The Lex Newsletter: what Taylor Swift has to tell Boeing

Dear reader,

Songstress and icon Taylor Swift once wrote rather dramatically on social media: “There will be no further explanation. There will just be reputation.”

You’re telling me. From the moment those photos and video footage started appearing last Friday of a door-plug failure that left a gaping hole in the side of Alaska Airlines flight 1282, it was pretty clear that no explanation was going to cut it for the plane’s manufacturer Boeing.

It didn’t feel terribly important that the plug was supplied by Spirit AeroSystems or whether this was a manufacturing or a design error. It wasn’t much comfort that some Max 9 jets don’t have the relevant door plug, thanks to their seat configuration — or that of the 4,526 outstanding orders for Boeing’s 737 planes, only 2 per cent are for the Max 9.

By midweek, United Airlines and Alaska Airlines had discovered loose parts on other Max 9 jets, indicating that the issue forcing flight 1282’s emergency landing wasn’t simply a freak one-off. But Boeing’s reputation was already sealed — cast in stone by an all-out crisis, in combination with the long overhang of the Max 8 crashes in 2018 and 2019 that killed 346 people and forced the grounding of that aircraft for nearly two years.

(For non-fans, this isn’t exactly what Swift was getting at. But the point of internet aphorisms is that — to borrow from another one — they can be whatever you want them to be.)

It is hard to describe when and how a story turns from dodgy corporate newsflow to an inexplicable, corrosive storm that has a life of its own.

Sometimes, a longstanding drag on a company’s reputation can be transformed into something nuclear by an event, such as in 2011 when reports that the News of the World had hacked into the voicemail of 13-year-old murder victim Milly Dowler prompted the closing of the newspaper and forced parent company News Corp to drop its plan to buy BSkyB.

Sometimes the reputational torpedo comes out of the blue, as when Rio Tinto — once widely regarded as the best-run global mining company — destroyed a 46,000-year-old sacred Aboriginal site in Western Australia in 2020.

Lex has a longstanding view: in these situations, companies are often slow to realise or publicly acknowledge that an event has changed the reputational game for them. Those close to the company, particularly brokers and analysts, tend to downplay the impact, both financial and in terms of a lasting corporate taint — in part because these things are hard to quantify quickly in the confines of an Excel spreadsheet.

Thomas Roulet, at the Cambridge Judge Business School, has written a book on “negative social evaluations”, or what you and I might call crummy corporate reputations. He categorises the options in a crisis situation as deny, diminish or rebuild (or a combination of the three). Boeing, in fairness, seems to have moved through these fast — judging by an emotional staff address by chief executive David Calhoun this week.

Calhoun talked about “acknowledging our mistake” without specifying what that meant. But in situations such as this, said Roulet, “by the time you unleash the crisis communication it is too late. You always have to go beyond in terms of correcting actions.”

Another company dealing with a reputational snafu went for a more direct approach this week (after initially suggesting one employee breaching processes was to blame). Software company Carta, used by start-ups to track their investors, shut down a trading platform after allegations that it had tried to sell customers’ shares without their consent. “We fucked up and I’m sorry we fucked up. I hope you will forgive us,” said boss Henry Ward.

It is no coincidence that the study of negative social evaluations — and its extreme variant organisational stigma — burst into life after the global financial crisis, which torched the reputation of the banking industry in a way that lingers to this day.

Could Boeing, a company that operates in an effective duopoly, be truly stigmatised? Possibly not, at least in the short term. There are plenty of vested interests, including at government level, that will question the increasing dominance of Airbus, which this week announced record orders for last year.

But Boeing will face an investigation by US regulators. Its corporate culture around aviation and safety is again under scrutiny, after the probe into the earlier crashes found employees had misled regulators. Ryanair boss Michael O’Leary — a prominent Boeing customer who refers not to the Max jets but the “Gamechanger” — piled in, commenting that the company had “had quality-control problems for a long time now”. (The airline hasn’t bought any Max 9s). A website set up, ismyplanea737max.com, gobbled up its data as traffic soared and closed to new requests.

Roulet’s research posits that negative social evaluations can yield surprisingly positive results, not least from an “us against the rest” mentality. But for Boeing and boss Calhoun, previous cases suggest that multiple, purgative actions — including change at the top — are needed to stand a chance of moving into a new era.

Don’t call it a comeback

Lex this week looked at a company that has bounced from the heights of trendy popularity and zeitgeisty cool, to the depths of irrelevance and scandal, and back again. Shares in Abercrombie & Fitch quadrupled last year, as the retailer’s transformation from teenage favourite to classic, less edgy style won over more mature customers. In the process, the retailer caught the attention of the punters on Reddit’s WallStreetBets forum.

Juniper Networks agreed to be bought by Hewlett Packard Enterprise this week for $14bn, making the switch and router company among those lucky enough to have been swept up in both the dotcom bubble and the current artificial intelligence frenzy. Plodding along in relative obscurity can sometimes pay off.

Things I enjoyed this week

A media-heavy bunch this week. This interview with the managing director of Hat Trick Productions, Jimmy Mulville, was interesting both on his background and recovery from addiction — but more so, on what is required to get really good, distinctive TV made.

I’m not a fan of superhero movies but I can appreciate the success of the business model. Now, the Marvel franchise appears to be in decline — in part because you can have too much of a good thing; in part, because China stopped releasing the films.

American parenting looks exhausting, even for American parents.

In the most overused statistic of 2024 so far, about half the adult population of the globe will have the chance to vote in elections this year. Here in the UK, I’m very much enjoying the How to Win an Election podcast from The Times — and not just because one of the presenters used to be my flatmate. I’ll let you decide which one.

Have a great weekend,

Helen Thomas
Head of Lex