Managing Your Corporate Image

Thunderbird Professor Nathan Washburn, Ph.D.

By Nathan T. Washburn, Thunderbird Professor

BP, Toyota and other companies such as Goldman Sachs have taken public image beatings in recent years. Many would say deservedly so. But other firms linked to potentially bad behavior have escaped public scrutiny and outrage. Corporate leaders who want to protect their firms from attack need to understand why the public singles out some firms for criticism and not others. This is especially important in the age of social media and 24-hour news coverage, when perceptions can spread worldwide almost overnight.

Although managing a corporate image can be a fuzzy process without clear rules, the impact on the bottom line when leaders stumble is not fuzzy. The Gulf Coast oil spill on April 20, 2010, put BP on the hook for a $20 billion claims fund, and stock prices fell to an 18-year low. Toyota’s U.S. auto sales dropped 16 percent in the early months of a massive recall. And Goldman Sachs agreed in July 2010 to pay $550 million in a highly publicized civil fraud case.

Meanwhile, other firms make mistakes without attracting significant attention. While the world focused this summer on BP, few outside Africa have noticed thousands of Niger Delta oil spills that some experts suggest cause more environmental damage each year than anything in the Gulf Coast.

And while complaints of sudden acceleration plagued Toyota following a collision that killed four people in August 2009, few have noticed similar complaints against other automakers during the same period. (A 2009 Consumer Reports study shows Ford Motors not far behind Toyota in terms of sudden acceleration complaints.) What causes such discrepancies? I have developed a theory with Don Lange, Ph.D., a scholar at the W.P. Carey School of Business at Arizona State University.

Our research identifies three key elements that predict public perceptions of corporate irresponsibility. These elements are the victim, the effect and the firm. The first step in managing a corporate image is to understand how these elements work together when things go wrong.

Who is the victim?

Fair or not, some victims naturally generate more sympathy than others — even when pain or suffering is comparable. Some of this has to do with the victims’ access to channels of communication. One possible reason that oil spills in the Niger Delta fail to generate public outrage similar to what we see in the Gulf of Mexico could be that Niger Delta victims lack connections to make their voices heard.

Victims in the United States, meanwhile, have access to attorneys, politicians, reporters and activists who know how to craft messages. They also have access to their own blogs and social media outlets. Another factor is the victims’ level of perceived innocence. Victims perceived as vulnerable tend to generate more attention than others. A child victim, for example, typically will generate more sympathy than an adult male.

This worked against Mattel during the toy recalls of 2007, since children were the ultimate recipients of the tainted products. Mattel became a lightning rod for negative press as the company recalled 19 million toys made in China. Stock prices dropped as a result, and the company took a $40 million charge.

In some cases, public perceptions of a victim’s innocence evolve over time. Cigarette smokers, for example, were perceived as innocent when studies first emerged showing the harmful effects of tobacco use. Public sentiment shifted when smokers started ignoring the warning labels that government regulators forced tobacco companies to include on their products. As a general rule, public perception of a company is directly related to public perception of the victim when things go wrong.

What is the effect?

The second element that shapes public opinion is the nature of the harmful effect. A highly visible, dramatic effect concentrated in space and time tends to generate more public outrage than a hidden or dispersed effect.

An airplane crash, for example, produces a highly visible, dramatic effect that happens in one moment and one location. A single crash that kills hundreds of people will catch media attention. Airline stock prices will fall in the aftermath, along with stock prices for the airplane manufacturer.

Meanwhile, about 40,000 people die every year in U.S. car collisions. But a single crash rarely generates a national or global outcry because the effect is dispersed over space and time. The public becomes desensitized to the effect. The exception comes when a collision is particularly dramatic or when the victims are particularly sympathetic. The Toyota collision that sparked the highly publicized recall campaign, for example, resulted in the deaths of an off-duty police officer and three family members.

Another example comes from the Ford Pinto in the 1970s. Later studies have shown that the Pinto was no more dangerous than similar models at the time, but reported cases of the Pinto exploding into flames when hit from behind captured the public’s imagination because the effect was dramatic. More than 30 years later, the Pinto is still remembered as an especially unsafe car.

Who is the offender?

The third element that shapes public perception is the firm profile and characteristics. Just as some victims generate more sympathy than others, so do some offenders or perceived offenders. Characteristics that can shape public perceptions in the aftermath of a corporate effect include the size of the firm, its existing image and its relationship with the public.

Different segments of the population will have different relationships with any firm, which helps explain why perceptions sometimes vary. Oil industry workers, environmental groups, Gulf Coast residents and British citizens all have different relationships with BP and thus different perceptions of the recent spill. One thing to consider is that a strong corporate image can work in two directions when things go wrong.

A strong public image can build support for a firm, or it can go the other way when people hold the firm to a higher or unrealistic standard. Toyota had a reputation for high quality and reliability when the sudden acceleration issue surfaced. This caused many people to perceive the company as arrogant or hypocritical. Corporate leaders who understand these dynamics can better manage public perceptions and ease the impact on the bottom line when crises emerge.

Nathan T. Washburn, Ph.D., is an assistant professor of management at Thunderbird School of Global Management in Glendale, Arizona. He may be reached at