Reputation in a Crisis: What Documented Cases Teach About Trust

Why is reputation a matter of survival for small businesses too?

A supplier delivers a faulty batch, an employee writes a thoughtless post, a customer publishes an angry review with photos. For a corporation, such incidents are annoying. For a business with 20 employees whose customers know each other, they can endanger a year's worth of business.

In small and mid-sized companies, reputation is often synonymous with the owner's name. That makes it valuable and vulnerable. How a crisis turns out, however, depends less on its trigger than on the response. The central question, then: how does a business respond to a crisis so that the trust of customers and partners is preserved? To answer it, we first look at three well-documented public cases that unfolded very differently, then at the research on crisis communication, and finally at how you prepare with the four-question test and win back trust.

Case 1: The recall before the question of blame was settled

In autumn 1982, seven people in the Chicago area died after taking Tylenol painkiller capsules. Unknown persons had opened packages in stores and laced the contents with cyanide. The manufacturer, Johnson & Johnson, bore no blame for the tampering. Nevertheless, it first recalled all capsules in the region and then, on October 5, nationwide, according to consistent reports around 31 million bottles. The cost is estimated at around 100 million US dollars.

In November 1982, the product returned in new packaging: a glued box, a seal over the cap, and a foil seal under the lid. This design became the model for tamper-resistant packaging. The US Food and Drug Administration later required such packaging for certain over-the-counter drugs. The crimes themselves were never solved.

The order of events is instructive. The company protected its customers first, then its sales. It did not wait until it was clear that it bore no responsibility. And it changed something visible that anyone could check in the store.

If you think of your customers first in a crisis, you will still have some afterward.

Case 2: When a crisis hits the whole industry

On September 18, 2015, the US Environmental Protection Agency (EPA) alleged that the Volkswagen Group had installed a defeat device in around 500,000 VW and Audi diesel vehicles sold in the US between 2009 and 2015. The vehicles met the limits only on the test bench. The case became one of the largest industrial scandals in recent times.

Bachmann, Ehrlich, Fan, Ruzic, and Leard (2023) examined what the scandal meant for other German manufacturers that were not involved. They compared US sales of BMW, Mercedes-Benz, and Smart with those of non-German manufacturers and estimated a demand model to separate two opposing effects: the image damage to “German engineering” and the shift of buyers who avoided VW and switched to other German brands.

According to the estimate, the image damage corresponded to an average loss in value of 2,057 US dollars per vehicle in buyers' eyes. The authors support their interpretation with data on sentiment on Twitter and on internet search behavior. At VW itself, the damage was not confined to the affected models either: Che, Katayama, and Lee (2023) analyzed used car auctions on eBay in the US.

For small businesses this is an important lesson. You share your reputation with others: with your industry, your region, your partners, and your suppliers. A scandal at a competitor can hit you too, and a supplier's mistake reflects back on you. The guide Due diligence on business partners describes how to vet partners in advance.

Case 3: When criticism is treated as an attack

The third case concerns the payment service provider Wirecard. From early 2019, the Financial Times reported on inconsistencies in its accounts. Instead of the questions being clarified on the merits, the critics themselves came under pressure: Germany's financial regulator BaFin banned new short positions in the share and filed a criminal complaint against journalists. In June 2020, the company admitted that trust balances of 1.9 billion euros most likely did not exist. On June 25, 2020, it filed for insolvency.

The loss of trust reached far beyond the company and affected the regulator, the auditors, and Germany as a financial center. The presumption of innocence applies to the persons named; the criminal proceedings have not been concluded. The article Chronicle of an accounting scandal recounts the decisive week in detail.

What does research say about crisis communication?

The three cases are large and public. Whether their lessons also apply on a small scale can be tested with experiments in which participants assess fictitious crisis reports. Two findings are particularly useful for owners.

• Say it first yourself. Tachkova and Fediuk (2025) tested whether it makes a difference if a company discloses its own misconduct or the media uncovers it. Self-disclosure, known in the field as “stealing thunder,” had a positive effect on purchase intentions. Explicitly acknowledging the moral outrage and naming corrective measures also helped.
• Apologizing helps, and it doesn't have to be the boss. Tkalac Verčič, Verčič, and Coombs (2019) showed in an experiment that an apology led to a better reputation for both the company and the speaker after the crisis. Whether a spokesperson or the CEO spoke, by contrast, made little difference.

Both studies work with invented scenarios and respondents who were not personally affected. Real customers with real damage may react differently. The direction matches the three cases, however: openness and responsibility pay off; waiting and defensiveness cost.

The four-question test: how do you prepare for an emergency?

Crises cannot be planned, but the response can. From the cases and studies I derive four questions to ask yourself in an emergency, which you can already run through for your business today.

1. Who hears it from us first?

   Decide whom you will inform yourself within 24 hours of an incident: affected customers, employees, key partners. People who hear it from you forgive more readily than those who learn it from the newspaper or a competitor.

2. What do we acknowledge?

   Name honestly what went wrong and whom it affects, even if the cause has not yet been established. Acknowledging does not mean prematurely admitting legal liability. Get advice on liability questions.

3. What do we verifiably change?

   Name a concrete measure that others can check: a recall, a changed inspection, a new point of contact. Promises without proof fizzle out.

4. Who else is affected?

   Check whether partners, suppliers, or the industry are affected too, and coordinate with them. Conversely, think about how you will respond if someone else's scandal rubs off on you.

What does a crisis mean for your sales team?

A crisis shows up in sales first. Salespeople get the calls, the questions, and the canceled appointments. If they don't know what they are allowed to say, they either say nothing or too much. Both do harm.

• Decide who speaks for the business externally, and tell the team immediately.
• Give sales a short, honest statement with the key facts and the time of the next update.
• Call your most important customers yourself before they call you. A conversation with the owner carries more weight than any statement.
• Keep promises made during the crisis with particular care, such as calling back at the agreed time.
• Collect customers' questions and objections in one place so you can keep improving the answers.

In small businesses, the owner is often the face of the company. In a crisis that is an advantage if he is reachable and speaks openly, and a risk if he withdraws. The essay The owner as the face of the company describes the opportunities and limits of this role. How to decide under time pressure and with incomplete knowledge is covered in Deciding under uncertainty.

How do you win back trust after a crisis?

After the acute phase, the longer work begins. Trust does not return through announcements but through promises kept. In the first case in this article, it was the new packaging that anyone could see in the store. For a small business, it might be a documented additional inspection, a report to affected customers after three months, or an open conversation at the next trade fair.

Looking inward is at least as important. If you look for a culprit after a crisis, you will learn less next time. The essay Learning from bad decisions describes how to learn from mistakes without people hiding them out of fear. And because genuine customer voices are read particularly closely after a crisis, the guide Testimonials and references is worth a look.

First steps for this week

The best time to prepare for a crisis is a quiet Tuesday. One hour is enough to start.

• Write down the three most likely crises for your business.
• For each, decide whom you will inform yourself within 24 hours.
• Determine who speaks externally and who stands in for that person.
• Store a list of phone numbers of key customers, partners, and advisors in a place several people can access.
• Discuss with the team how to respond when a customer asks about an incident they don't yet know about.
• Check which suppliers or partners carry your reputation with you, and how well you know them.

The answer to the question we started with is therefore: trust is most likely to be preserved when a business informs people itself and early, acknowledges what went wrong, answers uncomfortable questions, and names measures others can verify. The cases and studies point in the same direction, even though the experiments work with fictitious scenarios. The trigger determines the outcome of a crisis less than the first response, and that response can be prepared on a quiet day.