What are the Basics of Managing Online Reputational Damage?

What is Reputational Damage?

Reputational damage refers to the harm caused by unfounded rumors. Rumors, or “fūhyō” in Japanese, can be both positive and negative. However, negative rumors tend to spread faster and further, and they linger longer. Therefore, rumors are often associated with damage.

The Toyokawa Shinkin Bank Incident

A famous example of actual reputational damage is the “Toyokawa Shinkin Bank Incident” of 1973 (Showa 48). On December 8, two high school girls on their way to school in Kosakai Town, Aichi Prefecture (now Toyokawa City), jokingly told their friend A, who had just secured a job at Toyokawa Shinkin Bank, that the bank was in trouble. A took this joke seriously and asked her relative B over the phone if Toyokawa Shinkin Bank was in danger. B then asked another relative C the same question. The next day, C told a beauty salon owner D that Toyokawa Shinkin Bank seemed to be in trouble, and the rumor began to spread. By the 11th, the definitive statement that “Toyokawa Shinkin Bank is in danger” had become a widespread rumor, and a bank run occurred on the 13th. Furthermore, a statement issued by the bank on the 14th to resolve the situation was misinterpreted, exacerbating the panic. This incident, in which an innocent joke triggered a panic in just a few days, is a rare case where the detailed process of transmission has been clarified and has often been used as teaching material in psychology and other fields.

The Kaiware Daikon Incident

The “Kaiware Daikon Incident” of 1996 (Heisei 8) is another memorable event. In Sakai City, Osaka Prefecture, a group infection of O157 among school children caused by school lunches resulted in three deaths. According to an epidemiological investigation by the Ministry of Health and Welfare (at the time), it was reported in newspapers and on television that the source of this group diarrhea among school children was likely Kaiware Daikon (Japanese radish sprouts). As a result of the reputational damage that ensued, the Kaiware industry suffered a devastating blow, with producers going bankrupt and even committing suicide. In the end, the source of the infection could not be identified. However, to overcome this reputational damage, then-Minister of Health and Welfare Naoto Kan was shown on television eating Kaiware to appeal its safety to consumers.

The Era of Online Reputational Damage

The “Toyokawa Shinkin Bank Incident” was a rare case where various conditions coincidentally overlapped, and a game of telephone occurred within a small community. The “Kaiware Daikon Incident” was another unusual case where a government agency made an announcement, and newspapers and television reported incorrect information. In both cases, the probability of such incidents occurring on a daily basis is not very high. However, we are now living in an era where online reputational damage can occur.

Online Reputational Damage

Online reputational damage refers to the harm caused by rumors spread on the internet. Unlike the “Toyokawa Shinkin Bank Incident,” where various conditions had to coincidentally overlap, or the “Kaiware Daikon Incident,” where government agencies and the media had to be involved, online reputational damage can easily occur. If high school girl A had not taken a joke seriously and asked her relative B over the phone, “Is Toyokawa Shinkin Bank in danger?” the incident might not have happened. However, in today’s world, if A simply tweets, “I wonder if Toyokawa Shinkin Bank is in danger?” people who see it might start spreading the rumor that “Toyokawa Shinkin Bank is in danger.” It took only five days for the “Toyokawa Shinkin Bank Incident” to turn into a bank run, but on the internet, it could take even less time. This is because bad rumors can spread to tens of thousands, hundreds of thousands, or even millions of people in an instant.

Online Reputational Damage Can Be Caused by a Single Person

Online reputational damage can be caused by just one person. It can occur without the involvement of government agencies or the media. In December 2003, a woman in her twenties sent an email to a friend saying, “Saga Bank will go bankrupt on the 26th,” which turned into a chain mail, leading to a bank run with over 50 billion yen being withdrawn. The woman was later sent to prosecutors on suspicion of credit defamation, but since she had no malicious intent, the case was dropped due to insufficient evidence. This shows that even a single tweet can cause online reputational damage.

All Companies Are at Risk of Online Reputational Damage

Rumors can start from an innocent, casual tweet and have the potential to spread. Even if the person posting the information doesn’t believe it to be true, the person receiving it might misunderstand it as the truth, and the rumor could spread. A rumor from a layman with no knowledge of the field could be mistaken for information from an expert and spread. In today’s world, all companies are at risk of online reputational damage.

Companies and Online Reputational Damage

When you search for a company on the Internet, you can investigate its reputation. Many people refer to reviews on Amazon, Rakuten Market, and Kakaku.com when purchasing products. Moreover, on social media platforms like Twitter and Instagram, information is easily disseminated and spread. As the information obtained from such reviews tends to be highly trusted by consumers, companies need to be mindful of their reputation and credibility on the Internet. So, what impact does a company face when it suffers from online reputational damage?

Decline in Sales

The first issue is a decline in sales. When a product has a bad reputation, few people dare to buy it. If a restaurant is written up as having poor taste, the number of customers will likely decrease. If you’re thinking of eating Italian food and see a review on Tabelog that says “the staff’s attitude is bad,” even if you don’t blindly trust the review, it’s a fact that you’ll be less inclined to go. Tokyo Medical University experienced a drastic drop in applicants.

Decline in Reputation

When a company suffers from reputational damage, its image deteriorates and its reputation declines. The reputation that a company has built over many years can collapse in an instant. Rumors such as “that company is a black company” or “the perpetrator of that incident’s father is the manager” can cause significant damage that is not easily recoverable, even if they are false or mistaken. The American football incident caused Nihon University’s brand value to plummet.

Tightening of Cash Flow

Good cash flow management is crucial for successful business operations. If a company suffers from reputational damage, whether it’s related to its financial condition or not, it risks losing the trust of financial institutions and investors, and its future prospects may be questioned. There’s a possibility that it may not be able to secure loans or investments, increasing the risk of bankruptcy.

Employees’ Motivation to Work is Undermined, and Distrust Towards Management Increases

How would employees feel if the company they work for was being flamed for being a “black company” or for producing “inferior products”? Furthermore, if the flaming continues, distrust towards the management, who appear to be doing nothing, will also increase. The impact of reputational damage on employees cannot be overlooked.

Recruitment Activities Become Difficult

Many job seekers use job-related bulletin boards such as “Job Change Conference” and “Everyone’s Job Hunting Diary”. They look at the reputation and word-of-mouth of companies on these boards, and just having negative reviews posted here can drastically reduce the number of applicants. If a company can’t secure the necessary talent, its competitiveness will decline.

https://monolith.law/reputation/black-companies-dafamation[ja]

Online Reputation Damage Control

When online reputation damage occurs, it is crucial to respond promptly. If you think, “Let’s wait and see for a while,” it could lead to serious consequences. It is almost impossible for the situation to naturally resolve if left unattended. The longer problematic posts or comments remain, the more people will see them, and they may be reposted on other forums, copied onto summary sites, and spread without limit. Therefore, when you confirm online reputation damage, you need to consider immediate actions such as deleting posts or identifying the poster.

Request for Post Deletion

Posts or comments that cause reputation damage must be deleted promptly. To delete posts or comments on the internet, you need to request deletion from the site administrator or management company. If they refuse to delete voluntarily, you will apply for a provisional disposition at the court.

https://monolith.law/reputation/provisional-disposition[ja]

Identifying the Poster

In the case of online reputation damage, simply deleting the article often does not resolve the issue. This is because the same kind of posts or comments may be made again. It is necessary to identify the poster and, depending on the case, make them legally responsible. To identify the poster, you need to request the disclosure of sender information from the site administrator or management company, and identify the provider from the disclosed information. Then, you request the provider to disclose the sender’s information and obtain the poster’s information. As a rule, providers do not voluntarily disclose information, so a lawsuit for disclosure of sender information is necessary. If you win the lawsuit, the court will issue an order to the provider to disclose the sender’s information, and you can obtain information such as the poster’s address, name, phone number, and email address.

https://monolith.law/reputation/disclosure-of-the-senders-information[ja]

Claiming Damages

Once the poster is identified, you can claim damages for the decrease in sales due to the reputation damage or claim consolation money for defamation against the poster. The crime of defamation to an unspecified person applies when the honor of another person is damaged and its value is lowered, regardless of the truth of the information, in a place where an unspecified number of people can view it, and a prison term of up to 3 years or a fine of up to 500,000 yen is imposed. The crimes of credit damage and business obstruction apply when credit is damaged or business is obstructed by spreading false information. Again, a prison term of up to 3 years or a fine of up to 500,000 yen is imposed.

It is difficult for individuals to take measures such as deleting posts or identifying posters and the procedures associated with them. Therefore, it is necessary to consult and request a lawyer. Be careful, as it is considered unauthorized practice of law if a third party other than the person and the lawyer performs the deletion work.

Furthermore, the following article discusses the lawyer’s fees for reputation damage and the compensation flow.