Three Patterns of a Reputation Crisis

How a business owner’s reputation can destroy a company and what can be done to prevent it

A crisis is almost inevitable when a business is growing and moving forward. After all, only those who do nothing never make mistakes.

Experience shows that you don’t need to be guilty to be accused of something. In the era of post-truth and social media, judgments are often handed down in articles, posts, and comments faster than in a courtroom.

Negative news will leave a lasting impression on partners, clients, and contractors. Even if it’s eventually proven that neither the company nor its owner is guilty, the financial consequences will be very real, with measurable losses from cancelled or unsigned contracts.

I recommend that every entrepreneur keep in mind three key patterns related to reputation, even if talking about reputation seems dull.

1. The Reputation of the Company and the Owner Are Closely Linked

Very often, a company embodies its owner. This places significant responsibility on the owner, turning them into a prime target for competitors or opponents.

Think about your reaction when reading about someone’s mistake. Now, compare how you feel in two scenarios: accusations against a company versus personal and emotional accusations aimed at a specific individual, mixing facts with personal details.

You’ll probably find that the information about a specific person who allegedly did something wrong will have a stronger impact on you than a story about company actions. Reputation has a human face, and reputation crises often stem from human errors.

Crisis management expert Dr Tony Jaques, in his book Crisis Counsel: Navigating Legal and Communication Conflict, shares fascinating data on the impact of an owner’s or top manager’s reputation on business.

He refers to a study from the U.S. that reviewed 219 cases of executive-level reputation crises. The study revealed that shareholders lost an average of $226 million within three days of the crisis beginning. The stock prices of companies with problematic leadership dropped 11–14% over the next 12 months.

It’s difficult to trace a similar connection between an owner’s reputation and a company’s value or financial results in regions without large stock markets. However, any CFO will tell you the cost of losses and missed profits due to a reputation issue that results in cancelled contracts, lost clients, suppliers, or creditors.

Leaders’ mistakes have serious consequences — others end up paying for them. In the “owner-company” dynamic, the owner’s reputation is the locomotive, and the company is the carriage. But what happens if the owner or top manager “goes off the rails”?

The cause could be an unfortunate comment, personal problems that have gone public, or previous business mistakes.

A smart move is temporary isolation — a kind of quarantine. Separate the leader from the company: what concerns the company’s operations, and what doesn’t? This distinction is crucial when communicating with key stakeholders.

An example is Paddy Cosgrave’s resignation as CEO of Web Summit, the technology conference he co-founded. After his controversial pro-Palestinian statements regarding the Israel-Hamas conflict, major participants and sponsors — Amazon, Google, and Meta — pulled out of the event.

Cosgrave resigned, and a new CEO was appointed, but a year later, Cosgrave returned to his position as CEO of the summit — a classic example of a temporary quarantine initiated by the scandal’s central figure.

2. Tell Your Story

This brings us to the second pattern. According to research by the Swiss media analysis institute Media Tenor, maintaining a positive reputation requires that at least 20% of the media coverage about you is positive, no more than 10% is negative, and the rest is neutral.

Social media presence is just as significant as being in traditional media and search results. If you have no positive digital footprint, you’re a blank canvas on which opponents can paint whatever they wish — and people will believe them more easily.

When an information attack targets lesser-known companies or individuals, few influential people defend them. Sometimes, a registration document is the only positive mention of a company in Google.

An interested audience won’t find anything beyond negative news. They may assume that it must be true if the owners are called criminals.

It’s a different story when a person has spent years building their reputation, enjoys a good name, and has mostly positive media coverage and thousands of followers on social media.
Discrediting a businessperson who has painstakingly built what American crisis communication experts aptly call a “Bank of Trust” is much more complicated in the public arena.

Such individuals can often protect their name and company with just one genuine and well-crafted post, sparking outrage among their followers against their attackers.

The solution is to work on building your “Bank of Trust” in advance. This shouldn’t be done out of fear of a future crisis but sincerely and naturally.

Legendary communicator and entrepreneur Al Golin, who helped McDonald’s achieve global fame, compared reputation investments to a bank deposit you build when things are going well and can draw on during a reputation crisis.

3. Emotional Responses Are Reputation Killers

The essence of the third pattern is that overcoming a reputation crisis under the influence of emotions is impossible. In fact, it’s easy to make it worse.

I repeat: the individual is the company’s most vulnerable point, which is why attacks target the “flesh and blood.”

Most owners take attacks on their company personally. When the attacks are directed at them, many fall into shock. A crisis is a danger that triggers fear, activating the “fight, flight, or freeze” response.

This tactic strikes you emotionally, makes you doubt yourself, and forces rash decisions since emotion is more powerful than reason.

Experience shows that public responses to a crisis should be given within one or two hours. However, when emotions are running high, producing a coherent reply is challenging. It’s much easier to dig yourself a deeper hole with an emotional post or comment.

The solution is to appoint someone responsible for managing the reputation crisis in advance. You don’t need to wait for a crisis to prepare. Simply knowing who, inside or outside the company, will take charge of crisis communications is critical.

There are various recommendations on who should take on this role. However, one universal rule stands: entrust the communication to “the calmest person in the room,” who will do their job while others are emotionally overheated.

When a crisis hits, the natural desire is to return to a semblance of calm. Those who have prepared with the protection of a well-established reputation — both personal and corporate — will get there faster. Building that reputation during conflict is impossible. It’s homework, however dull it may seem.

About author:

My name is Sergii Bidenko. I am a reputation and crisis advisor to business owners, top executives, and members of supervisory boards.

Reputation crises are a business process and my area of speciality.

Anyone can have a crisis. A business that fears risk is a bad business.

I support your right to take calculated risks and make mistakes, your right to run your business boldly, on your terms, and your right to correct mistakes.

Your moment of calm and confidence comes when a crisis has been turned into a comprehensible problem that can be solved in a business-as-usual way.