Reputational Risk: Customers and Investors Speaking Out, Companies Evaluating Affiliations with NRA
Steven Minsky | Feb. 28, 2018
This past weekend, companies started responding to consumer backlash for working with the National Rifle Association. Corporations like the First National Bank of Omaha, Delta, Hertz, and MetLife are ending discount programs with the NRA.
Before this pushback, NRA membership granted consumers access to a broad range of discounts, from special rates on auto insurance policies to cheaper flights when you booked through the NRA’s website.
But after the mass school shooting at a Parkland, Florida high school on February 14, Americans flooded social media with a call to action: #BoycottNRA.
The Marjory Stoneham Douglas tragedy and the resultant consumer backlash have presented companies with a decision on whether to cut ties with the NRA.
This decision is unique, as it is entangled with complex emotions and opinions. Like all decisions, however, a company’s choice will affect their customers, investors, and other stakeholders. Companies who find themselves in this difficult position may benefit from introducing risk management into their decision-making process.
Risk Assessing Affiliate Partnerships
Developing or severing relationships between organizations carries risk. An affiliate partnership is a relationship just like other vendor or sponsor relationships in that the actions of these third parties can impact a company’s reputation and success. From a risk management perspective, this impact can be assessed.
Companies should consider doing a risk assessment on the impact of choosing to cut ties with the NRA or not. This approach will integrate clear, objective insight into the decision-making process. Every company is different, so it’s important to measure and address the risk-reward tradeoffs this decision carries for a specific company.
For example, The First National Bank of Omaha is one of America’s 15 largest credit card issuers. Their partnership with the NRA provided members NRA-Branded Visa cards with 5% cash back on purchases.
NRA members represent a segment of consumers whom the First National Bank of Omaha could attract by offering them discounts. However, there is another segment of consumers who feel strongly about increased gun control. Both segments threaten to take their business elsewhere. So, what decision should be made?
These types of decisions are complex, emotional, and personal. When making these kinds of decisions, be it at home or at work, it often helps to turn to an objective arbitrator to help you weigh the pros and cons of your choices. In this scenario, risk assessments play the role of an objective arbitrator.
On Thursday afternoon, the Bank tweeted, “Customer feedback has caused us to review our relationship with the NRA,” and that they would not be renewing their contract to produce NRA-branded Visa cards. This type of risk-reward analysis helped First National Bank of Omaha realize that maintaining a relationship with the NRA would have a large enough impact on their reputation to justify cutting ties.
In addition to weighing the impact this decision could have on customers and investors, there is a litany of other factors companies need help accounting for. Take Delta for example. Shortly after making the decision to cut ties with the NRA, headlines such as these surfaced: “Delta’s decision to cut ties with the NRA could cost it a generous tax break from the state of Georgia.”
Did Delta consider the possibility of these ramifications? Did they think to consult their political stakeholders? Had they identified and assessed every possible risk of discontinuing their partnership with the NRA, they would have been more equipped to respond to these kinds of headlines. So far, however, their PR efforts have missed the mark, and the issue has now spiraled into discussions concerning corporate tax breaks, Georgia’s economy, and politics.
The nature of this decision is both emotionally and strategically complex. Risk management can help companies clarify risk-reward tradeoffs as they work through this fragile issue.
Reputational Risk in a See-Through Economy
Why is #boycottNRA having such a powerful effect today?
In previous blogs, I’ve defined the see-through economy: A dizzyingly fast-paced age of transparency where consumers are empowered by social media to impact a company’s reputation. In the past six years, this trend has only become more pervasive.
Corporations can’t survive without the support of their customers and their investors, both of which have been given an amplified method of voicing what they demand and expect from the companies they choose to do business with.
Because consumers and investors now have a voice that is as amplified as one large corporation’s voice, PR is losing its control over the message a corporation puts out. The consequence of this is that companies can no longer effectively manage reputational risk after the fact; they must take a proactive approach to ensuring reputational risk does not materialize in the first place. For example, over the past few months a handful of companies have cut ties with the NRA after evaluating a shift in consumer opinion, and have therefore avoided entangling themselves in this sensitive issue. On the contrary, Delta did not practice this foresight, and is struggling to come out from under the cacophony of opinions on this subject.
The see-through economy is also fundamentally changing the way we think about the relationship between corporate behavior and investing. Environmental, Social, and Governance (ESG) investing is a term that is often synonymous with the growing consideration of a company’s impact, partners, and vendors alongside financial factors when deciding whether to invest in an organization. This dramatic and recent change is evidenced by the fact that nearly one out of every five dollars under professional management in the United States is involved in some form of ESG investing.
To stay ahead of the inherent risks of these changes, I believe companies will need to integrate risk management into the decisions they make between all levels of the business, across all departments.