In an Evansville, Indiana, Olive Garden restaurant in early March a patron loudly demanded a nonblack server and the manager complied. Similarly, in October 2019, a staff member at a Buffalo Wild Wings restaurant in Naperville, Illinois, asked a large table of black customers celebrating a child’s birthday to move because a regular customer didn’t want to sit by them.
In November 2019 a Starbucks employee in Glenpool, Oklahoma, wrote “pig” on coffee cups in a drinks order placed by a police officer. This followed a 2018 incident in which two black men were forcibly removed from a Starbucks in Philadelphia. In 2017, United Airlines dragged a man off an overbooked commuter flight. And perhaps aiming for laughs in February this year, a Wendy’s restaurant employee took a bath in a restaurant sink.
There is no shortage of examples.
While the incidents vary, the end of the story has become a signature for modern reputational risk: someone — victim or bystander — video records the scene, snaps a photo or documents the event, posts it on social media, and the ordeal goes viral, causing outrage and stinging a brand.
The result is a gaping exposure that no business is immune to and one the insurance industry is increasingly working to mitigate with new products aimed at helping companies respond.
“We all have video cameras in our hands, and we are not afraid to use them,” said Deborah Hileman, South Bend, Indiana-based president and CEO of the Institute for Crisis Management, highlighting what she calls one of the biggest threats to businesses: a damaged public image.
“It’s a huge risk for companies that deal with the public a lot, such as retail and restaurants. … We are living in an age of accountability,” said Kelly Castriotta, Chicago-based head of product development and North American cyber underwriting lead for Allianz Global Corporate & Specialty. The Allianz SE unit is launching a product in North America to help policyholders grapple with reputational risk exposures stemming from social media. European companies already have access to the product, she said.
Many other global insurers, including Munich Reinsurance Co. and London-based Beazley PLC, are promoting similar products. Most of the policies are standalone, but some can be part of broader business coverage.
Reputational risk insurance typically provides services that include crisis management in the event of an incident that spurs reputational harm. The products also offer services to track the brand in social media following an incident.
Several offerings include business interruption benefits in the event there are proven financial losses attached to an event. Coverage and services usually begin at the onset of the loss — meaning, once the first negative post hits and goes viral, according to experts.
“The reputation capital value is a huge exposure for companies who do not have their reputation risk house in order,” said Lance Ewing, Houston-based executive vice president of global risk management and client services at Cotton Holdings Inc., a property restoration and infrastructure support company.
Companies that seek protection can often weather a loss, said Mr. Ewing, a longtime risk manager with experience in handling issues in the hospitality industry, who advises businesses to check their policies.
Targeting companies via social media “is a way to hold companies accountable without going an expensive route, such as litigation,” which is how injured or offended parties sought to hurt a company financially in the past, Ms. Castriotta said.
Now it’s a few posts, likes, and clicks, she said, adding, “You have a lot of companies that are vulnerable.”
Over the past several years, Swiss Re Corporate Solutions, the commercial insurance unit of Swiss Re Ltd., has held discussions with many clients about reputational risk, Livia Phillips, a Zurich-based underwriter for Swiss Re Corporate Solutions said in an e-mail.
“In our experience, companies are acutely aware of the risk of economic damage stemming from adverse media. More importantly, the topic has the attention of senior management and the board of directors and not only that of corporate risk managers or marketing departments,” she said.
“A lot of it is post-incident,” said Lewis Edwards, London-based head of underwriting, specialty binders with Liberty Mutual Specialty Markets, a unit of Liberty Mutual Insurance Co. “The challenge is a lot of (companies) lack the current processes to understand that they may face these challenges” in responding to incidents that provoke social media outrage and the losses that can follow.
Ms. Hileman of the Institute of Crisis Management said most companies respond to social media shaming, for example by firing an employee involved, but announcements about the response can take days.
In the Olive Garden incident, in which a manager complied with a customer’s request for a different server based on the server’s race, a bystander documented the incident on Facebook on March 1. The restaurant chain issued a statement on March 4 that the manager had been fired. It did not respond via social media to the incident.
The Oct. 26 Buffalo Wild Wings incident was posted on Facebook the next day by one of the black customers involved. The post included a photo of an employee speaking with a white customer who allegedly asked for the black customers to be seated at another table. The company posted its response on Twitter eight days later, stating it had terminated the employees involved in approaching the family and had banned the regular customer who asked that the black family be seated elsewhere.
Starbucks issued an apology on Twitter two days after two black men were arrested on suspicion of trespassing at the Philadelphia store — a response met with more outrage. The incident, which was first posted on Twitter with photographs of police arresting the two men, was shared widely. Following Starbucks’s apology, a black politician in London, Ontario, Mohamed Salih, remarked to his 120,000 Twitter followers, who went on to share the post more than 2,000 times, that “It took Starbucks two days to issue a paragraph.” After “#boycottstarbucks” continued to spread, three days later the coffee shop chain issued a statement saying it would close all its locations for an afternoon in May 2018 to provide racial-bias education.
None of the companies involved in the incidents responded to a Business Insurance request for comment.
“Social media audiences are very impatient,” Ms. Hileman said. “They will not wait hours or days for a company to respond. A quick response can diffuse a potential volatile situation.”
“You can’t ignore social media,” said Bill Rand, associate professor of marketing, department of business management at the Poole College of Management at North Carolina State University in Raleigh. “The message to companies is you can’t put your head in the sand and ignore these channels. Negative messages feed on themselves.”
“You used to have 24 hours” to respond, said Mr. Ewing. “That has minimized quickly. Everybody is waiting to see how you are going to react.”
“Corporations with a solid reputation and that continue to do well can be brought to their knees with social media,” he added. “I always go back to the Warren Buffet quote: ‘it takes 20 years to build a reputation and five minutes to ruin it.’ That’s the current world we live in.”
