February 22, 2018 - Written by Michael Stone, Chairman and Co-Founder, Beanstalk

Licensing relies on the strength and integrity of brands and how brands communicate their message to consumers and other stakeholders. Indeed, licensing is one of the marketing tools that brands can utilize. It is essential for those of us in the licensing community to understand the equities of brands and how brands can strengthen those equities but also how brands can damage those equities. Brands can be injured by the misbehavior of their leaders. That brings me to my thoughts below.

Yesterday, Ford’s President of North America, Raj Nair, abruptly departed the company due to inappropriate behavior.  Last Tuesday, Paul Marciano, Chairman of Guess, relinquished all daily operational duties (and his salary) due to allegations of sexual harassment (which he denies). This was preceded a couple of weeks ago by the resignation of Laurent Potdevin, CEO of Lululemon, for creating a toxic environment in the workplace.  Ford, Lululemon, Guess - - each a great brand and, in the case of Ford, an iconic brand.  Brands that very good at engaging with and delivering their brand message to consumers and other stakeholders and, in the case of Ford and Guess, brands often use licensing to help communicate those messages.  However, that kind of misconduct by senior executives of any company is horribly off message and the brand’s reputation is tarnished.  And not only is the brand damaged but other parties are damaged as well, such as retailers and licensees.  

Reputational damage stemming from bad behavior is something that we have lived with for a very long time across many sectors.  Politicians, actors, artists, musicians, journalists, industry leaders, chefs, designers, and the list goes on, all have their cadre of shameful individuals behaving badly, sometimes illegally.  Often, they are banished from public view forevermore, and deservedly so.  American consumers can be very forgiving, but there are lines that simply cannot be crossed, for example race and sexual misconduct.  In 2013, one of the top stars on The Food Network, Paula Deen, was found to have uttered racist remarks.  Her partnerships collapsed, she was abandoned by retailers and she was otherwise banished.  Kevin Spacey, Charlie Rose and Matt Lauer, we won’t be seeing them again anytime soon.  The public service careers of politicians who resign due to bad behavior come to a screeching halt. Famous fashion photographer Bruce Weber might as well take up photographing landscapes.  But what of brand damage?  What happens when a brand does something wrong or its representatives cross the line or fail to take corrective action?

When it comes to external stakeholders, that is consumers, brands usually get forgiven.  People died in 1982 when bottles of Tylenol were found to be laced with cyanide.  Tylenol is a leading brand today and that story is now told in business books.  In 2007 a substantial number of Thomas the Tank Engine toys were recalled due to lead poisoning with an outpouring of outrage from parents.  Today, it’s one of the most enduring properties and toy brands for children.  More recently, in 2015 and again last year, Chipotle suffered from e-coli and other health challenges generated by its food preparation.  The stock price has tumbled, a new CEO was recently hired to overcome the reputational damage, but the restaurants seem pretty crowded to me and, I have no doubt, Chipotle will recover with consumers and with its employees. 

But what of a brand where one of its executive leaders is forced to resign over allegations of sexual misconduct or behavior that creates a toxic work environment, contrary to the company’s stated values?  Is the brand forgiven?  Do we, as consumers, blame an entire brand, perhaps a beloved brand, a brand to which we are emotionally attached, for the shameful actions of one executive?  And what of the internal stakeholders, the employees?  We don’t talk much about them.  Less attention has been focused on internal brand damage.

Although Anita Hill really started the conversation about sexual misconduct with her allegations  against now Supreme Court Justice Clarence Thomas during his U.S. Senate confirmation hearings in 1991, it has taken us until the present time for sexual misconduct to really come out of the shadows and to be seen as a core business issue rather than a compliance concern that at worst can be  settled and quietly bought off.  The floodgates opened following the Harvey Weinstein scandal in 2017 and the ensuing #MeToo movement.  And we are just beginning to understand the damage to a brand caused by this kind of behavior.  Lululemon’s stated mission is not just to sell great product, but to create a culture of healthy living and it sells most of its product to women.  And, as is true of virtually every brand, Lululemon, Guess and Ford are brands that believe strongly in the value of respect for others.  Ford’s CEO, Jim Hackett, said that “Ford is deeply committed to providing and nurturing a safe and respectful culture and we expect our leaders to fully uphold these values”.  So, how bad is the damage to the Lululemon brand caused by Potdevin’s resignation? Or to the Guess brand caused by the accusations against the Chairman?  Or to the Ford brand caused by Nair’s departure?  Again, American consumers are forgiving and loyal consumers are very much bonded and engaged with these brands. Corporate accountability may help retain most of them.  But in the current cultural environment, with younger consumers increasingly representing the target audience, make no mistake about it, each of these three brands will lose customers over the behavior, or alleged behavior in the case of Guess, of their leaders.

There is, however, another group of stakeholders where the brand damage might go deeper and be more lasting.  These are the internal stakeholders, that is, the employees of Lululemon, Ford and of Guess (or any other brand under these circumstances).  That’s where the damage will be like a virus and eat away at the brand.  It’s hard to create a good culture within a company.   It first takes vision of the leader, then an embrace by other senior executives and, finally, a cascading down throughout the entire organization.  And, most importantly, leaders have to live the culture.   But there is a simple truth:  the tone is set at the top. Others in the organization look to the leaders and try to emulate their behavior.  But what happens when the CEO or other leaders don’t live the culture, don’t live the stated values of the company?  When they set a different tone?  What happens to the brand, internally, and what are the consequences?

Although consumers generally only hear about the misbehavior of the ousted or tarnished few, they are likely the tip of the iceberg.  When a CEO, President (or other senior executive) departs over allegations of sexual misconduct or due to other bad behavior, it’s likely that the behavior is pervasive, that the resigning executive is not the only one acting badly.  Quite possibly, the accuser is merely the first to come forward.  Perhaps there have been whispers about such conduct for years but fear of job security kept people quiet.  I read a recent news report that an employee of Steve Wynn would hide when she saw him coming down the hall.  If the CEO is misbehaving, what of other leaders who take their cues from him and his conduct?  They may be copying his behavior.  The culture of the company has already been eroded, long before the public learns about what’s going on.  But then there’s the resignation or public allegations and the whispers now become out-in-the-open conversations among the employees at the company and, even worse for the company, on social media.  They talk about what’s going on with others fomenting distrust throughout the organization. The Board of Directors is focused on damage control.  But the brand has likely already suffered a serious internal injury from the ongoing misbehavior.  Keep in mind that such brand damaging behavior doesn’t necessarily always have to be illegal.  There is plenty of uncivil behavior in the workplace that doesn’t rise to that level but still becomes part of a dysfunctional culture and creates internal brand damage.  The resignation of a CEO and the company publicly accepting accountability (as in the case of Lululemon and Ford), while shocking to the public, could actually be the beginning of the healing process for internal stakeholders, provided that the culture of toxic behavior is corrected throughout the organization.  But that takes a long time to fix.  Stephen Paskoff runs ELI, a firm that helps companies and other firms build civil workplaces which link stated values to daily behavior.  Paskoff notes, “Organizations increasingly understand that civil inclusive behavior, what we call Civil Treatment, is an enterprise necessity rather than a nicety.  Civil behavior drives profits and employee engagement while minimizing brand and legal damage.”

Employees are brand ambassadors, brand apostles.  For a company to be successful, the employees must live and breathe the brand values in their interactions with each other and with those outside the company.  Perhaps they are a salesperson working on the floor of a store (such as at Lululemon), or an account executive working with retail buyers (such as at Guess) or a marketing executive working with an outside agency or other external partners (such as Ford with its many licensees), or just talking to their friends about work at dinner, and so on.  They are the front lines of the brand.  And, for them, misconduct by their leaders has likely made them cynical about the brand and its stated mission.  Moreover, research demonstrates that under such circumstances, employees lose work time avoiding offenders or just thinking about what’s going on, they are less committed to the company, or might even leave the company due to uncivil treatment.  Employees find it confusing to live the company values.  They are off mission.  Retention becomes more challenging.  Respect deteriorates.  Morale falls.  Performance is affected.  The brand has been damaged.

Although the brand may eventually recover in the eyes of the target consumers, there’s a virus that has been eating away at it from the inside.  The dysfunctional culture, which the public first learns about through, for example, a CEO’s resignation, has already negatively affected the internal brand image, with consequences for the company and the brand overall.  Consider the Ford Motor Company and the concept of pervasive behavior causing internal brand damage.  On December 21, 2017, the CEO, Jim Hackett, issued a strong apology to the women of two Ford plants in Chicago who had suffered sexual harassment following an expose in The New York Times. The plants had been the subject of complaints and lawsuits going back 25 years.  Maybe this shouldn’t have been a surprise to senior management in Dearborn.  Employees interviewed by The Times expressed their disappointment, fear, low morale and distrust of the company.  Many had simply quit.  Their productivity, engagement and passion for the Ford brand was undoubtedly affected.  And they certainly weren’t the brand ambassadors that every company wants their employees to be.  And now the President of North America departs for misbehavior.  Where are Ford’s values in all of this?  What are the employees to think of those stated values?  Perhaps the CEO’s apology, to the workers in Chicago last December and to the company in general yesterday, will start the healing process, but it will be in the details and the follow up. Clearly, Ford has a serious and pervasive problem on its hands and the brand is and will suffer.  It’s really hard to change a dysfunctional culture that allows sexual misbehavior or other behavior that causes a toxic environment, but it must be done if the internal brand damage is to be fixed.

This will be particularly true of younger employees.  There has been a lot written about Millennials (and the upcoming Gen Z) wanting their brands to have a purpose, to take a stand on social issues.  Generally, the studies focus on these generations as consumers.  But what about as employees?  Yes, it’s a lot easier to switch brands if you are not satisfied with the positions that a brand is or is not taking than to quit and look for a new job.  But, surely, an environment that tolerates sexual misconduct or any other type of uncivil behavior is not what younger employees want the company to stand for.  They become easily disillusioned.

Companies want their employees to not only like their jobs, they want them to be fully engaged with the company and the brand, to be passionate about the brand and to be true brand advocates, delivering the brand message in all of their interactions with others.  Not only do engaged, satisfied employees drive profits, but they drive brand reputation and support brand messaging as well. As these attributes break down, the brand invariably suffers damage, and it’s brand damage from within. The brand, its consumers and its external partners (including retailers and licensees) all suffer.  Brand owners pay a lot of attention to how they reach and engage with their consumers. Strong brands change our culture - - how we live, act, purchase products and services and behave. Doesn’t it make sense that they should use their skills and talents to ensure that their own cultures are supporting their values and brand messaging?  They need to look inward as well.

This post originally appeared on Forbes.