Risk Management » How Organizations Should Balance Legal and Reputational Risk

How Organizations Should Balance Legal and Reputational Risk

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March 20, 2024

Among the most difficult challenges in-house counsel must face is navigating the reputational risks that can arise from their organization’s aggressive, sometimes even zealous, legal strategy.

It’s not uncommon for counsel to diminish or disregard such public-facing concerns, despite growing evidence that reputational harm can threaten an organization’s short-term balance sheet, employee recruitment, or even its long-term viability.

In many cases, corporate culture inadvertently contributes to the problem, siloing the legal department from other departments and operations. This is often the result of good intentions: to bolster the department’s independence or the necessity of protecting privilege, for example. Unfortunately, it can also foster a legal department that is insufficiently sensitive to the possibility that its work could generate negative media coverage, social media outrage and public calls for the organization to be boycotted or “cancelled.”

Research has shown that public boycotts rarely have a significant impact on sales, but negative media coverage can undermine the brand’s reputation. Publicly traded companies can feel the backlash in the form of shareholder disapproval and threats of a selloff. Declining shareholder value – even in the absence of a drop in revenues – can powerfully influence change. In some instances, a reputational hit has led shareholder calls for policy changes in the name of social justice. In others, it’s led Boards to jettison otherwise popular and effective C-Suite personnel.

The J&J example

Consider Johnson & Johnson’s unrelenting assertion during decades-long legal struggles that its baby powder did not contain asbestos, a known carcinogen. When the media reported in 2018 that company officials had knowingly lied about it for nearly 50 years, J&J’s stock dropped 10%. It soon announced it would no longer use talc in US products (although stockholders voted to allow the company to continue to market talcum products abroad, leading to further reputational attacks arising from social justice concerns.)

Words matter, especially in publicly available court documents. An ill-chosen phrase in a complaint or legal filing can have an outsized impact on public opinion when quoted in media coverage. For example, one attorney argued in a motion for summary judgment that an employee’s workplace discrimination claims didn’t meet The New Jersey Law Against Discrimination (LAD) standards. The attorney argued that while the employee was a member of a protected class, the plaintiff wasn’t really singled out for harassment since, “all employees were treated that way.” After a reporter quoted the phrase in her coverage, the organization struggled with employee recruitment and retention.

Most attorneys, particularly those in the general counsel’s office, are mindful of the pitfalls of “litigating in the press;” that is, participating in media coverage to influence public opinion, force action by opposing counsel, or one of a dozen other reasons. Most judges frown on it, and the last thing an attorney wants to do is annoy the judge.

But attorneys who blanketly refuse media outreach take that concern too far. If a reporter is writing about you, it’s certain her editor believes the public is interested. You may think you’ve potentially dodged a bullet. But the public’s perception of your organization (and its leadership and brand) is important to the Board and C-Suite. Not participating in the media coverage means you’ve missed an opportunity to bolster the organization’s reputation.

The ”No comment” conundrum

In fact, the organization takes a reputational hit every time an attorney, or a spokesperson acting on attorney advice says, “No comment.” The lay person reading the coverage usually isn’t trying to understand why you wouldn’t answer a reporter’s questions. If your reply to questions about allegations of wrongdoing is, “No comment,” the typical person assumes, “They’re guilty!”

There are endless ways to avoid giving comment without actually saying, “No comment.” “That’s one of the questions this case will answer.” “That’s an important issue that we’ll address in court.” “We’re looking into it.” “This is about principles.” And, of course, “I hope to be able to share more soon.” Being perceived as engaged (even if not helpfully so) supports your organization’s reputation better than being thought arrogant, aloof, dismissive… and guilty.

Even during the most fraught, impactful litigation, counsel must fully embrace responsibility to protect the organization from reputational harm. To do so, as the yogis say, “Be mindful.”

 


By Warren Cooper

Warren Cooper ([email protected]) is Senior Director at Kessler PR Group, a public relations firm specializing in crisis communications, reputation management and litigation support. Cooper provides strategic communication counsel and litigation support to clients facing personal or institutional crises.

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