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The Cost of a Bad Reputation

The Cost of a Bad Reputation
By Elliot H. Clark
It amazes me that the HR departments of the world are not more involved in corporate responsibility issues. Data emerges every day showing that HR departments can’t do their jobs effectively in a company that has recently experienced scandal. And, by the way, I am not sure that HR shouldn’t suffer as a result of a scandal. One of the biggest issues of our time is the question of who owns ethics in a major organization—and overseeing ethics is much more than putting a few signs in the cafeteria about company principles. Does HR own it or does the corporate responsibility function? In some companies the HR function and the CR function now merge into one position. This is the role of Alison Quirk at State Street Corporation; she is executive vice president and chief human resources and citizenship officer.

We should look inside the costs and impacts of bad reputation on a company. SharedXpertise recently conducted a study of both employed and unemployed workers on the impact of reputation. The study, sponsored by AllegisTalent2, interviewed 1,010 individuals. Of this group, 552 were employed full time and 448 were unemployed, students, or retired. The demographic data below shows how the group is a good cross section of the American public.

The results are astounding. When asked about the likelihood of accepting a job if offered one by a company with a bad reputation if the respondent was unemployed, 69 percent said it was not likely. While someone may accept a job because they need the work, clearly the choice between a company with a recent scandal and any other job would lead to declination.

We then asked employed workers if they received an offer from a company with a bad reputation, what salary increase would be necessary in order to accept the job? Thirty-three percent would need in excess of a 50 percent increase and 31 percent would just not accept. We know that most offers are in the “up to 20 percent” range, so effectively 64 percent of employed people are not reasonably available for hire.

Conversely, if you inquire about joining a company with a poor reputation, you need to ask about joining organizations with good reputations. This is what the responses were to the question asking participants about what level of increase they would need to accept a job with a good reputation.

As you can see from the chart, an offer up to 20 percent would garner 36 percent of the market. This same level of 20 percent increase only got a 12 percent positive response. Employed people are three times more likely to accept a reasonable offer coming from a company with a good reputation. Conversely, 31 percent of respondents would reject an offer from a bad reputation company while only 6 percent would decline an offer from a highly regarded company. Therefore, employed people are five times more likely to simply reject an offer if it comes from company with a bad reputation.

What does this all mean to the HR department? Well, it is huge. If a company has a scandal and its reputation is damaged, the cost of recruiting will skyrocket in the years following the scandal. Due to having to source more candidates due to more declined offers, this would cost a large company millions of dollars. HR would have a hard time making its goals. In addition, retention of current employees will become an issue, especially if the market perception is that other companies have a better reputation. Your company becomes prime hunting ground. Finally, and, more importantly, payroll costs would rise dramatically as the cost of talent would be bid up by the premium needed to get candidates to accept. If a company has a 20 percent turnover, this effect would last five years or longer due to internal salary equity issues that would arise due to the cost of hiring external talent. This will cost a large company billions in payroll over the next few years.

For HR, the defense of the company’s reputation is the difference between meeting goals and failures. Every CEO looks to HR primarily for talent management. Deliver to the company the best and most talented and engaged workforce available within budgetary parameters. In the years following a scandal, this would be increasingly impossible.

If you would like more information on this study, or the opportunity to see an expanded version with data broken down by gender and ethnicity, please contact the HRO Today offices at 215.606.9520 or e-mail
me at Elliot.Clark@SharedXpertise.com.

Elliot H. Clark, CEO

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