says: “Reputational risk has almost become a constant because of social media. People used to complain to the company; now they’re far more used to conversing in chat rooms and tweeting.”

An insignificant complaint, once it gathers momentum within social media, can have a devastating effect on share price. One example is United Airlines. A customer whose guitar was broken on a flight was denied proper compensation. He bought a new guitar, wrote a song about it and put it on YouTube. Within days, thousands and thousands of people had viewed it, and almost $100m was wiped off the United Airlines share price.

Luckett said: “I’d certainly put social media at the high end of risk if you’re putting monetary figures against it. You’d want an inordinate amount of cover for risk in the digital environment because the internet by definition is global and things escalate so quickly - the speed is significant.

“I’d put it at the same level of risk as natural disasters in terms of underwriting.”
Luckett added: “The industry has got to get to grips with how to underwrite that sort of risk. It should be possible because there are enough examples for people more intelligent than me to take a view as to how monetarise the risk.”

John Lewis Partnership group insurance manager Andrew Ingram adds: “We are always under attack which, you could say, is a form of flattery that others feel the need to knock us down. We are called on occasionally to justify buying decisions, but we are confident in what we do.”

1 News Corp

Hacking probe; News of the World shut

Negative stories: 1,071

What went wrong?
The Leveson inquiry into phone hacking has ensured that the media giant has rarely been out of the headlines since August last year - and not for the right reasons.

August 2006 Detectives arrest News of the World royal editor Clive Goodman and private investigator Glenn Mulcaire over allegations that they hacked into the mobile phones of members of the royal household.

July 2011 It is revealed that the NOTW hacked the voicemails of murdered schoolgirl Milly Dowler.

October 2011 Rupert Murdoch deflects investors’ attempts to remove him as chairman of News Corp.

February 2012 Rupert Murdoch launches Sun on Sunday newspaper.

Outcome News Corp has dropped its bid for BSkyB and two former NOTW editors are charged with offences.

2 Tepco/ Fukushima

Nuclear accident following tsunami

Negative stories: 666

What went wrong?
The company behind the Fukushima Daiichi nuclear power plant was rocked when flood defences designed to protect the plant where overwhelmed by the tsunami.

March 2011 A 9.0 magnitude earthquake strikes off the coast of Fukushima unleashing a 14m-high tsunami that floods over seawall defences. Tokyo Electric Power Company (Tepco) chairman Tsunehisa Katsumata says it is unclear how problems at the plant will be resolved.

April 2011 Tepco formally apologises to Fukushima governor Yuhei Sato. In response, he requests better conditions for workers.

May 2011 Tepco president Masataka Shimizu resigns after reporting the largest financial losses in the company’s history.

Outcome Tepco has submitted a $24.8bn recovery plan, to be funded partly by the Japanese government and in part by banks, to ensure it can shoulder the burden of compensation for victims of the accident.

3 Carnival

Costa Concordia accident

Negative stories: 659

What went wrong?
Cruise ship Costa Concordia capsized after hitting a reef off the Italian coast, requiring evacuation of 4,252 passengers and crew. Thirty-two people died, 64 were injured and two are missing, presumed dead.

January 2012 Shares in Carnival Corp, joint owner of Costa Cruises, fell 18% after a statement that the sinking in January could cost it up to $95m. Coast guard Gregorio De Falco became an Italian national hero after a voice recording was released of him berating the Costa Concordia’s captain for leaving the ship before evacuation was complete.

March 2012 Carnival posted a loss of $139m (£89m) in Q1 2012, compared with a profit of $152m in the same period last year.

Outcome The company has predicted that the Costa cruise brand will recover within a year or two.


Manager bonuses and financial situation

Negative stories: 132

What went wrong?
RBS receives a £45.5bn bailout from the UK government amid the global credit freeze. It later causes a stir by failing to cut executive bonuses.

November 2008 RBS chairman Sir Tom McKillop and chief executive Fred Goodwin both apologise to shareholders. Goodwin steps down as chief executive.

February 2009 Goodwin refuses to give up any of his £16.9m pension. He later gives up a third of his entitlement.

January 2012 RBS chief executive Stephen Hester waives his £1m bonus amid public and political outrage.

February 2012 RBS’s bonus pool hits £785m despite the group recording a £2bn loss in 2011.

Outcome Fred Goodwin, former chief executive, is stripped of his knighthood. Reports say that investors may never recoup their losses.

5 BP

Gulf of Mexico oil spill

Negative stories: 106

What went wrong?
An explosion aboard the Deepwater Horizon drilling rig in the Gulf of Mexico in April 2010 kills 11 workers and creates a catastrophic oil spill.

June 2010 BP announces a $20bn fund to compensate victims of the oil spill and says it will not pay a shareholder dividend this year.

July 2010 BP confirms chief executive Tony Hayward will leave his post by mutual agreement in October, but he is likely to retain a position in the company.

May 2012 The planned US trial is postponed at the last minute to give BP time to reach settlement with the victims.

Outcome BP faces years of litigation over the oil spill; its strategic tie-up with Russian state oil company Rosneft has also collapsed.


Silicone implants producer defaults

Negative stories: 99

What went wrong?
Poly Implant Prothese sparks a global health scare when it is discovered that it used industrial grade silicone in its breast implants rather than medical silicone.

March 2010 PIP is closed after a whistleblower alerts the authorities to the use of non-medical silicone.

January 2012 PIP boss Jean-Claude Mas is arrested by police in southern France. The UK health secretary Andrew Lansley bows to pressure to provide corrective surgery on the NHS for women who need it.

Outcome PIP went into liquidation in 2011. So far, 647 women have accepted the UK government’s offer to have PIP implants removed, of more than 6,600 cases.

7 Facebook

Handling of customer data, privacy issues

Negative stories: 88

What went wrong?
Changes to Facebook’s functionality sparked scare stories among users over privacy and loss of data

April 2010 The social network’s privacy policy is criticised after it relaxes walls around users’ personal details.

June 2011 Unannounced changes are made to Facebook’s face recognition technology, sparking concern among users.

January 2012 Facebook makes its new timeline profile design mandatory for all users giving a chronological history of activity and making archived Facebook data readily available. The new system sparks scare stories over privacy and loss of data.

Outcome Questions about privacy failed to dent Facebook’s IPO value of $104 billion, although the share price has since dipped, much to investors’ chagrin.

8 Freddie Mac

US mortgage crisis causes huge losses

Negative stories: 80

What went wrong? The US-government backed mortgage lender was rocked when huge numbers of customers were unable to pay off their debts.

August 2007 Signs of trouble begin to show as Freddie Mac posts a 45% drop in net income at $764m, down from $1.4bn a year earlier.

November 2008 After a series of losses totalling billions of dollars, Freddie Mac seeks a $13.8bn lifeline from the US government.

May 2010 Losses continue and Freddie Mac seeks a further $10.6bn from the US treasury.

Outcome More than five years after the housing crash that tipped the USA into recession, regulators are considering writing off homeowners’ debts as the cheapest option.

9 S&P

Uncontrolled influence on the markets

Negative stories: 80

What went wrong?
The ratings agency picked a fight with the big boys when it began downgrading the sovereign credit ratings of the USA and Eurozone countries.

April 2011 S&P took the unprecedented step of cutting the USA’s long-term debt outlook from stable to negative.

August 2011 The US government accused S&P of numerical incompetence after the ratings agency downgraded the US credit rating. There was a mistake in the figures, but S&P described it as a ‘detail’.

January 2012 S&P downgraded France and Austria - two of the Eurozone’s six AAA rated countries - and seven other countries including Italy and Spain.

Outcome S&P won friends at Number 11 when in April 2012 it reaffirmed the UK’s AAA credit rating and said that the outlook was stable.

10 GM

Lacklustre performance and sales decline

Negative stories: 74

What went wrong?
The company got into hot water with workers, unions and the German government over its plans for Opel.

May 2009 General Motors prepares to file for bankruptcy protection with a plan for the US government to pump in tens of billions of dollars. Opel, the company’s German operation, went through a long, drawn-out public sale process before eventually staying with the group.

February 2010 GM outlines a plan to restructure Opel in Germany and Vauxhall in the UK, including cutting 8,300 jobs, while requesting financial support from European governments. Relations with unions are strained. Sale rumours continue throughout the year.

Outcome Questions remain over the future of the German carmaking operation and difficult conversations with staff continue as profitability stumbles and plants come under threat of closure.