Lawsuit Side Effect: A Bad Reputation

     They say highly publicized allegations of employee mistreatment can tarnish a company’s reputation with consumers, damage its employment brand and diminish the company’s value in the eyes of investors.

     "The reputational risk is real," says Tim Smith, senior vice president of Walden Asset Management, a Boston-based firm that specializes in sustainable, socially responsible investments. "A company that doesn’t deal with the public directly isn’t as vulnerable, but for a consumer-
oriented outfit like a big retailer, these sorts of charges can be troubling."

     Some of the consumer-brand damage may be self-inflicted; experts say that employees unhappy over what they perceive as unfair treatment are less likely to provide good customer service. "That ill feeling becomes part of your image," says labor law attorney Reuben Guttman, who is representing meatpacking plant workers in a wage and hour suit against Tyson Foods.

     Wage and hour lawsuits can cripple talent acquisition as well, says recruiting and HR consultant Peter Weddle, publisher of the Weddle’s guides to employment-related Web sites.

     "Some think your employment brand is a jingle or a slogan or a formal branding statement, but what’s equally important is what people say about an organization and what it’s like to work there," he says. "It’s absolutely guaranteed that one of these situations will degrade the employment brand, because it says something negative to potential hires about the leadership values and priorities of an organization."

     Increasingly, investors are tuned in to such disputes and what they reveal about corporate governance, Smith says.

     "More and more, they look at ESG [ethics, sustainability and governance] issues as part of fiduciary responsibility," he explains. "In the old way of thinking, employees were viewed as an expense, something you try to get as much work out of for as little money as possible. Companies might have assumed that investors wanted them to squeeze workers. But today, sustainable investors are seeing that as shortsighted and problematic.

     "They want companies that see the workforce as a resource, as an asset on the balance sheet rather than a cost."

Workforce Management, September 8, 2008, p. 46 -- Subscribe Now!