Legal Briefing

A brand marriage made in heaven? Reputational risks in corporate partnerships

The In-House Lawyer Logo

Technology, Media and Telecoms | 01 February 2011

In this digital age of social media and 24/7 rolling news, the need for a company to manage and maintain a positive image has never been more important. Today’s increasingly competitive commercial landscape can make correctly managing a reputation vital to commercial success. However, getting it right can be a tough challenge. Managing the reputation of a brand is difficult enough, but what happens when a company decides to associate their brand with another? 


Companies of all kinds invest large sums of money in brand associations, sponsorship deals, entertainment partnerships and community-based partnerships. Yet how often do companies consider the potential for brand bed-fellows to inflict damage on their own enterprises? Any sponsorship deal obliges a company to relinquish a degree of control over its reputation. Sponsorship in itself is a risk – any relationship can break down – so a deal must be a calculated risk.

Warren Buffett famously said that a reputation takes years to build but can be ruined in five minutes. In 2011 five seconds might well be more accurate. Risks take many guises. Examining how an organisation deals with its corporate relationships could be a preventative exercise that helps maximise the many benefits to both parties, and also saves time and – potentially – a great deal of money.

WEIGHING UP THE RISKS

The main risk is damage by proxy. Typically, companies have little control over a crisis affecting the other party to a corporate sponsorship. Executives may not even know about the crisis until it is in the public domain. The significance of the risk is primarily determined by the publicity that the crisis attracts.

In today’s economic climate, big-money sponsorship deals generate press interest. Any scandal or impropriety (on either side) is likely to trigger a media story. Given the rise in online media, there is a risk that damaging stories will spread wider and faster than ever before.

As sponsors find new ways of engaging with consumers, customers, stakeholders and fans, sponsors should actively monitor what is out there. Practically, of course, one option is to try to avoid bad press by not working with risky individuals or companies who may attract negative headlines. However, by working in partnership with sponsors and rights-holders, and being aware of how to benefit from the legal options available, the relationship can go ahead and the risks will be significantly reduced.

ONLINE RISKS

Blogs and social media are increasingly the medium of choice for journalists to break news. There is no longer a wait for the next day’s editions or the six o’clock news. Twitter, in particular, is instantaneous: even news websites spend the day playing catch-up. Reputational damage can be done immediately. Minor stories can be escalated to full-blown crises by vociferous Facebook groups or a lack of judgment over Twitter content.

An additional risk is that material remains online and readily available indefinitely. It can resurface at any time. Some now see Google as a reputation management resource, as well as the first port of call for anybody wishing to find out more about a particular subject. In Mark Emlick v Al Nisr Publishing LLC [2009], Moloney J held that:

‘There is a certain magnetism or gravitational pull which can bring internet libels to the attention of those who are not even searching for it.’

This online position is very different from libels contained in newspapers or other hard copy publications. Yet Google will not be liable for any defamatory content shown in excerpts of web pages returned as search results. This was made clear in Metropolitan International Schools Ltd (t/a Skillstrain and/or Train2game) v Designtechnica Corp (t/a Digital Trends) & ors [2009]. Eady J ruled that for Google to be held liable there had to be some mental element involved sufficient to attribute responsibility to. Google’s automated web crawlers were insufficient. The ruling granted Google further protection, holding that it would not be liable for defamatory comments returned in its search results even after it had been notified of them. This is different from the position of web hosts, who can exercise some degree of control over what is posted on websites that they host.

LEGAL AND PRACTICAL TOOLS

Most leading companies will have disaster recovery plans to enable business to continue in spite of a flu pandemic or travel disaster. Similar plans should be in place to deal with any reputational disasters and, ideally, to prevent these issues from becoming crises.

Insurance is available to protect against reputational damage arising from sponsorship. Recent high-profile examples have spurred a 30% rise in such policies in the past two years (http://www.independent.co.uk/news/media/advertising/sponsors-seeking-a-jess-effect-take-out-disgrace-insurance-2133548.html). Policies typically cover costs involved with extricating a company from the relationship and beginning a new campaign. The cover will usually only include circumstances in which the other party’s actions were unforeseen or out of character. Due diligence ahead of any deal can help a company decide whether to take out insurance, and whether the insurer will pay up in the event of reputational damage.

When a media crisis arises it is essential to have a pre-defined strategy. If no strategy is in place there is the risk of mixed or confusing messages being given to the press and the public, significant delays while decisions are discussed and made, and a lack of understanding of legal options.

PROTECTING A COMPANY’S REPUTATION

There are several steps that can be taken to protect a company’s reputation, and ensure that a problem does not adversely affect the business and corporate relationships.

First, internal reviews should be carried out to identify key areas of risk. Is there anything the company does that could provoke a media crisis? Do any senior executives have skeletons in the closet that could effect the company? Once these key areas have been identified, communications and legal plans should be prepared.

Ideally the company will know who is going to deal with a crisis and how, before it arises. Time is precious. Investing time in guarding against reputational risks before they arise can save a great deal of time and damage when such risks materialise.

OPPOSING PARTY’S REPUTATION

Similar plans must be in place to deal with issues and crises affecting the other party. A rapid decision may be necessary, depending on the details of the crisis, but strategies should be ready that can be executed following the decision.

Companies can exit a corporate relationship if sufficient contractual provisions are made. However, whether the company withdraws will depend on the effect that this would have on the company’s reputation. Sometimes companies that stand by a damaged partner or sponsee achieve a significant reputational advantage and financial benefit.

Having detailed strategies in place, and a communications team and legal advisers who know the business and are ready to deal with a crisis instantly, can make the difference between effective reputation management and significant reputational damage.

A company’s reputation is a valuable asset. Everything possible should be done to protect against the risks it faces. When a crisis strikes, those who deal with it best are well prepared, have systems in place to contain any ensuing media crisis and act quickly to prevent damage to their reputation or restore it after the event. Preparation is the key. Plans need to be considered and drawn up so that they are ready to implement if a risk materialises.

The cost in time and money of these proactive steps will be infinitely less than the time, expense and hassle incurred by a full-blown media crisis. Of course, there are steps that can be taken after the event to restore a reputation, but some damage will already have been done.

As with many things in life, when it comes to reputation management and maintaining successful corporate relationships, preparation and prevention are infinitely better than cure.

AMBUSH MARKETING: STOPPING OTHER BRANDS FROM CAPITALISING ON A COMPANY EVENT

Event sponsorship brings with it the unusual risk of ambush marketing, where businesses seek to obtain the benefits of being an official sponsor without paying sponsorship fees. Typically, this involves falsely using the event’s logo or claiming to be an official sponsor.

Now, however, companies are using more inventive ways to hijack events. Bavaria Beer were not an official 2010 FIFA World Cup sponsor, but after filling 36 seats with models in bright orange mini dresses, they achieved substantially more publicity than the World Cup’s official beer, Budweiser. The models’ subsequent eviction from the stadium and arrest gave Bavaria yet more free publicity.

Ambush marketers rarely face actions for passing off, false endorsement, trade mark or copyright infringement, due to difficulties in bringing such cases against them. Various sports governing bodies now require legislation to prevent it. Official sponsors of the London 2012 Olympic and Paralympic Games should benefit from the London Olympic Games and Paralympic Games Act 2006. Whether this legislation succeeds remains to be seen.

Another risk of event sponsorship is that the public may not associate a company with it. A poll conducted by Echo Research after last year’s World Cup found that 20% of people polled believed Nike was an official sponsor. It wasn’t. Nike’s ‘Write the future’ advert, premiered at the beginning of the World Cup, gave them much greater online ‘buzz’ than adidas (the official sponsor) at the start of the tournament. However, this position was reversed towards the end of the tournament as all of the major stars featured in the Nike advert found their teams out of the World Cup.

CASE STUDY: CELEBRITY ENDORSEMENTS. SOMETIMES THE COMPANY POSES THE BIGGEST RISK

Companies who use celebrities and other personalties to promote their products and their brand must consider not only the risks that the individual poses to the relationship, but also the risks that the company itself may pose to the relationship. Typically, most sponsorship relationships are jeopardised by the actions of the party being paid to promote the brand, but that is not always the case.

Following several celebrity Tweets about certain brands and goods, the Office of Fair Trading (OFT) investigated a PR firm, Handpicked Media Ltd, who had sought several high-profile Tweeters and bloggers to promote their client’s brands. The reason for the investigation was that the OFT believed there were insufficient disclosures in relation to the Tweets and blogs to make it clearly identifiable to consumers that the promotions had been paid for. The OFT found that there were potential breaches of the Consumer Protection from Unfair Trading Regulations 2008 as there was no, or insufficient, disclosure of material information about whether promotions had been paid for. There was therefore a risk of consumers being misled.

Handpicked Media complied with the OFT’s investigation and signed undertakings not to continue with their previous course of dealing. The undertakings prohibited any future promotion that did not clearly identify, in a manner prominently displayed with the editorial content such that it would be unavoidable to the average consumer, that the promotion has been paid for or otherwise remunerated.

All companies who have celebrity sponsees promoting their brand online must take note of the OFT’s stance and ensure that they are complying with their various obligations. Such celebrity endorsement trends are likely to follow the practice in America, where celebrities with the largest number of followers can earn up to $5,000 per Tweet from various brands keen to capitalise on that celebrity’s vast fan base. Companies must be alive to their obligations under consumer and advertising law so that they do not jeopardise any commercial relationships or, more importantly, their brand.

Twitter users are a very powerful vocal force. It remains to be seen whether there is any adverse effect on the brands or celebrities involved in the UK, but this example just goes to show that whatever relationships companies engage in and however they decide to promote their brand, a reputational risk is always lurking.