How legal action can prolong a reputational crisis

One of the under-rated risks of issues and crises is long term reputational damage – sometimes very long term, and sometimes the result of legal action.

This was highlighted earlier this month when an American judge ruled that BP’s Gulf of Mexico oil spill in 2010 was a result of “gross negligence and wilful misconduct.”

These specific words are not only devastating to BP’s already tarnished reputation, but expose the company to fines of up to $18 billion, compared to their previous financial provision of $3.5 billion.  Predictably BP announced they would appeal, but that could mean years of prolonged reputation-sapping headlines. In fact the Wall Street Journal reported that many US investors expect spill-related litigation to drag on for decades.

Doubtless that keeps the lawyers busy, but what does it mean for reputation and investor confidence? And will the world ever forget BP boss Tony Hayward’s infamous plea in the wake of the spill that he would like to “get his life back” – which the New York Times dubbed the “sound-bite from hell.”

For a glimpse of BP’s long term future and reputational risk, look no further than the Exxon Valdez oil spill in Alaska in 1989. A court originally ordered Exxon to pay $5 billion in compensation to local residents and businesses, equivalent to about its annual profit at the time. Following what one legal expert described as “scorched earth litigation” involving scores of petitions and appeals and over 1,000 legal briefs, requests and demands, that amount was progressively reduced in 2008 to just $507 million, plus about $480 million in interest. By then, thousands of claimants had already died waiting for the outcome and Exxon-Mobil recorded a record-breaking annual profit of $45 billion.  It was only in 2009 that the company finally gave up its last line of appeal.

The company lawyers were probably pretty pleased with themselves at saving so much money, but it came at the cost of 25 long years of continuous legal wrangling and damaging high-profile publicity.

  • The real question is what lessons BP and other companies have learned from this notorious reputational debacle. American crisis writer James Lukaszewski says there is a definite pattern of recovery behaviours that helps leadership re-establish trust following what he calls a “trust-busting, reputation-redefining circumstance.” Get the following recovery strategies working immediately, he says, and things will get better fairly quickly.
  • Stop producing victims and critics
  • Build followerships
  • Build trust at every opportunity
  • Rebuild and maintain your base
  • Manage the victim dimension
  • Manage your own destiny

The first recovery strategy – Stop producing victims and critics – might appear like a blinding glimpse of the obvious in terms of reputation reconstruction. Yet far too many organizations – and their lawyers – still seem destined to fail at even this first basic step.

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About managingoutcomes

Issue and crisis management expert
This entry was posted in Crisis management, Reputation risk and tagged , , , , , . Bookmark the permalink.

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