Companies & Industries

Barilla in Hot Water Offers a Lesson in Reputation Management


Barilla Group chairman Guido Barilla.

Photograph by Gabriel Bouys/AFP via Getty Images

Barilla Group chairman Guido Barilla.

In the classic Simpsons episode Lisa vs. Malibu Stacy, Marge Simpson tells her daughter: “Lisa, ordinarily I’d say you should stand up for what you believe in. But you’ve been doing that an awful lot lately!”

Pasta purveyor Guido Barilla must know the feeling. After the Barilla Group chairman said in an interview that he supported a “classic family” and would never feature “a homosexual family” in his company’s advertising, he quickly found himself in hot water. Word spread via social media in a matter of hours, and now Barilla faces international calls for a boycott even after his hasty apology. Competitor Bertoli (CAG) jumped on the opportunity and quickly responded with pro-gay pasta ads and social media.

This is not the first time that a company battled a reputational crisis over gay rights issues. Target (TGT) received boycott threats over its contribution to a political group that supported a candidate who opposed same-sex marriage. Fast-food chain Chick-fil-A spurred a similar uproar in late July when President Dan T. Cathy stated that Chick-fil-A supported “the biblical definition of the family unit.” While the deeply religious roots of Chick-fil-A’s founder and family owners were well known, the new comments quickly led to boycott threats by gay rights groups, statements by public officials in cities such as Boston or Chicago saying that the company was not welcome there, and the decision by the Jim Henson Co., creator of the Muppets, no longer to supply the company with toys.

In most cases, companies are well advised to stay clear of polarizing issues. This can present challenges for multinational companies that operate in multiple countries with diverse values. A comment that hardly raises eyebrows in its home country may create outrage elsewhere.

Privately held companies such as Barilla may be particularly at risk if their governance structures are underdeveloped. Corporate boards can play a crucial role in insisting that the company develop proper reputation management structures. Those include cross-functional decision-making structures to respond quickly to new threats and capabilities to identify and assess emerging issues before they hit the front page or create a social media storm. Of course, if a chief executive becomes the main problem, boards must be able to step in and replace a struggling CEO. This may pose a problem in family-owned businesses or publicly held companies that give founders or families effective control, such as Rupert Murdoch’s News Corp. (NWS) during the 2011-12 hacking scandal.

Still, boycotts don’t always work. They require not only a controversial issue but also sophisticated activist strategies. For example, boycotts are more effective if they target a single company rather than an industry to lower the costs of customer participation.  Sometimes a boycott over an issue can even pay off for a company. After the attack on Chick-fil-A by pro-gay rights groups, conservatives asked supporters to increase their visits, effectively organizing a “buy-cott.” The effort had some (limited) sales impact on Chick-fil-A, raising the intriguing and somewhat worrisome specter of consumer preferences that significantly correlate with political ideologies. But before embracing another new marketing fad, companies should be careful about defining themselves as a “Republican” or “Democractic” brand. Otherwise, they will be in for some interesting times.

Companies are often surprised by such crises, but they shouldn’t be. Their reputation management capabilities are often insufficient, given the dramatic increase in reputational risk. The rise of social media, complex global value chains, and rising expectations about corporate conduct have all increased the exposure of companies. Also, companies have more at stake as increasingly, business models are based on building strong brands and maintaining customer trust. Yet, reputation management is still viewed as a subdiscipline of PR rather than an enterprisewide capability to protect and enhance a vital asset.

At the heart of such capabilities is a strategic mind-set. Company officials must be able to respect and accommodate different perspectives and viewpoints, even if they do not share them. This requires the ability to treat reputational difficulties as understandable challenges that should be expected in today’s business environment. Companies and chief executives must handle reputational crises like any other major business challenge: based on principled leadership and supported by sophisticated processes and capabilities that work with the company’s business strategy and culture. Their reputation depends on it.

 

Diermeier is the IBM Professor of Regulation and Competitive Practice in the Department of Managerial Economics and Decision Sciences and the Director of the Ford Motor Company Center for Global Citizenship at the Kellogg School of Management. Professor Diermeier is the author of Reputation Rules: Strategies for Building Your Company’s Most Valuable Asset. The issues discussed in this commentary will be among the topics at the 2014 Corporate Governance Conference to be held at Kellogg May 19-20.

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Companies Mentioned

  • CAG
    (ConAgra Foods Inc)
    • $36.86 USD
    • 0.28
    • 0.76%
  • TGT
    (Target Corp)
    • $73.95 USD
    • -0.69
    • -0.93%
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