Your customers won’t want you renovating their family home, cutting their hair, photographing their wedding, sewing their toddlers’ pyjamas or keeping their office clean if they don’t trust you.
Trust and reputation are increasingly important as consumers research the businesses and brands they are considering, online platforms encourage the submission of reviews, and social media extends the life and reach of a bad review. Reputational damage is a real and present danger for all businesses.
We take a look at three recent instances of Australian businesses suffering reputational damage and consider ways you can mitigate these risks within your business.
George Calombaris' Made Establishment – pay scandal
George Calombaris's reputation – and that of his company, Made Establishment – took a beating last year when it was revealed that more than 160 staff had been underpaid some $2.6 million over six years.
The MasterChef judge told Fairfax Media that the staff were not paid the correct salaries or overtime due to “poor processes in classifying employees”.
The company responded to the scandal by hiring KPMG to conduct a comprehensive review, and launching a public relations campaign. It could still face fines from the Fair Work Ombudsman.
Business partner Radek Sali acknowledged the blunder would be very costly.
“This will be paid for out of cashflow," he told Fairfax Media. “I would suggest we won't be paying any dividends in that time.”
Avoiding this risk is a matter of seeking expert financial and human resources advice, ensuring that advice is reflected in policies and processes that prioritise compliance, and that both are updated regularly.
Coopers Brewery – marriage equality boycott
Pubs and clubs across Australia took Coopers beers off-tap and consumers boycotted the brand after the brewery got caught on the wrong side of the marriage equality debate last year.
The controversy erupted after The Bible Society marked its 200th birthday by partnering with Coopers to release a special batch of Coopers light beer featuring the Society's logo and Bible verses.
As part of the Society’s ‘Keeping it Light’ campaign, it then produced a video in which Liberal Party politicians debated same-sex marriage while drinking Coopers Premium Light – while MPs Andrew Hastie and Tim Wilson put forward differing views, they shared a core message: we can disagree agreeably.
Coopers, despite claiming no involvement in the production of the video, was criticised both for the idea that equality is a topic for light debate and for its partnership with the anti-equality Bible Society. Consumers saw a disconnect between their own views and a stance the brewer was signalling through this partnership, and pubs were quick to act to build relationships with those consumers by taking an opposing stance.
“It’s a sad day for us as over the many years we have built a strong relationship, yet after recent events it is very obvious that our values are at odds,” said Fitzroy’s Old Bar in a public statement. “It’s not that we feel that Coopers have taken an anti-equality stance, [it’s] the fact that they have now very publicly aligned themselves with the church and the Liberal party we feel that’s at odds with us and our values.”
Coopers’ Facebook page was inundated with one-star reviews, and other stockists posted social media videos of products being thrown out.
The furore eventually quietened following a video apology featuring the company's director of corporate affairs Melanie Cooper.
“Offence has been taken by our recent involvement, for which we are deeply sorry,” she said.
While Coopers did nothing illegal, the brand's reputation and ethics were brought into question.
Alignment of cultural values is an increasingly important consideration for consumers selecting brands – and one that burnt Coopers in this case.
How do you avoid this risk? It’s no longer enough to ensure your product is right for your customer – you need to value your brand just as highly. Build deep knowledge of your customers, bring customer advocacy to the core of your operations, and sense-check any public stance or partnership against your knowledge of your customers’ values.
Marketing, PR and branding firms that specialise in consumer research can be a valuable resource for small businesses considering partnerships and political stances.
“It’s no longer enough to ensure your product is right for your customer – you need to value your brand just as highly”
Svizter Australia – data breach
Global giants Yahoo, eBay, Equifax and Uber have all found themselves at the centre of major data breaches in recent years. But local businesses are certainly not immune.
In March, a data breach by shipping company Svizter Australia became the first to be publicised under new mandatory data breach legislation.
Up to 60,000 emails in the business's finance, payroll and operations accounts were secretly auto-forwarded to hackers, reports indicate.
The cybercrime involved the theft of more than 400 employees' personal information, including tax file numbers, next of kin details and superannuation account information.
Svizter is not alone. The Office of the Australian Information Commissioner's first quarterly report of Notifiable Data Breaches reveals 242 notifications, with 59% due to malicious or criminal attacks and 36% the result of human error.
Last year, data breaches cost Australian businesses $2.5 million.
And while the Svitzer example relates to employee data, customer data is just as vulnerable and customer data breaches can be extremely costly. Research shows that 65% of customers who are victims of a data breach lose trust in the business, and nearly one in three take their business elsewhere.
Minimise the risk to your business by treating personal data with care. The UK’s new General Data Protection Regulation (or GDPR) requirements, while not necessarily enforceable for Australian businesses that don’t operate in the EU or target EU customers, are a good yardstick for your own data practices.
Review them alongside Australia’s data-focused Privacy Act 1988 and message-focused Spam Act 2003, both of which businesses must comply with, and treat all as an opportunity to improve your practices, rather than as a regulatory burden.
Some initial changes to mitigate risk might include:
Clean up your data – delete old records entirely, and review personal data to delete fields you don’t require.
Review the data you collect – do you need to know all of the information you are collecting about your customers?
Increase transparency – tell your customers exactly what you will use their data for and how you will store it.
Consider where your data is stored – store all customer data in one secure place, not spread across various email accounts, third-party providers (for
example Campaign Monitor or MailChimp), computers, other devices and servers.
Consult cyber security experts, who may recommend new platforms to help with all of the above.
Cyber, business interruption and management liability insurance allow businesses of all sizes to transfer some of the risks associated with reputational damage.
Important disclaimer - Steadfast Group Limited ABN 98 073 659 677, its subsidiaries and its associates.
The views expressed are those of the author only and do not necessarily reflect those of Steadfast.
This magazine provides information rather than financial product or other advice. The content of this magazine, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date articles are written as specified within them but is subject to change. Steadfast, its subsidiaries and its associates make no representation as to the accuracy or completeness of the information. Various third parties, including Know Risk, have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.