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Introduction
Corporate visibility is at an all-time high in this era of global connectedness and social media. Companies in the public spotlight face risks that can tarnish their reputations. Responding to those potentially damaging events is not a trivial task, especially when the response itself has the ability to raise the initial incident's visibility, sometimes to a degree well beyond what was anticipated. While corporations may plan ahead for a variety of reputation-damaging scenarios, executives can find themselves facing incidents for which contingency plans are inadequate or nonexistent. To better understand corporate responses to reputation-damaging incidents, and the context in which they occur, five incidents from an untold number faced by Starbucks in 2013 were selected as the basis for this case study.
Reputation risk
Corporate reputation is a complex concept describing how positively, or negatively, a company is perceived by its key stakeholders such as employees, customers, investors, the media, suppliers and financial analysts. Reputation is central to the company's competitiveness and profitability as an intangible asset along with customer relationships, human capital, innovation and patents. It is fragile and sometimes easily damaged. Reputation risk is "[...] the potential that negative publicity regarding an institution's business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions" (USA Federal Reserve Board, 1997). What takes decades to build can unravel quickly and be lost in a matter of days. As former Federal Reserve Chairman Alan Greenspan said:
It is hard to overstate the importance of reputation in a market economy [...]. Even more important is the reputation of the corporation itself as seen through the eyes of outsiders. It is an exceptionally important market value that in principle is capitalized on a balance sheet as goodwill (Greenspan, 2003).
The monetary value of this opinion is difficult to measure; however, some observers place reputation's value as high as 4 to 5 per cent of annual sales (Drexel University et al. , 2013). A misstep that goes uncorrected could leave a lasting impression that puts off potential customers, investors or other stakeholders. A quick glance through recent newspaper headlines underlines the extent of the challenge. In the midst of the December 2013 holiday shopping season, a Wall Street Journal...