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Can the threat of adverse publicity motivate companies to achieve legal compliance?

Compliance Management, Management Systems

In the current economic climate, public perception matters.  A damaged reputation and decrease in public trust can take years to overcome as well as affect share price and operating credibility.  In this piece, we will consider if the threat of adverse publicity is an effective means of motivating companies to achieve legal compliance.

Imposing adverse publicity through statute

Lawmakers in the UK recognise that adverse publicity can be more effective than a fine, and mechanisms are being created within the legal framework to allow courts to enforce adverse publicity orders.

For example, in the UK, the Corporate Manslaughter and Corporate Homicide Act, introduced in 2007, allows courts to consider the wider corporate picture as well as the actions of senior management. For large corporations, who are less affected by significant fines, the court may impose a publicity order requiring the organisation to publicise details of its convictions and fine.

How do adverse publicity orders work?

Adverse publicity can affect a company in a way that fines alone can’t.  Cash fines can affect a company’s bottom line; however, it is argued that corporate executives who value their reputations are more susceptible to the loss of respectability that an adverse publicity order can cause.

The UK isn’t the only country to recognise the power of these orders.  In the USA, the Federal Sentencing Commission Guidelines for Organisational Sentencing allow the court ‘to order an organization, at its expense and in the format and media specified by the court, to publicize the offence committed, the fact of conviction, the nature of the punishment imposed, and the steps that will be taken to prevent the recurrence of similar offenses’.

Australian courts in New South Wales can similarly order a convicted defendant to publicise the offence and its consequences under the Protection of the Environment Operations Act 1997 (NSW), the Occupational Health and Safety Act 2000 (NSW), and Fair Trading Act 1987 (NSW).

There are arguments for and against the use of adverse publicity orders.  A number of empirical studies and academic literature suggest that firms are sensitive to adverse publicity. One study of executives from 17 firms involved in media disasters found that these firms fear adverse publicity and attacks on their reputation more than they fear the law itself.

These fears may be well founded, as we can see from a survey conducted by PRWeek/One Poll in 2011 into BP’s public image. Two years after the oil spillage in the Gulf of Mexico, 93% of respondents felt that the oil spill had damaged BP’s reputation, and 50% said their opinion of BP was more negative since the spill. The bad news for BP and other companies is that positive publicity does not counteract this effect – BP’s involvement with the London 2012 Olympics had not changed 72% of respondents’ opinion of the company.

Critics claim that the impact of adverse publicity orders is uncertain and uncontrollable, and that their effect can be disproportionate to the offence committed. Some argue that extreme cases may lead to a decline in sales and a loss of jobs, which subsequently penalises innocent workers, suppliers and distributors.

Whatever the pros and cons, if adverse publicity orders prove to be effective, this is a mechanism that we may see become more widely implemented as a means to drive legal compliance.

By Cheryl Robertson

adverse publicity , Compliance Evaluation , legal compliance , legislation
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