The price of size . . . and corporate arrogance

Facebook may be a 100-pound gorilla in the word of social media, but it’s just the latest company to learn about the crucial balance between size and reputation.

The global financial crisis popularised the term “too big to fail”; it was used when the US government stepped in to bail out Wall Street. That move saved a number of very large and very greedy investment houses but did nothing for their already questionable reputations.

With size often comes hubris and arrogance. Think no further than the devastating Australian banking royal commission in 2018, which shredded the reputation of our largest finance organisations.

What was needed was tangible evidence of improvement, not platitudes and promises to do better. We certainly didn’t need the mercifully short-lived Bankers Association advertising on the theme of “Australian banks belong to you”. Over the subsequent years there has been a continuing parade of further damaging revelations and headlines.

Or, more recently, consider Crown. The gambling behemoth most likely thought it was too big and politically powerful to lose its casino licence in Sydney, despite admissions of wrongdoing. It now faces an existential crisis.

Reputation is among any company’s most valuable assets. It can represent 60-70% of market value, and even higher for digital companies like Facebook. 

But it’s important to remember where reputation comes from: while branding is what you say about yourself, reputation is what others say about you. Facebook seems to be pursuing its business goals regardless of reputational cost.

It is possible to have two contradictory reputations. The best-known example is American big-box retailer Walmart, which has a great reputation among consumers for providing reasonable quality at an affordable price. At the same time it is notorious for paying minimum wages and generates high-profile protests in many small towns where its arrival threatens to destroy small local traders.

That may be where Facebook is heading. Valued — though not admired — for the service it provides, yet disliked and distrusted for its behaviour. 

The question is whether that can be a sustainable model in a highly competitive market.