Blog

Share this

Share to google+1 Share to Facebook Share to Twitter Share to linkedin

December 29, 2015

The importance of reputation due diligence in partnerships

Fortune 500 company General Electric (GE) recently admitted that a failed partnership with another business has damaged their reputation. This suggests that you need to conduct proper due diligence of a business before you agree to work with them, in order to protect your corporate reputation. 

Failed partnership

A Wall Street Journal article notes that GE partnered with start-up Quirky in 2013. The latter labelled itself an ‘invention platform’ and GE hired them to help reinvent some of their customer products. This was designed to allow GE to tap into new markets and attract additional revenue.

Quirky expanded rapidly, but they overextended and soon found themselves in financial trouble, officially going bankrupt in 2015. The invention platform planned to sell over 62,000 products it developed with GE to pay off their debts, an action the Fortune 500 firm objected to in Quirky’s bankruptcy documents. GE said that Quirky damaged their reputation, because they failed to maintain effective customer service support on smart-home products the two firms produced together.

ReputatioGEnal damage

GE said that Quirky has “already caused substantial damage to the reputation of GE and to its trademark.” Their failure to provide effective customer support forced GE to try to provide customer service, causing “inestimable damage to General Electric” and “incurring substantial cost.”

Customers complained about the products GE developed with Quirky in reviews and forums. One Amazon review of a GE-Quirky lightbulb reads, “support is horrible and have never returned my questions.” These were particularly damaging because reviews and forums are seen as trusted information by Google. They’re likely to rank on the first page of a search for ‘General Electric’ on Google, impacting the business’ reputation online.

Courses of action

It’s not surprising that GE complained about how Quirky damaged their image, but they did more harm than good. Wendy Feldman, a legal crisis manager, commented on this to the Wall Street Journal. She argued that GE should have made its public relations and legal team work together to craft a more effective strategy to limit the impact that Quirky had on their reputation.

This case shows the importance of a risk communication strategy and a crisis communication plan. The former would have identified the Quirky partnership as a potential risk to GE’s reputation, so they could have made changes to ensure it proved effective. The latter would have given GE the ability to craft a better response to the situation. By speaking publicly, they showed they made a poor decision by working with Quirky, and didn’t think of their customers before entering into the partnership.

Due diligence

However the bigger mistake was failing to vet Quirky properly. The Wall Street Journal noted that it looks like GE didn’t monitor Quirky’s finances closely after the partnership was launched. If they had done so, this would have allowed GE to realise that as a small business, it was likely that Quirky would encounter rough cash-flow waters. This would have given them the chance to structure the partnership in such a way that it would protect GE’s interests.

In other words, this case illustrates that you need to conduct proper due diligence of a company before you decide to work with them. If GE had engaged in proper due diligence of Quirky and researched their operations effectively, they’d have probably discovered its financial failings and prevented themselves from entering the partnership, saving their reputation.

Useful tips

There are several elements effective reputational due diligence. My experience as co-director of Igniyte, an online reputation management service, has taught me that this should include:

  • Collecting documents: Check your potential partner’s vital documentation before you agree to work with them. This should include documentation that details its corporate structure and the contact information for its directors and company secretaries, which will inform you of whether you’re planning to partner with a reputable firm.
  • Checking references: You wouldn’t hire an employee without checking their references to ensure they’re a good worker. Take the same approach before you enter a partnership with another business and collect references from other companies they’ve worked with in the past, to see if their operations would benefit your venture.
  • Auditing finances: GE’s partnership with Quirky failed because they didn’t check the invention platform’s fiscal health. Get at least two years of audited accounts for the business you’re planning to work with, and have them looked over by a qualified accountant to perform the financial due diligence necessary to form a successful partnership.
  • Checking authentication: You can check Companies House for the official registry of the company you’re planning to work with. Also, I’d suggest you check any qualifications or memberships of professional bodies, to ensure you partner with business’ who are experts in their respective fields, so you can be sure you’ll receive first-rate service.
  • Searching media: Use online tools such as Google to search for any PR concerning the company in question, and see if there’s an issue they haven’t disclosed that could affect your business. Also, this should give you an idea of the business’ existing reputation, and whether it’d benefit you to work with them.

Keep in mind that this is just a brief overview of some of the measures you need to initiate when carrying out reputational due diligence of a company. Reputation encompasses every aspect of business and your company’s reputation could be damaged by any one of these areas in a company you decide to work with, such as its staff, financial health or presence online.

Reputation due diligence

If you’d like to discuss reputation due diligence or get a free audit of your current online reputation, please get in touch with me in complete confidence at simon@igniyte.co.uk or call me on +44 (0) 203 542 8689.

Subscribe to blog updates

Send message