Reputation Damage

The beginning of June is not normally considered the ‘silly season’, but an editorial piece in the London free paper ‘City AM’ made me think twice. The editor drew attention to the poor international reputation of UK plc through three well chosen corporate giants: BP, BA and Prudential: ‘British Petroleum, whose inability to stem the spill off the US coast is now in the realm of the preposterous: British Airways, which is being crippled by the actions of a minority of deluded and self-destructive strikers; and the Prudential, which is desperately trying to negotiate a cheaper price for AIA or face a humiliating rejection from its shareholders’.

The theme of the editorial was PR disasters: nobody purposely sets out to damage reputation or reduce corporate value so there must be an awful lot of accident prone corporations out there.  Wrong, in each case there has been a management failure and the reputation damage is self-inflicted, don’t let anyone try to convince you there are innocent victims here.

BP miscalculated the risk of deep sea oil extraction and will pay the price for its inability to plug a leak a mile below the surface of the sea. The risks of operating at the limits of technology come with the territory; however BP is unfortunate in being a UK firm operating in US waters. The environmental catastrophe brings attention to the way the oil industry has been forced to extract ever more marginal pockets as world demand continues unabated. Like the Gaza blockade, the world looks away until it is reminded in dramatic fashion of what it actually condones.

The BA failure is a well documented one of industrial relations. Management at the airline have long tried to bring operating practices into alignment with industry norms, and there is a history of conflict going back before Willie Walsh took over. The failure at BA is not the current handling of industrial relations but the failure to resolve them satisfactorily in the past. The pressure on airlines to remain viable in the face of a rising fuel price, schedule disruption by volcanoes, and cut price rival operators only makes delivering operational efficiencies more urgent.

The Prudential failure is quite simply one of expectation management especially where the shareholders have a different perspective to the management. A risk averse shareholder base will never endorse an ambitious expansion plan from a risk hungry management. There is no independent arbitrator to say whether the price for any acquisition is good or bad, so there is no point in seeking one. The shareholders need to be convinced if the management want to retain credibility and an ongoing mandate. Management failure to carry shareholder sentiment can often signal a parting of the ways.

The reason these three corporate giants were singled out as PR disasters, is because the subject of our international reputation came up in the context of the Eurovision song contest. If you don’t remember our entry bombed out in Norway finishing last leading some foreign journalists to question whether the UK was good at anything any more. The corporate giants are unfortunate as each has suffered reputation damage, however none was caused by a third party and each must learn the link between corporate behaviour and reputation - you normally get the reputation you deserve.