Improper practices
will ultimately be revealed and disclosed.
Today’s world of fast information makes it particularly risky for business to employ improper practices. The Internet, social networking, television and radio media will spread the word quite quickly about product recalls, bad customer experiences or executive improprieties. Government "watchdog" agencies such as the federal Food and Drug Administration and Product Safety Commission stand at-the-ready to alert consumers when a company uses less-than-safe standards in manufacturing products. Risky business practices will be disclosed eventually, and the consequences can include fines, lawsuits and the potential for bankruptcy.
Loss of Customers and Revenue
Improper practices can lead to a significant loss of customers, which in turn can have a devastating impact on company revenue. For instance, brake failures due to improper installation on certain Toyota car models lost the company new customers, inconvenienced existing car owners and resulted in estimated costs for replacements and repairs alone of more than $5 billion as of July 2010.
Product Recalls
Consumers place a high degree of faith and trust that the products they buy are safely manufactured and packaged. When products have to be recalled, it can have devastating results on the company. In 2009, the Peanut Corporation of Georgia faced one of the largest food recalls ever. The FDA discovered severe unclean conditions inside of its packaging plant, including rodent droppings. The company was shipping products contaminated with salmonella. The unsanitary plant conditions and practices led to the death of eight people, and more than 500 people in 43 states became ill. The company filed for bankruptcy in 2009.
Impact on Business Clients
Bad practices often have a "domino effect" that leads to the loss of business customers and clients, even if the company did not take part in the improper activity. This often can happen in cases when the company’s actions are publicized and revealed. Business clients will cease doing business with the company in violation and give their business accounts to a competing company. Business clients might also lose revenue and have to spend money on advertising and public relations efforts that was not in their budget. Some clients might even file a lawsuit for costs and lost revenue against the offending company.
Crisis Management
Large corporations often have dedicated damage control and crisis management teams to develop strategies in the event of a bad business practice that becomes exposed. The teams develop media responses, prepare for litigation defenses and to coach executives who could be called to appear on local and national media shows, testify before the courts or even the United States Congress.
Human and Environmental Impact
Improper practices, poor planning and judgment can also result in human casualties, loss of income and effects to the environment. The oil spill caused by a refinery ship owned by the British Petroleum Company (BP) in 2010 resulted in a severe toll on the people who live in the Gulf of Mexico regions and on the environment. The BP incident is probably a worst-case scenario case study on the far-reaching risk factors of bad business and marketing practices. Eleven people lost their lives when the BP oil tanker blew up. Hundreds of thousands of people who earned their living as fishermen, restaurant owners, hoteliers and tourism trade operators lost their livelihood. Fish and wildlife died and the long-term effects on the environment are yet to be calculated. BP suffered financially, spending billions on cleanup efforts and restitution to people affected by the spill and also seeing its stock price plummet. The company also suffered a huge hit to its reputation because of the way it handled the spill.
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