When junior attorney Aysh Chaudhry uploaded a 21-minute YouTube video denouncing Western ideologies and placing blame for the Paris Charlie Hebdo attack on non-Muslims, it quickly became a reputational nightmare for his employer, U.K.-based law firm Clifford Chance. Chaudhry apologized publicly, but ever since the video was posted in January, firms have been scrambling to redefine disciplinary procedures within the tenets of the U.K.’s freedom-of-speech legislation. This is just one example of the problems employees can cause when sharing controversial opinions.
With easy access to social media, employees are increasingly thrusting companies into the spotlight and inviting public scrutiny by airing their personal opinions. But it is not only on social media that companies are running into trouble. In a 2013 radio interview, Barilla Group’s CEO Guido Barilla expressed his personal opinion about gay families. “I would never do [a commercial] with a homosexual family, not for lack of respect but because we don’t agree with them,” he said. “Ours is a classic family where the woman plays a fundamental role.” Barilla added, “[If gay people] like our pasta and our advertising, they’ll eat our pasta; if they don’t like it then they will not eat it and they will eat another brand.”
Consumers did just that. An outraged public took to social media in droves, resulting in a viral nightmare for Barilla and his company, and a boycott began almost immediately. Within days, Barilla apologized and met with members of the LGBT community in a gesture of goodwill. Within two months, the company announced that it had formed a company-wide diversity and inclusion board and hired a leading LGBT activist to head the effort.
Still, some executives will stand by their opinions. When Whole Foods founder and CEO John Mackey compared Obamacare to fascism in a 2013 The Wall Street Journal op-ed, customers boycotted. Mackey backtracked on his “poor word choice” but not on his opinion, remaining critical of the national healthcare program.
These are reactions companies like Chick-fil-A and Hobby Lobby are all too familiar with. Both companies publicly aired their political leanings—Chick-fil-A with its vocal opposition to gay marriage and Hobby Lobby with its denial of healthcare coverage for the morning-after contraceptive pill. Once they go viral, such opinions are tough to contain.
But containment may not be the objective if those opinions are intentional. Nir Kossovsky, CEO of Steel City Re in Pittsburgh, suspects some of the more eyebrow-raising statements could be marketing ploys. In the case of Whole Foods, for example, Kossovsky thinks the message is, “If you eat our food, you will not need Obamacare.”
Perhaps the same can be said about the comments of Chick-fil-A’s CEO regarding gay marriage. “Suppose the CEO knows that his or her firm appeals to a sufficiently homogenous slice of customers, many of whom buy from Chick-fil-A because of their stated religious preferences,” he said of the conservative Christian company. “The personal values of the CEO, to the extent that they permeate, may in fact be one of the sources of intangible value of the entire enterprise. Chick-fil-A was unabashedly open about its values. I would argue that most of the people protesting in front of Chick-fil-A probably wouldn’t have eaten there.”
Corporate Responsibility
Regardless of intent, reputation hits can be devastating. In the past, these risks were easier to manage because there were fewer people speaking for the company—that responsibility was reserved for the CEO, president or someone specifically designated to speak to the media. Now, with social media trampling such boundaries, many companies are working hard to redraw the lines and maintain the integrity of the brand, but opinions can quickly escalate out of control.
While no one would argue that executives and staff are not allowed to have political opinions, expressing them in public creates a potentially destructive backlash that can damage both reputation and the bottom line. But are they culpable in the eyes of the law? According to Eugene Pettis, partner and founder of Haliczer Pettis & Schwamm, the employer’s responsibility for the actions of an employee depends on a number of factors. If the employee’s normal duties include developing social media messaging, Pettis said, that could expose the company to damages.
“When you get to the point of whether the employer is going to be responsible for the opinion of its employees, you have to see if it’s within their job description,” Pettis said. “Is it a personal opinion, or is it a statement that’s made on behalf of the company?”
Companies may not be liable if it is clear that the employee is not representing the company and the opinion is obviously a personal one. But the actions, or lack thereof, that companies display in response to such public gaffes could influence a court’s decision. Pettis cited a case where the wife of a company employee brought suit against her husband’s employer. The employee had used the company network to send nude photos of his stepdaughter to a porn site. The company knew of the employee’s propensity to visit porn sites in the past, but argued that they were not aware he sent photos. The court determined the case had merit because they had knowledge of the employee’s past conduct and had not taken action to halt the activity in the workplace. “If an employer knows about an employee’s behavior and [does] nothing about it, it’s going to be in a very difficult position if that employee defames somebody,” Pettis said.
That kind of damage can spread quickly, especially via social media. “There is a greater likelihood of having your reputation tarnished through social media than any other way,” said Loretta Worters, vice president of communications for the Insurance Information Institute. “We’ve seen it time and again where complaints go viral, and they can cause serious brand issues within a few hours. For some companies, the big problem is they don’t respond right away.”
Worters has seen companies use reactive rather than proactive management strategies, which is why she believes insurers have become more stringent in their requirements for coverage. Some insurers even insist that companies retain public relations firms and crisis management plans as a condition of coverage. “More and more insurance companies are putting the onus on the companies to have effective plans in place,” she said.
No crisis communications plan holds any value if the firm has not established the appropriate governance standards before an incident, however. According to Kossovsky, the big risk for companies is when someone says something untoward and stakeholders view it as the firm’s stance, not the opinion of a rogue employee. He believes resulting reputation issues really speak to a company’s governance and values. “It’s a reflection of the firm and the kinds of people they hire and the values they promote,” he said.
When it comes to reputation risk, the law doesn’t help. “The law tells you where the line is, but the law doesn’t protect your reputation,” he said. Thus, Kossovsky believes it comes back to corporate governance. “The law will not tell you how you need to establish your culture and values and how you need to communicate that to your employees,” he said. Rather, he believes other stakeholders’ perceptions of the manner in which you do that and its effectiveness are most critical and will affect their behaviors. “That, collectively, is the driver or destroyer of enterprise values,” he said.
Mitigation Options
In addition to stronger governance, Pettis believes mitigation is a multi-layered process. The goal is to distance oneself from liability as much as possible. Companies should have social media policies and make them clear to employees, he said. One of his own practices is to inform employees at the beginning of their employment that the company has the right to inspect and audit any company-issued technology to ensure it is being used in full compliance of the policy and the law. Any evidence discovered during an inspection may be cause for discipline, or even termination.
Pettis also recommends that companies have every employee sign an acknowledgement that “they understand that at no time do they have the authority to give an opinion on behalf of the company unless they have been authorized to do so.” Employees should also make it clear that an opinion is their own and be able to separate opinion from fact when using social media. “To avoid misunderstandings, you should clarify which of your statements are which,” he said.
Sometimes, even an innocent comment can have huge repercussions. “Say you’re working on a very huge merger and acquisition,” Pettis said. “You’ve been working around the clock for a month. Your friends know you’re working on this huge deal. You post on Facebook saying, ‘Wow! I am so happy this deal will close tomorrow!’ That opens up the possibility of insider trading—I now go and buy all this stock because I know about the deal. That’s a whole nightmare with a dozen damage points for different stakeholders.” Driving this point home with employees will go a long way toward distancing the company from culpability. “The courts so far have required there be some line, some nexus, some thread between what was posted and the company’s knowledge and purpose of it,” he said.
He cited an example of a client’s employee who made derogatory comments on Facebook about a singer. The comment was inflammatory and racially motivated and the singer wanted to sue the company. It was an employee’s words on a personal account, however. While he made the comment during the course of his employment, the company had no prior knowledge of whether this employee had made similar statements in the past. Because it was an isolated incident, the company has not been sued. In situations like this, Pettis said, the best thing to do is discipline the employee and let him know that the company does not tolerate such behavior. This serves to discourage future incidents and establish that the company is willing to take action.
In addition to educating employees, companies can also mitigate some of the danger through insurance coverage. Reputational risk insurance is a standalone policy that typically covers social media response, legal fees associated with crisis communications review, campaign costs and research. Some reputation policies cover financial loss caused by controversy that harms the company’s profit. The difficulty lies in quantifying that loss, however. Some insurers hire loss adjusters or forensic accountants to create a starting point, Worters said, while others hire outside companies to conduct market surveys that measure the size of a negative change in brand perception.
Aside from coverage requirements, Kossovsky recommended a two-step process for handling reputation risk. Step one is to establish policies, procedures and a follow-up protocol. The second step is to let stakeholders know these efforts are in place. “The firm that does it is a more valuable, less risky firm than one that doesn’t,” he said.
Still, the best way to address reputation risk is to build a culture that makes a clear distinction regarding each employee’s responsibility to protect the company image. “The worst position to be in is that of the ostrich—to put your head in the sand,” Pettis said. “You can say ‘I’m not going to deal with it’ but you will have no defenses when that moment comes where one of your employees exposes the company and you have never done anything to try to limit that type of exposure.”