Corporate reputational risk – a lawyer’s perspective

Posted: October 16, 2013

Introduction

We are often impressed by how sophisticated companies are in terms of predicting with accuracy when attacks on their reputation might take place. Such foresight allows specialist teams of legal and communications advisors to plan ahead and to think about how the law can be used as a tool to mitigate the damage in circumstances where such attacks are unjust.

Predicting when reputational attacks will occur

For all of those tasked with safeguarding the good reputation of their organisation it is likely one of the most troubling scenarios: a primetime television programme or highly prominent article making false allegations concerning (say) the ethics of your business in the lead up to a peak trading period. 

Such attacks may come as a result of the company’s corporate calendar (a set of results which fail to meet market expectations; problematic product launches and directors’ remuneration votes being some of the most (a) perennial; and (b) fractious events that organisations can to greater or lesser degrees both anticipate, and plan for). 

Seasonality is also often a key factor.  At what can be a make-or-break period for consumer facing organisations in particular, the Christmas period, can be a reputational tightrope.  Certain sectors including retail; logistics companies and credit businesses are among those most likely to find themselves in the firing line at a time when emotions can run high. 

Further, there can be something of a vicious cycle: once a particular niche or business has been targeted by a journalist or broadcaster, we have seen occasions where it seems as though that business has been targeted again in following years (as if on an annual basis) as it fits with that publisher’s editorial needs at that time each year.  Companies and their PR advisers are becoming increasingly adept at spotting these trends and preparing their best lines of defence before any attack takes place. 

Balancing protecting reputations with the public interest

It is of course the case that some businesses may consider that perennial, seasonal attacks upon their reputation form part of the cost of doing business in the space in which they operate.  Some businesses may consider themselves invulnerable to such attacks, or concern themselves only with defending against a very specific defined threat.  The transient court of public opinion may carry little weight for such businesses.  That said, such businesses are in the minority. In the majority of cases, stakeholders (which in this context could mean anything from the Chief Executive and majority shareholder through to a member of the public who may or may not realise they own shares via their company pension scheme) will be concerned to see the company take all appropriate and proportionate steps as are available to safeguard its reputation.

It is plain that there is a public interest in subjecting corporations to proper checks and balances. That said, there is a counterbalance to this general proposition.  This is that those with a platform should not be permitted to cause harm to companies through the publication of false, distorted and damaging allegations.  As has been held by the House of Lords (then Britain’s highest court), no public interest is served by publishing or communicating misinformation. 

The Defamation Act 2013

The Defamation Act 2013 (“the Act”) strives to strike a balance between these competing interests. Whether it will achieve this remains to be seen. Having received Royal Assent from Parliament in April, the Act is expected to come into force later this year.  The Act seeks to provide protection to publishers and broadcasters by placing onto the statute books for the first time a number of measures that are intended to make it harder for companies to commence libel proceedings for defamation.  The key defences that are available under the Act are:

Truth: that the imputation conveyed by the statement complained of is substantially true.

 

Honest opinion (a defence which, in broad terms, used to exist under the label ‘fair comment’): that the statement complained of was a statement of opinion and that the statement complained of indicated the basis of the opinion.

 

Publication on a matter of public interest: it is a defence to show that (a) the statement complained of was, or formed part of, a statement on a matter of public interest; and (b) the defendant reasonably believed that publishing the statement complained of was in the public interest.

In the case of for-profit companies (but not individuals), there is an additional requirement, which is that the company must show that it has suffered or there is a risk that it will suffer, serious harm.  In addition, it must show that the statements made have caused or are likely to cause a company serious financial loss.  The courts are yet to interpret precisely what the impact of this will be.  At this early stage, there must at the very least be a strong argument that publication in the news pages of a widely circulated Sunday newspaper will be likely to cause financial damage, whereas, establishing the same in respect of a little-read blog or tweet may be a harder challenge. 

The tipping point: when action becomes necessary

In reality, there are few private companies and even fewer public companies who would wish to stifle public discussion of their business.  What companies tend to find difficult to stomach are situations where inaccuracies are about to be published (or have just been published), whether online or via traditional media, which will be likely to cause harm to the company’s reputation, damage the trust between itself and its customers, and, which will ultimately cause it financial loss, whether by loss of sales or by diminution of share value.  There are also common reasons why companies need to make legal complaints in these situations.  In many situations, this is not because of allegations being fabricated by publishers (who by and large go to great lengths to ensure the accuracy of their reporting) but rather because of common misunderstandings or misconceptions which include:

 

Not comparing like for like (for example, not including the cost of an extended warranty included in one retailer’s price which another retailer does not offer)

 

Making statements or allegations concerning the entire company which are based on a relatively small number of incidents or case studies (in some cases this might be saying that a company which has literally millions of transactions a year is at fault as a result of 5 or 6 case studies, possibly culled from disgruntled sources who have clustered together online)

 

Not understanding the terms of art or branding applied by a business which may not share the everyday meaning of the words in question

 

Using overly emotive or sensationalist language which is not borne out by the facts or which appears to have been written with a preconceived narrative arc – in other words the facts are being fit to the story rather than vice versa.

Companies who wish to avoid these pitfalls work closely with their PR advisers to minimise the risks associated with these issues.  Such companies should always have in mind the very fullest picture, which can include the deployment of complementary legal options.  By picking their battles carefully, the law is an option which can be utilised very effectively.  When appropriate, the threat of legal or regulatory action (for example via the courts, Ofcom, and/or the Press Complaints Commission or the body replacing it) is a factor that can chip away at editorial confidence in a story which has been insufficiently researched or which is reliant on less than credible sources. 

Conclusion

The more planning ahead the company can do in this context the better placed they will be if and when reputational attacks occur.  In that way hopefully they will be well placed to never have to experience first-hand the truism first noted by Swift more than 200 years ago and which seems are the more appropriate now: “falsehood flies, and the truth comes limping after it”. In these circumstances, to be forewarned is very much to be forearmed.

Jon Oakley is an Associate in the reputation protection team at Michael Simkins LLP.