The reputational cost of a legalistic approach

There are many things you can do that are perfectly legal but that will hurt your reputation.

The classic example is tax. Businesses and wealthy individuals use myriad clever legal structures to avoid paying what most of us would consider their fair share. And ordinary taxpayers resent them for it.

Similarly, companies may be completely within their legal rights to take a punitive approach when dealing with individuals or smaller companies, without realising that the public will almost certainly barrack for the underdog in the court of public opinion.

Historically, individuals and small businesses had no realistic comeback when faced with the prospect of legal action, even if the average person considered that legal action unfair. With the advent of social media, that’s changed in a major way.

Before taking legal action against an individual or smaller player, it’s worth asking whether the potential backlash is worth risking. Sometimes the reputational cost of a legalistic approach means the answer is no.

Examples of strict enforcement of your rights that can hurt your reputation include:

• Closing down a site created by fans of your product. Ikea experienced such a backlash when it tried to shut down the fan blog Ikeahacks that it soon backed down
• Bankrupting a small business or farm over a trivial debt
• Using fine print to avoid doing what customers would naturally expect. (We all know that nobody reads the terms and conditions, right?)
• Defending your position on a technicality, such as the definition of a particular term or a time limitation, rather than on the substance of the issue.

Companies operating in multiple jurisdictions can also come unstuck while abiding by the letter of the law. For example:

• Treating factory workers in developing countries in a manner customers in the first world find unacceptable, such as sweatshop conditions
• Undertaking projects abroad that would not be allowed in Australia because of associated environmental damage or ethical considerations
• Marketing products overseas in a manner that would be unacceptable at home
• Continuing to sell a product overseas that has been subject to a safety recall elsewhere.

If an issue emerges, an overly legalistic approach can backfire.

A "no comment" to media at a time of crisis may be the safest option legally, but it is incredibly damaging reputationally because people will assume you’re guilty.

Crisis teams need to include both legal and communications professionals to ensure they don’t win the battle (legal position) but lose the war (reputation).