I’ve analyzed lots of corporate screwups in this space. Most of those companies will recover just fine. But a few now have a permanent reputation for being a bad and hated company, with real costs that will continue for decades.
Let’s look at some of the corporate stupidity on display in the last year or so and ask: will it matter?
- Facebook broadcast a murder.
- Marvel comics fired an artist who meddled in Indonesian politics.
- Pepsi created a tone-deaf ad trivializing Black Lives Matter protests.
- Nordstrom danced around the issue of whether it will continue to carry Ivanka Trump merchandise.
Will people stop using Facebook, reading Marvel Comics, or drinking Pepsi? No. A few individuals might boycott or protest these companies, but the rest of us will just recognize that they made a mistake. Why? Because none of what these companies did fundamentally changes their image. Before they screwed up, we trusted them and thought of them as good (or at the very least, not bad) companies. Afterwards, we still felt the same.
But for some companies, it’s far worse
United Airlines survived Dave Carroll’s broken guitar and decades of weak customer service. But the long knives are out now. After a United flight crew called law enforcement to drag a passenger off a flight last week — knocking him unconscious and causing severe injuries — we heard a lot more about United. There was the scorpion that fell onto a passenger’s head. There was the guy who paid for a first class ticket back from Hawaii, got threatened with handcuffs if he didn’t get off to make room for a “higher-priority passenger,” and then got seated between a bickering couple in coach. And of course, there was the couple on the way to their wedding who got kicked off a United flight for sitting in the wrong seats.
I’m sure terrible things like this happen on airlines all the time. Not only that, I bet that United can make the case that in all of these situations, it was following policy and was justified in actions. But we are now primed to hear about the airlines behaving badly, and inclined to believe United is bad to passengers.
United has tipped over into the “bad company” category. Every person I spoke to about the United Airlines fiasco last week had already heard about it, including a little old lady who sat next to me on a Delta flight last Saturday from Minneapolis to Boston.
Here’s why United’s fate was different from Pepsi’s or Facebook’s:
- They did something truly shocking. In this case, it was injuring a passenger who had already been seated.
- It was one of a series of incidents. At United, there were the passengers barred from boarding for wearing leggings, just two weeks earlier.
- We can identify with the victim. We’ve all been on planes and we’ve all suffered insults from airlines. We know how Dr. Dao felt, and worry that next time it could be us. (By way of contrast, lots fewer of us can identify with having Kendall Jenner take over our Black Lives Matter protest.)
- The company’s reputation is already poor. Airlines have been treating people worse and worse since 9-11. Bankruptcies and consolidations, packed planes, squeezed legroom, and fees make us all tense and ready to blame.
- The corporate culture seems rotten. As Jay Baer pointed out, United Airlines’ rule-focused culture led to many of these incidents of inhuman treatment. These are not isolated incidents; they’re part of a pattern in an environment that United created. (You can’t blame United culture for the scorpion, but you can blame them for being way too rules-focused in the cases of the leggings, the first class guy between the bickering couple, and the married couple.)
These characteristics don’t describe Pepsi, Marvel, Facebook, or Nordstrom, all of whom we are willing to give the benefit of the doubt, because we don’t see a constant reinforcement of bad behavior towards customers.
But there are other companies in this boat. Comcast has messed with so many of us so frequently that we’re unlikely to forgive its latest screwup. Uber has now had so many viral incidents of its mistreatment of drivers that its reputation for poor culture has become persistent. Wells Fargo is an interesting case: its customer service ranking wasn’t bad, but its corporate culture drove employees to create millions of fake accounts, a shocking development which destroyed trust in the company.
United Airlines has now joined Comcast, Uber, and Wells Fargo in the list of “bad companies” — companies that we don’t trust and expect to mistreat us. I have no survey to prove it, but I suspect that there are now millions of people who would say they hate these companies. That’s not happening to Pepsi.
Hated companies pay
Does it matter that people hate these companies? So a company has a bad reputation. Will it actually suffer?
If a company like this has the best price — or if there is no choice — won’t people use it anyway? On many routes, United is the only carrier. In many locations, Comcast Xfinity is the only choice for broadband. And if your account is at Wells Fargo and Uber is on your phone, it’s a pain to switch.
It does matter. Here’s why:
- Companies must defend their reputations. United has already undertaken a review of its policies. A hated company spends a lot more on defensive PR and advertising to counter what everyone “knows” — that it’s mean and terrible.
- All things being equal, people will pick somebody else. If you have a choice between similarly priced flights, you’re probably going to pick somebody other than United (see this New York Times article that shows just that). If you’re opening a new account, you might avoid Wells Fargo. Hundreds of thousands of people dumped Uber and have now downloaded Lyft.
- Talent leaves (or never signs up). Nobody good wants to work for a hated company. Multiple Uber staffers are deserting the company now. The smart, customer-focused executives are more likely to work somewhere like USAA or Safelite with a sterling service reputation. That means the hated company must pay more to persuade people to work for it, and they’re more likely to leave after a shorter period of time. Who’s left? People who are less likely to care about ethics or customer service — and that makes it harder to fix the problem.
- Changing culture is expensive. Repairing a reputation isn’t sufficient; companies must fix the underlying problems that lead to repeated incidents, and that’s costly. At one point, Comcast spent $2 billion upgrading its customer service systems to fix its service reputation. Wells Fargo is trying to get better, but now faces the eagle eye of regulators who don’t trust.
The lesson here is not that you shouldn’t get caught on social media doing bad things, or that you need to nip it in the bud. It’s that the cost of a bad culture will destroy your company — or at the very least, make it far less profitable.