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Social Media Has Changed the Trajectory of Corporate Scandals

Posted by | Fuld & Company

There is an old rule of thumb that for every letter a congressman receives, there are 50 people thinking the same thing who didn’t pick up a pen. For every customer who bothers to complain, 26 others remain silent (and buy your competitor’s product instead).

How many people does a Facebook comment represent? What about a like or a share?

The internet has allowed niche populations to connect across traditional barriers – age, geography, socio-economic status – and share information instantaneously. From stay at home dads to amateur photographers, social media forms like-minded individuals into communities.

No one is surprised when Wells Fargo or Chipotle suffer intense backlash for fraud or negligence. These companies face vast swaths of consumers and have instant brand recognition. But passionate online communities can amplify corporate mistakes even when the company is highly specialized or doesn’t face consumers at all.

The Case of ArmorSource

In 2008, a company called ArmorSource, operating under a $30M contract with the Army, delivered several thousand helmets that were found to be defective due to unauthorized and degraded materials.

As a social media consumer – part of a community jokingly referred to as “angry Facebook veterans” – I noticed a rash of links referring to ArmorSource’s defective combat helmets surfacing in August 2016.I had the honor of serving as a United States Marine, including a combat tour in Iraq, an experience that made me acutely aware of the importance of the helmets worn by U.S. forces. Strengthened helmets not only protected my own head on countless occasions but also saved the life of a member of my unit.

According to stories from NBCABC and the Washington Post, ArmorSource subcontracted manufacturing work to Federal Prison Industries (FPI), a government-owned corporation employing prison inmates with the aim of “provide opportunities for education and work-related experiences for federal offenders.” It was these helmets produced by FPI that were found to be defective. FPI has since gotten out of the helmet business. ArmorSource settled with the government in March 2016, agreeing to pay $3M in fines.

The Slow Wheels of Justice

Why a rash of unflattering stories and social sharing in August 2016 if the company’s errors occurred in 2008 and the company settled the liabilities in March 2016? The answer lies in the publication of a report on the affair by the U.S. Department of Justice in August.

As the saying goes, the wheels of justice turn slowly: bad news for companies hoping to bury bad news. The ArmorSource case dragged out over several years, producing a steady drip of indictments, reports, lawsuits, and settlements.

Any one piece of information can make the whole story re-emerge. This is especially true when dedicated Facebook groups, subreddits, and Twitter accounts have their eyes peeled for any piece of media that might rile up their core audience and encourage clicks.

Social Media Empowers Niche Interest Groups

The general public has likely never heard of ArmorSource or FPI, but many veterans have and are not shy about contacting elected officials to make sure ArmorSource never makes another helmet for the U.S. government, a significant blow to the company’s position in the marketplace. Such grassroots influence is not isolated to veterans; similar behavior has been seen from parents reacting to the recall of a baby care product or older Americans outraged by a medical device recall.Even if a news item doesn’t reach the threshold of “going viral” – defined as rapidly spreading copies of itself across social platforms or mutating other objects to become more like itself  by Mashable – striking the right nerve in a sensitive population can be just as damaging.

The ArmorSource episode shows us that social media has accelerated spread of information to the people who are most likely to be outraged by it.

Organizations such as PETA (founded 1980), AARP (founded 1958), and the NRA (founded 1871) predate widespread use of the internet, but effects that once took ink, stamps, and the participation of the postal service to achieve are now executed with the click of a button. Online interest groups may be smaller and less formal than traditional associations, but they’re also nimbler and less predictable. Corporations that once had the leisure of time to monitor and address concerns now require lightning responses.

Size and industry are not a factor: no firm is immune from some segment of the internet’s scrutiny. Identifying online communities that follow your company’s actions, taking the time to understand their structure, and even forging relationships when appropriate are all part of a competitive strategy that acknowledges the role of social media in today’s competitive landscape.

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