The Ripple Effect: Managing Reputational Fallout from Industry-Wide Regulatory Scandals

In today’s business landscape, where trust and transparency have become the new currencies for corporate success, industry-wide scandals can throw even the most resilient and well-intentioned organisations into a tailspin. Embodying the old adage, “you are judged by the company you keep”, reputational fallout from industry-wide scandals is a very realistic possibility, especially when the likelihood of collective scepticism is so high due to the rate at which news and information travels.

Therefore, navigating this delicate conundrum requires organisations to strike a fine balance—proving their integrity and distancing themselves from the negative narrative surrounding their industry while carefully managing relationships with stakeholders who remain tethered to the same ecosystem.

While there is no one-stop playbook for managing such complexities, real-world examples offer valuable insights and lessons. By examining these parallels, organisations can build robust strategies to ring-fence against risks, protect their reputations, and sustain their social license to operate, even amidst uncertainty and situations out of their control.

1. The 2008 Financial Crisis and Goldman Sachs

Numerous studies outline several reasons for the 2008 financial crisis, from poor macroeconomic policies to rising consumer debt. However, if you ask the layman and gauge public sentiment towards the cause of the crisis, most will point to financial institutions and the predatory nature in which they operate. While it is not completely true that financial institutions were the sole cause, perception is everything in our line of work.

• The Issue: The financial industry as a whole took a massive hit in its reputation and credibility due to the role of major institutions in the crisis as well as how they handled customer concerns. This and the collapse of institutions like Lehman Brothers caused mistrust and customer backlash. Ironically, Goldman Sachs was also one of the key players in creating the bubble that led to the financial crisis.
• The Response: Goldman Sachs implemented robust communication strategies, emphasising its steps to enhance transparency, reduce risks, and align with stakeholders’ interests. This was driven from the top, with the CEO Lloyd Blankfein apologising. Further, they restructured their business and launched initiatives like the 10,000 Small Businesses program, showing its commitment to economic recovery.
• The Learnings: Pivot the narrative by transparently showcasing concrete actions that contribute to rebuilding trust and benefitting broader society by addressing their concerns.

2. The Diesel-Gate Scandal and the Rest of the Industry

Diesel-Gate was a scandal that shifted the entire trajectory of the automobile industry globally. Volkswagen was accused of installing a “defeat device” in diesel engines that could detect when emissions tests were being conducted. This enabled the cars to change performance accordingly and improve results. Ironically, this was uncovered in a year when the historic COP21 occurred. This completely shattered the credibility of the Volkswagen Group, which also includes industry heavyweights like Bentley, Lamborghini, Audi, and Skoda.

• The Issue: Diesel-Gate had ripple effects on other manufacturers as trust was eroded across the industry. The scandal’s aftermath saw heightened consumer awareness about the environmental impact of vehicles, sparking concerns over climate change. Additionally, diesel bans implemented worldwide left many loyal customers scrambling for alternatives, often at significant financial loss, as they sought vehicles that complied with stricter regulations.
• Response: Many manufacturers doubled down on differentiating themselves as leaders in alternative powertrains such as electric and hybrid vehicles. Prominent manufacturers like Tesla, Toyota, and Volvo were leading the charge. While those seen as leaders in internal combustion engines have also pivoted and invested heavily in researching electric vehicles. This trend continues, where, most recently, Jaguar announced that it would be an all-electric company going forward.
• Learning: Highlight your differentiators, especially those that distinguish you from the primary cause of the scandal. Also, spotlight your strengths, forward-looking, innovative practices, and R&D.

The Takeaways

Navigating reputational fallout from industry-wide regulatory scandals is a formidable challenge. However, the above examples provide us with some key takeaways:

1. Prioritise Transparency and Accountability: Openly acknowledge missteps and communicate corrective actions to rebuild trust.
2. Focus on Differentiation and Innovation: Reframe the narrative by emphasising unique strengths and future-oriented strategies.
3. Demonstrate Tangible Impact: Invest in proactive measures addressing stakeholder concerns and needs.
4. Adapt to Shifting Stakeholder Expectations: Establish processes to meet the evolving expectations and needs of customers post the crisis.

Ultimately, while no single formula exists for managing the ripple effects of industry scandals, these lessons emphasise the need to be adaptable and proactive.

The views and opinions published here belong to the author and do not necessarily reflect the views and opinions of the publisher.

Aditya Vasan Singla

Aditya Vasan Singla is a Principal at Astrum, India’s first specialist reputation management advisory that uses science to understand and shape public opinion.

Aditya brings nearly a decade of diverse experience in strategy and management consulting, primarily focusing on ESG Strategy, Institutionalisation, Transformation, and Communications. He has dedicated most of his professional career to consulting firms such as PwC and ERM, where he played a pivotal role in enhancing clients' ESG performance, systems, and processes.

Aditya excels in developing institutional frameworks for organisational restructuring and collaborates closely with senior management to integrate ESG strategy into business as usual and initiate ESG transformation.
Aditya holds an M.A. in Economics and Geography from the University of Aberdeen and an M.Sc. in Environmental Economics and Climate Change from the London School of Economics and Political Science.