Rock star CEOs can sink a company’s fortunes and reputation

July 26, 2018 - Companies that hitch their wagons to rock star CEOs can hit spectacular heights. But if those leaders crash, they can drag the company down with them.

One example of such a mercurial leader is Elon Musk. As the mastermind behind Tesla’s revolutionary electric car, bold SpaceX rockets and a cost-saving tunneling technology, for a time it seemed he could do no wrong. Then, came reports of Musk’s intemperate twitter postings culminating in a personal attack following the Thai soccer team rescue.

Musk had offered the use of a small submarine to help free the boys’ soccer team trapped in a Thai cave. After cave-diver Vernon Unsworth criticized the offer as a publicity stunt, Musk went on Twitter and called the diver “pedo guy.” In the resulting uproar, Tesla’s shares immediately dropped three per cent.

The annual Gustavson Brand Trust Index shows how much Musk’s company has slipped in the minds of consumers in just three years. In 2016, the automaker ranked 1st among auto manufacturers and 11th overall on brand trust. By 2017, the company’s rank slipped to 6th among automakers and 14th overall, as reports surfaced of missed production targets and teething troubles with driverless cars. This year, ahead of Musk’s latest verbal miscues, the company dropped to 32nd on the index.

Tesla has enjoyed a great deal of goodwill from consumers, being seen as the product of a brilliant innovator who is bucking the auto manufacturing establishment. Now, Musk’s reckless behaviour is hitting the company hard.

The automakers’ misfortunes are hardly unique. Pappa John’s pizza chain saw a five per cent drop in franchise sales in November, when founder and chief pitchman John Schnatter criticized the NFL’s handling of national anthem protests. It got worse – way worse. The former CEO used the N-word during a media training session in May, and finally stepped down under pressure. Trying to minimize the damage, the company has scrubbed Schnatter from marketing materials and told him to stay out of the media.

The Gustavson Brand Trust Index highlights the importance of trust and how fragile it may be. Each year, we collect data from more than 6,000 consumers in Canada on the extent to which they trust about 300 different brands in 26 categories. We measure beliefs that the brands deliver on basic promises of reliability, quality and good value, that they communicate with us fairly and treat us well as customers, and that they play a positive role in society.

Trust plays a vital role in our community, economy, and collective mindset. It is also an important driver of consumer purchasing decisions. The release of this year’s brand trust results highlights the continued success of some of Canada’s best-known brands. It shows a resilience that is essential for keeping our trust, and it also shows the consequences of corporate missteps.

The annual results are revealing. Seeing the gains and the falls, the resilience and the outliers, gives us a pretty clear vision about how customers respond to news of corporate wrongdoings, misuse of personal data and flops in product safety and quality. Losing trust has deeply negative consequences, while gaining it pays dividends in the long run.

Sometimes, having a corporate star pays off; think of Apple’s Steve Jobs, Chrysler’s Lee Iacocca and, for a time in Canada, BlackBerry’s Jim Balsillie. Charismatic CEOs like these bring rewards – but also a high degree of risk. Companies with lower-profile leaders – think of Toyota, which has usurped Tesla at the top of the brand trust heap – often fare better over the long term.

Companies that hope to sustain a strong ranking in the trust index are well advised to be cautious about creating a cult of personality and focus instead on reflecting the values consumers hold high.

Saul Klein, PhD
Dean, Peter B. Gustavson School of Business at the University of Victoria
Email: bizdean@uvic.ca
Phone: (250) 721-6422