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Al Berman’s Reputational Risk Lessons –From Wells Fargo to Uber

June 30, 2017 Leave a comment dridrive

Reputation Management - Wordcloud Concept.Organizations are constantly trying to measure reputational risk. Perspectives range from “any publicity is good publicity” to “no publicity is good publicity.” The real issue is not the amount of negative actions or comments that bring attention to an organization’s reputation, but rather the tangible impacts upon the organization resulting from the reputational damage. The impacts should be quantifiable as well as objective so that the response can be proportional.

Take the case of Wells Fargo and its CEO John Stumpf. The story of fraudulent credit card accounts and other unethical, unscrupulous, and illegal activities designed to enhance performance numbers that resulted in larger bonuses (around $125 million) clearly harmed Wells Fargo’s reputation. But the tipping point for John Stumpf was when the State of California which conducts $2 trillion in annual banking transactions and manages a $75 billion investment pool, announced it would cease doing business with Wells Fargo.

Losing one of Wells Fargo’s biggest customers (a very tangible and quantifiable impact) forced John Stumpf to retire and forfeit a $41 million bonus. Lose a big customer as a result of reputational damage and you lose your job. Seems like a proportionate response.

So, quantifying the impact associated with reputational risk allows for creating a response to try to mitigate the damage. This seems easy to understand. It is a transactional response to a specific incident.

But how do you respond to reputational risk, when there are no direct consequences? Take Uber’s CEO Travis Kalanick, a hard charging, determined personality who has led the ride sharing service to a valuation greater than Ford, GM, and BMW ($60+ billion). Kalanick has upset governments by bending the rules. He has also used psychological tricks to push Uber’s driver and legal battles over Uber’s self-driving car design. Both of these have contributed to Kalanick’s problems — problems so severe that he was forced to resign under pressure from his investors.

The reputational issue has not had a direct financial impact. Volume and revenue are up – admittedly, Uber continues to lose money, but that is not a result of its reputational issues. It would appear that investors felt they needed a seasoned CEO to get Uber to the next level, and the recent reputational damage precipitated their action. So, in this case it was the future impact that would be caused by continuing with the current leadership that forced Kalanick’s demise. The group seeking to bring in an experienced CEO sees Kalanick’s actions as supporting their case.

In this case, the concern is for the long-term effect that continued problems may do irreparable harm (such as losing market share). The loss is not seen in a single transaction, but the effects of the future on both the demand side (customers) and supply side (drivers).

The more interesting outcome will be seen in the future of Uber. Just remember – there once was a company that felt that it had to make a similar change and bring in a seasoned CEO to harness the antics of an entrepreneur. In the end, they went back to Steve Jobs.