Why some firms survive reputational shocks: Minari Shah explains

Does Reputation Matter?

In a world of 24X7 news and social media outrage, companies worry about the impact of those negative headlines and to contain the business impact. But looking closely at many recent examples, there are some interesting patterns - whether in India or globally, many highly visible corporate controversies, investor panic, or employee layoffs did not derailed the underlying businesses. Others, quieter in public view, have crippled companies seemingly overnight. The big question is – when does the noise start becoming a structural faultline?

Markets Panic, Business Doesn’t & Corporate Trust Shock Absorbers

Consider the Adani Group, whose stocks lost between US $100 billion and $150 billion in market value after the January 2023 Hindenburg report alleged accounting manipulation. For weeks, it seemed to be existential reputational meltdown. Yet by late 2025, after regulatory clearance from SEBI and steady operational performance, the group had regained much of its lost value. Adani Power’s share price rose by about of 60% from January to October and the cargo volumes at Adani Ports kept rising double digits through the crisis.

In other words, the market may have punished for the sentiment for a while, but the business kept moving cargo, generating power and collecting tolls. And the customers seemed mostly unaffected. Meta has faced global privacy backlash since 2021 but remains one of the world’s most profitable ad ecosystems.

Why do some firms absorb reputational shocks better than others? Because four stabilisers buffer immediate fallout: Customer lock-in, when switching costs or habit are high (utilities, ports, digital platforms), customers don’t exit on sentiment alone; Capital access as deep reserves or supportive institutions buy time to ride out volatility; Regulatory goodwill as regulators allow continuity when they trust the management to fix issues; and Talent confidence if the employees still believe the mission. A company can weather a media storm if at least three of these four hold. Trouble begins when two or more erode simultaneously and the lack of an agile response escalates multiple pillars.

The true tipping point: from optics to operations

Reputation turns into business crisis when it impairs a company’s ability to raise capital, retain talent, or operate under licence. When Zee Entertainment’s merger with Sony collapsed in 2024 due to governance uncertainty, it impacted both the debt costs and the market cap. When start-up GoMechanic’s co-founder Amit Bhasin admitted to inflated revenue metrics in January 2023, investors walked out and suppliers cut credit. BharatPe’s founder exit boardroom drama took a toll on fundraising despite strong fundamentals. And environmental protests compelled the closure of Vedanta’s Tuticorin smelter.

In each case, the reputational narrative hit one of the key stabilisers — investor trust, regulator trust, or operational licence — and that’s what made it material.

Many reputational crises that begin on social media, die there. The real test is whether they migrate across stakeholder groups. Viral outrage on social or traditional media that doesn’t cause investor queries, regulatory scrutiny, partners’ departures or employees attrition will likely die down without significant impact. A CEO trending on Twitter may be inconvenient; a CEO under regulatory summons could become existential.

Structural fault lines & the long-term impact

A one-day consumer boycott or meme storm needs empathy and messaging. A data breach or audit flag needs rapid transparency. A prolonged pattern of opacity or governance lapses demands leadership change and structural fixes. Companies as well as communicators often overreact to the first and underprepare for the last. The instinctive response is for short-term firefighting – cover-ups, silences, token heads rolling – rather than fixing fundamental flaws.

Boeing 737 Max crashes in 2018 and 2019 caused global outrage. The company went through Congressional scrutiny, CEO ouster and temporary grounding of MAX fleet. For a while it seemed the company had weathered the storm – orders returned and stock partially rebounded. But the internal systemic issues and weakened culture saw senior technical staff leave, further cost-cutting impacted quality and internal morale eroded. By 2024-25, there were new safety incidents, ongoing FAA investigations, quality lapses on multiple aircrafts. Result: Airbus has widened its lead globally while US regulators tighter supervision caused further delays and business impact. Boeing remains operational but with significantly eroded customer trust and talent pipeline issues, thus turning a crisis that seemed over in 2021 into a multi-year decay of trust and performance.

Reputation is long-term strategy, not a quick fix quote

Yes, in the short-term, reputation risk doesn’t always equal ruin. Many companies survive scandal because many of their fundamentals remain intact. Boards and CEO’s must learn to depend on discernment to differentiate noise and signal. And then, they must respect the courage that speaks out for real issues during turbulence, to deploy communications as a governance tool, not a damage-control reflex. Because otherwise, there is the danger of a short-term complacency.

A company can survive being disliked; it cannot survive being distrusted by those who fund (investors & customers) or license it. The real challenge for leaders and communicators isn’t to prevent every headline. It’s to ensure that when one breaks, the organisation’s governance, liquidity and credibility are strong enough to buy them time and their own judgment and ownership is then sharp enough to focus on rebuilding the trust.

Otherwise contracts eventually run out, customers find other alternatives and talent may not come back when the cycle turns. Structural inertia with cultural complacency, loss of technical depth and internal morale will resurface as competitive decline. The lag between reputational event and commercial impact take some years, but the eventual erosion in market share, pricing power and employer appeal can be permanent.