Sex scandal tests whether reputation really matters

Just when David Jones probably thought they had weathered the storm of last year’s sex scandal, the latest reputation index has emerged to smack them over the head. But the question has to be asked – Does a hit to reputation necessarily translate into business impacts?

It is ten months since the upmarket retailer terminated the contract of former CEO Mark McInnes after improper dealings with a female employee.  Now the latest Australian reputation rankings show David Jones fell 17 places from 8th last year to 25th. On the specific measure of Governance the retailer fell from 18th to 41st, and its ranking on Leadership fell from 10th to 46th, which is pretty unimpressive on a list of only 60 companies. 

The AMR Corporate Reputation Index questions adult Australians regarding companies chosen from the BRW Top 100 list. This year they surveyed 5,600 respondents to assess the companies on products and services, innovation, workforce, citizenship, governance and leadership. The only company to do worse than David Jones on this year’s list was Vodafone Hutchison, which fell from 35th to 59th, after a series of high profile technical issues, with last place reserved for another Telco, Telstra.

The question for David Jones must be, what does all of this mean?  Is there a proven link between a reputation index and hard business measures such as sales, share price, recruitment and brand value? And how relevant are the index assessment criteria?

Late last year David Jones settled the ensuing sexual harassment lawsuit for $850,000 in return for their former publicist Kristy Fraser-Kirk dropping a $37 million claim against the company, McInnes and nine Directors. At the time Chairman Robert Savage said the decision to settle was a ‘‘straight risk/return decision’’ made after considering the interests of the company, its shareholders, its brand and its employees.

Certainly, the David Jones share price took an intra-day hit on the day the CEO resigned (18 June) but recovered by the close and the share price now is powering on. And the company reported six months later that like-for-like sales since the scandal were effectively flat on the same half of the previous year. So the obvious business measures could indicate the company got through the scandal largely unscathed. 

However Chairman Savage may have underestimated how long negative news remains a potent force in mind of consumers.  Moreover, the facts which emerged about the case showed the Board knew more about its CEO’s reputation than it had first admitted. Conventional wisdom may suggest a massive slump in consumer reputation based on sexual misconduct is something which cannot be ignored by a company which is built on high fashion sold mainly to discerning female customers with discretionary spending power. 

But did the issue have any long term effect on the shopping habits of those same discerning customers? The public may never know exactly what impact resulted. And it is unlikely the company will disclose its own calculations about what effect, if any, its reputational crash may have on brand equity. However, rubbing salt into the wound, the same reputation index which hammered David Jones placed their perennial retail competitor Myer comfortably at 10th, 15 places higher on the list. Given the long and sometimes bitter rivalry between the two companies, that fact alone should be reason for concern.

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About managingoutcomes

Issue and crisis management expert
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