7 Devastating Company Reputation Damage Examples That Cost Billions (& How to Prevent Them)

Business reputation damage can destroy decades of brand building in hours, and with good reason too. United Airlines learned this lesson the hard way when their stock nosedived by $1.4 billion after a viral video showing a passenger being dragged off their plane in 2017.

Your business reputation can shatter at lightning speed, thanks to this digital world we live in. A single negative Google result can cut down your revenue by 22%. Nearly 60% of companies hit by major reputation crises never fully recover. Reputation crises aren't just embarrassing for your brand but they have the potential to bring down everything you’ve built.

Volkswagen paid over $33 billion for their emissions scandal. Wells Fargo still struggles with customer trust eight years after their fake accounts crisis. Theranos tops them all - the company's entire $9 billion valuation vanished when its reputation crumbled due to false promises.

I know it’s grim, but guess what’s the silver lining here?  

These reputation damage examples follow predictable patterns. Understanding how reputation crises unfold and implementing proactive monitoring systems, can prevent your organization from becoming the next cautionary tale.

United Airlines Passenger Removal Scandal

The United Airlines passenger removal incident shows how a company's reputation can crumble in today's digital world. A single viral video transformed everything for this major airline and created a crisis that business leaders should learn from.

What happened with United Airlines

United Airlines Flight 3411 from Chicago to Louisville became ground zero for a PR disaster on April 9, 2017. Dr. David Dao, a 69-year-old physician, sat in his assigned seat when airline staff announced they needed four passengers to give up their seats. The crew members needed these spots to staff another flight the next morning.

Nobody accepted the airline's offer of $1,000 compensation, so United picked passengers to remove against their will. Dr. Dao refused to leave his seat and explained he needed to see his patients the next day. The airline called airport security officers who dragged him off the plane.

Other passengers recorded this disturbing scene on their phones. The footage showed Dr. Dao getting pulled down the aisle while he screamed, his face covered in blood. A passenger later reported seeing him return to the plane in a dazed state with blood on his face, muttering "just kill me". This violent removal left him with serious injuries - a concussion, broken nose, and two missing teeth.

Airlines commonly overbook flights, but removing a seated passenger by force had never happened before. United had denied boarding to 3,765 passengers out of more than 86 million in 2016. These removals usually happened before boarding - not after passengers took their seats.

Reputation Damage and Financial Impact

Public outrage exploded immediately. The videos spread rapidly - one video got 6.8 million views and 87,000 shares in less than a day. Social media lit up with 125,000 unique mentions on Twitter, Facebook, and Instagram within six hours.

The financial damage hit hard and fast. United's stock took a nosedive, and the company lost nearly $1 billion in market value that Tuesday, April 11. The trading day ended with an $800 million loss in market capitalization.

This crisis reached global proportions. Chinese social media users turned the incident into a trending topic, suggesting Dr. Dao was targeted because of his Asian background. United's public approval ratings crashed by 69% in just 24 hours.

The public showed their anger through multiple channels:

• People created mocking hashtags like #NewUnitedAirlinesMottos
• A White House petition demanding an investigation got over 60,000 signatures
• Customers promised to boycott United
• Other airlines benefited as passengers looked elsewhere

How United Airlines responded

United's response became a textbook example of how NOT to handle reputation crises:

Phase 1: Corporate Deflection (Immediate Response) CEO Oscar Munoz apologized for having to "re-accommodate" passengers—language that felt cold and dismissive. This corporate speak infuriated an already angry public.

Phase 2: Internal Blame (24 Hours Later) Munoz sent employees an email defending United's actions and calling Dr. Dao "disruptive and belligerent." When this message leaked to media, it intensified public outrage.

Phase 3: Damage Control (48+ Hours Later) Facing plummeting stock prices, Munoz finally issued a genuine apology calling the event "truly horrific" and admitting "No one should ever be mistreated this way."

United then made major policy changes:

• They promised not to use law enforcement on seated passengers except for safety issues
• They raised compensation for voluntary bumping to $10,000
• They reviewed their crew movement policies and training
• They guaranteed never to forcibly remove passengers again

Dr. Dao's attorney praised United's settlement with his client two weeks later, saying the airline "did the right thing".

Key Takeaway: This case shows how reputation damage can quickly spiral out of control in today's social media world. Companies that fail to show real empathy and take appropriate action face severe, lasting consequences. Crisis communications expert Andrew D. Gilman summed it up: "It's a big trust thing". 

Authentic, immediate apologies prevent minor incidents from becoming major crises. Corporate speak and defensive responses amplify reputation damage exponentially.

Volkswagen Emissions Scandal

The Volkswagen emissions scandal ranks as one of the priciest reputation crises in automotive history. It destroyed public trust and showed how systemic corporate deception can ruin even decades-old brands.

What happened with Volkswagen

The United States Environmental Protection Agency (EPA) issued a notice of violation to Volkswagen Group in September 2015. They found something shocking—the company had thought over installing "defeat devices" in its diesel vehicles. These smart software programs could detect emissions testing and would temporarily reduce emissions to pass regulatory standards. The vehicles would switch to normal driving mode on the road and spew nitrogen oxide pollutants up to 40 times above legal limits.

This deception went far beyond a few models. Volkswagen had put this software in about 11 million vehicles worldwide, including 500,000 in the United States. The affected cars included multiple brands in the Volkswagen Group:

• 5 million Volkswagen brand vehicles
• 2.1 million Audi vehicles
• 1.2 million Škoda vehicles
• 1.8 million light commercial vehicles
• 700,000 SEAT vehicles

Volkswagen owned 70% of the U.S. passenger-car diesel market before the scandal. The company promoted these vehicles as eco-friendly options. Their commercials showed Volkswagen rally driver Tanner Foust driving elderly women around in TDI Volkswagens to prove diesel wasn't slow.

The scandal became worse because of the company's repeated denials. The EPA revealed that Volkswagen had claimed for a year that discrepancies were just "technical glitches". The company admitted to the deception only after facing clear evidence.

Reputation damage from Dieselgate

Volkswagen's reputation took an immediate hit. The company's image of German engineering excellence and environmental responsibility fell apart quickly.

The scandal has cost Volkswagen about $33.3 billion in fines, penalties, financial settlements, and buyback costs as of June 2020. The company's stock crashed, and share prices dropped sharply after the news broke.

The damage spread beyond Volkswagen. Other German automakers suffered big losses without any involvement in the scandal:

• BMW's growth rate fell by 15.1 percentage points in the next twelve months
• Mercedes-Benz dropped by 6 percentage points
• Smart saw a steep 30.8 percentage point decline

Non-VW German automakers lost around 76,000 vehicle sales worth about $3.7 billion in revenue. Economists call this "collective reputation"—one company's mistakes can hurt an entire country's industrial image.

Public trust dropped fast. Twitter posts about non-VW German automakers showed 12.3% positive sentiment before the scandal. This number fell by 3.5 percentage points in the next two weeks. Media mentions of "German engineering" jumped five times in September 2015. Many articles questioned if the scandal would hurt German manufacturing's reputation.

Volkswagen's recovery efforts

Volkswagen took several steps to fix its broken reputation. CEO Martin Winterkorn apologized first: "I personally am deeply sorry that we have broken the trust of our customers and the public". He stepped down on September 23, 2015, just days after the news broke.

The company said it would fix up to 11 million affected vehicles. They set aside €6.7 billion (about $7.5 billion) for costs. By October 2016, around 340,000 U.S. owners and lessees—nearly three-quarters of affected vehicles—had joined the company's buyback program.

Volkswagen agreed to pay several big settlements:

• $14.7 billion to three federal agencies in the United States
• $4.3 billion in criminal and civil penalties in January 2017
• A promise to buy back 85% of affected cars by June 2019
• $2 billion over ten years to invest in green energy and electric vehicles

The company's shift from diesel to electric vehicles stands out as their biggest change. Volkswagen announced a €50 billion complete electrification plan in November 2017. Under new CEO Herbert Diess, the company embraced electric cars with amazing enthusiasm, as CNN Business noted.

The company became an e-mobility leader by 2018. They promised to launch 30 battery-electric vehicles across their 12 divisions by 2025. Volkswagen's "New Auto" strategy now focuses on eco-friendly mobility, including cell production, charging infrastructure, and digital integration.

These efforts helped Volkswagen slowly rebuild trust. The UN Global Compact readmitted the company in 2019, showing their commitment to sustainability. We have a long way to go, but we can build on this progress. The scandal reminds us how quickly unethical practices can destroy decades of brand value.

Key Takeaway: Systematic deception requires complete business transformation for recovery. Half-measures and excuses only prolong reputation damage.

Pepsi and the Kendall Jenner Ad Controversy

A company's reputation can take its biggest hits not from operational mistakes but from marketing blunders that miss the mark. Pepsi learned this lesson the hard way in April 2017. Their controversial ad with Kendall Jenner became a textbook example of how cultural insensitivity can damage a brand's image.

What happened in the Pepsi ad

The commercial "Live For Now Moments Anthem" ran for 2.5 minutes and showed supermodel Kendall Jenner at a photoshoot. She spots a protest march going by, though the demonstrators' cause remains unclear. Their signs display generic messages like "peace," "love," and "join the conversation".

The story unfolds as Jenner leaves her modeling work, takes off her blonde wig, removes her lipstick, and joins the cheerful protest. Everyone marches with an unusually positive vibe - they smile, laugh, clap, hug and high-five each other. The ad reaches its peak when Jenner walks up to police officers and hands one a Pepsi can, magically dissolving any tension. The officer smiles after accepting the drink, and everyone celebrates.

Pepsi said the ad showcased "multiple lives, stories and emotional connections that show passion, joy, unbound and uninhibited moments". They believed it would "truly reflect today's generation and what living for now looks like".

Public backlash and social media reaction

Social media erupted with criticism almost immediately after the ad's release. People slammed Pepsi for:

• Making light of serious social justice movements, particularly Black Lives Matter
• Using protest imagery to market their product
• Suggesting a soft drink could fix deep social problems
• Having a white celebrity "resolve" conflicts between protesters and police

The ad's imagery reminded many viewers of actual protests. Critics drew comparisons between Jenner approaching police and a famous photo of Ieshia Evans, a Black woman who stood her ground as riot police charged during a Baton Rouge protest against police brutality.

Martin Luther King Jr.'s daughter, Bernice King, delivered the most powerful critique on Twitter. She posted "If only Daddy would have known about the power of #Pepsi" next to a photo showing police pushing her father back. Her tweet highlighted how the ad trivialized real protest dangers and sacrifices.

Social media users piled on with mockery:

"How nice of Kendall Jenner to stop in the middle of her photo shoot to end social injustices by giving that cop a Pepsi. MLK who? Rosa who?"

"The worst thing about that Pepsi ad, beyond the blatant disrespect and disregard, is the amount of people who greenlit that advertisement"

"If I had carried Pepsi, I guess I never would have gotten arrested. Who knew?" tweeted activist DeRay McKesson

Pepsi's crisis response

Phase 1: Weak Defense Initial statement: "This is a global ad that reflects people from different walks of life coming together in a spirit of harmony."

Phase 2: Complete Retreat Within 48 hours, Pepsi pulled the commercial entirely and issued a fuller apology: "Clearly we missed the mark, and we apologize. We did not intend to make light of any serious issue."

Phase 3: Protecting Talent Pepsi specifically apologized to Kendall Jenner "for putting her in this position," acknowledging their mistake had damaged her reputation too.

Recovery approach: Unlike other companies, Pepsi chose silence over extended explanations. They returned to traditional marketing and avoided defensive campaigns.

Key Takeaway: This Pepsi-Kendall Jenner disaster teaches business leaders that reputation risks can surface unexpectedly. Companies can face serious backlash even with good intentions like promoting "unity, peace and understanding" if they appear to minimize serious social movements or show cultural insensitivity.

Cultural sensitivity requires diverse perspectives in creative development. When you miss the mark, swift acknowledgment and withdrawal prevent prolonged damage.

Wells Fargo Fake Accounts Scandal

The banking industry faced one of its most important reputation damage examples when Wells Fargo, America's trusted neighborhood bank, coordinated a massive fraud against its own customers. This scandal showed how toxic corporate culture can destroy customer trust overnight.

What happened at Wells Fargo

The Wells Fargo cross-selling scandal came to light in 2016 when regulators found employees had created millions of fraudulent accounts in customers' names without their knowledge or consent. Employees opened approximately 1.5 million checking and savings accounts and more than 500,000 credit cards without authorization. They did this under intense pressure to meet aggressive sales targets.

The bank's aggressive cross-selling strategy measured success by the average number of products each customer held. Wells Fargo had earned its reputation as the retail banking industry's most successful cross-seller.

This "success" masked a deeply problematic culture. Bank managers and individual bankers faced impossible quotas and extreme pressure from supervisors. Branch managers who missed targets saw their shortfalls added to the next day's goals, which created a vicious cycle. The incentive structure made things worse:

• Personal bankers received bonuses up to 15-20% of their salary
• Tellers could earn bonuses up to 3% of their salary
• Branch managers had quotas for specific products sold

Customers started to notice the fraud after getting unexpected fees or receiving credit cards and debit cards they never asked for.

Loss of reputation and trust

The business reputation crisis shattered Wells Fargo's carefully built image. Regulators hit the bank with a $185 million fine in September 2016 for these "widespread illegal practices". Financial consequences grew to approximately $3 billion by 2020.

The reputation damage went way beyond financial penalties. YouGov BrandIndex data shows how dramatically public perception fell:

These metrics remain in negative territory eight years later, showing the lasting effect of reputational risk.

The Federal Reserve took an extraordinary step by capping Wells Fargo's asset size—a restriction that stays in place today. This unprecedented action against a major financial institution highlighted how severely the bank had broken public trust.

Steps Wells Fargo took to rebuild

Wells Fargo implemented several measures to address the damage to reputation. CEO John Stumpf stepped down in October 2016 and ended up giving up $69 million in compensation through clawbacks.

The company brought in external counsel to conduct an independent investigation and made big organizational changes:

The bank eliminated product sales goals completely and rearranged branch incentives to focus on customer service instead of cross-selling metrics. They also developed new verification procedures for account openings and added more training and control mechanisms.

The bank set up a $142 million fund to compensate affected customers and gave back $6.1 million in inappropriate fees and charges. They also promised to strengthen control functions across the organization.

Wells Fargo launched an integrated marketing campaign called "Re-Established" in 2018 to show their steadfast dedication to rebuilding trust. "This is Wells Fargo" followed in 2019.

The loss of reputation still affects Wells Fargo today. Bill Daley, Wells Fargo's vice chair of public affairs, said it well in 2023: "There is no 'mission accomplished' with re-earning trust". The bank's ongoing challenges show that rebuilding a damaged reputation takes years—possibly decades.

Key Takeaway: Trust violations create the longest-lasting reputation damage. Perverse incentive structures inevitably lead to unethical behavior and customer harm.

H&M’s ‘Coolest Monkey’ Hoodie Incident

Image Source: The New York Times

H&M faced a major business reputation crisis in January 2018. The fashion retailer published an ad with a Black child wearing a hoodie that said "Coolest Monkey in the Jungle." Social media quickly turned this brand mistake into a global reputation damage example.

What happened in the H&M ad

H&M's UK website showed a young Black boy modeling a green hoodie with "Coolest Monkey in the Jungle" printed on it. The company had white children wear similar items with better messages, like "Survival Expert." Many customers spotted the racist undertones right away, since racists have long used monkey comparisons as slurs against Black people.

New York Times columnist Charles Blow shared the image on Twitter and asked "have you lost your damned minds?!?!?!?" His tweet got over 14,000 retweets and 26,000 likes in just days. The ad might have stayed a small problem, but social media turned it into something bigger. Yes, it shows how fast reputation damage can spread in our connected world.

Cultural insensitivity and reputational risk

The public response hit hard and fast. Customers and celebrities slammed H&M. Musicians The Weeknd and G-Eazy cut ties with the brand. The Weeknd, who had worked with H&M on menswear collections, tweeted: "woke up this morning shocked and embarrassed by this photo. i'm deeply offended and will not be working with @hm anymore."

The reputational risk showed up in real business losses:

• H&M's stock dropped 4.5% within a week
• South African protesters damaged several H&M stores, forcing them to close
• People called for boycotts across social media

The crisis started on a UK website but spread worldwide. This shows how reputation examples can easily cross borders in today's digital age.

H&M's response and diversity efforts

H&M first gave a short apology: "We sincerely apologize for offending people with this image of a printed hooded top. The image has been removed from all online channels and the product will not be for sale in the United States." People found this response weak.

The company saw how bad the company reputation damage was and took bigger steps:

1. Annie Wu became their global diversity leader to improve diversity and inclusiveness
2. They added more checks for marketing materials
3. They closed stores in South Africa during protests
4. They talked with community leaders about the situation

H&M's CEO Karl-Johan Persson admitted fault: "We have made a mistake and we have made a big mistake. And we are deeply sorry."

Key Takeaway: H&M now focuses more on diversity training and better marketing reviews. This case shows how even big global brands can face serious damage to reputation through cultural mistakes. It also proves why companies need to respond fully to such crises. 

Cultural insensitivity can destroy brand equity instantly. Global brands need diverse review processes to catch problematic content before publication.

Theranos and the Fall of a $9 Billion Startup

Few business reputation crisis cases match Theranos's dramatic rise and fall. Elizabeth Holmes founded this blood-testing startup in 2003, and it became the perfect cautionary tale of reputation damage built on deception.

What happened at Theranos

Elizabeth Holmes dropped out of Stanford at 19 and built Theranos on a bold claim. She promised revolutionary technology that could run hundreds of blood tests using just a few drops from a finger prick. Her pitch drew attention from prominent investors and board members, including former cabinet members and military leaders. The company's value soared to $9 billion by 2013-2014, and Holmes's personal stake was worth about $4.5 billion.

A devastating truth lay behind this success story - the technology didn't work. The "Edison" devices Holmes promoted could run only 12 of the 200 promised tests. The company used traditional commercial machines from competitors secretly for most tests. Staff arranged elaborate shows for VIP visitors like then-Vice President Joe Biden. They tested samples on hidden conventional machines while pretending the Edison did the work.

Reputation collapse due to fraud

Wall Street Journal reporter John Carreyrou published a groundbreaking investigation in 2015 that exposed Theranos's deception. Medical researchers and whistleblowers, including former employee Tyler Shultz, showed that Theranos gave inaccurate results regularly.

Regulatory pressure mounted, and Theranos canceled two years of blood test results. This move proved their technology wasn't reliable. The FDA found their collection containers "not validated under actual or simulated use conditions". Forbes changed Holmes's net worth from $4.5 billion to zero by 2016.

Why Theranos couldn't recover

Unlike other reputation damage examples, Theranos failed to rebuild trust because fraud was at its core. Holmes misled doctors, patients, and investors through direct communications, marketing materials, and media statements.

The company's failure put real lives at risk. They sent wrong results to cancer patients, pregnant women, and others with serious medical conditions. The company later admitted a "patient impact existed for every test run".

Authorities charged Holmes and her COO Ramesh "Sunny" Balwani with massive fraud in 2018. Holmes got 11 years and 3 months in prison, while Balwani received almost 13 years. Theranos dissolved by September 2018, leaving a permanent mark on Silicon Valley's reputation.

Key Takeaway: Companies built on fundamental deception cannot survive reputation exposure. Authentic innovation, not marketing manipulation, creates sustainable value.

Nestlé and the Greenpeace Palm Oil Campaign

Big companies can suffer sudden reputation damage when people start looking closely at their supply chains. This scenario played out in 2010 as Nestlé, the world's biggest food and drink company, became the target of Greenpeace's palm oil campaign.

What Greenpeace exposed about Nestlé

Greenpeace published a damaging report called "Caught Red-Handed" in March 2010. The report revealed how Nestlé bought palm oil from suppliers that destroyed Indonesian rainforests. Their investigation showed these companies expanded into untouched rainforests and carbon-rich peatlands, destroying crucial habitats for endangered orangutans.

Sinar Mas, Indonesia's biggest palm oil producer, stood as the main target of Greenpeace's accusations. The environmental group said Sinar Mas cleared rainforests and drained peatlands. These actions released huge amounts of greenhouse gasses, making Indonesia the world's third-largest greenhouse gas producer.

The most damaging revelation linked popular Nestlé products—Kit Kat, PowerBar, and Coffee Mate—directly to deforestation. This connection between everyday snacks and orangutan extinction created a story that resonated with consumers.

Social media backlash and brand damage

The campaign hit its peak with Greenpeace's viral video that spoofed Kit Kat's "Have a break" commercial. Their video showed an office worker unknowingly biting into an orangutan finger instead of chocolate. Nestlé made things worse by asking YouTube to remove the video over copyright issues.

The censorship attempt failed badly. The video appeared on other platforms and went viral with more than 1.5 million views. Activists then took over Nestlé's Facebook page that had over 90,000 fans. The situation got worse after Nestlé's page moderator started arguing rudely with critics.

Nestlé's Facebook page became the center of worldwide protests that exceeded Greenpeace's original campaign and turned into a grassroots movement. The whole ordeal showed how social media changed the relationship between companies and consumers.

Nestlé's delayed response and lessons learned

Nestlé first claimed they didn't buy directly from Sinar Mas. As pressure grew, they admitted getting Sinar Mas palm oil indirectly through Cargill. This slow admission hurt their credibility even more.

The company finally partnered with The Forest Trust in May 2010, after two months of constant pressure. They started working to remove companies linked to deforestation from their supply chain. Nestlé promised to use only "Certified Sustainable Palm Oil" by 2015.

The company took these specific actions:

• They stopped direct purchases from Sinar Mas right away
• Made third-party suppliers stop buying Sinar Mas palm oil for European factories
• Planned to get 50% of palm oil from sustainable sources by late 2011

The Nestlé case shows how business reputation crises work in today's social media age. Consumer activism can quickly turn online complaints into real business problems.

Key Takeaway: Supply chain reputation risks require proactive monitoring. Social media can transform local environmental issues into global brand crises within hours.

Conclusion

These seven devastating reputation damage examples prove that reputation crises are predictable as well preventable. While you can’t control every external factor, you can control your response speed, authenticity, and commitment to meaningful change.

The difference between companies that survive reputation crises and those that don't? Early detection, swift authentic response, and systematic process improvements.

A clear pattern shows how tiny mistakes can blow up into huge problems. 

You might think, "This won't happen to my business" - that's exactly what these big corporations thought too. I've seen firsthand during my years in corporate communications how brand reputation needs constant alertness, not just crisis management.

Your standard business operations must include active reputation monitoring. Surveysparrow’s reputation management software can help you protect your business from brand damage before problems get out of hand. Their detailed monitoring tools can spot potential risks before they turn into viral nightmares.

The real question isn't if your company will face reputation challenges - it's how ready you'll be at the time they hit. These cautionary tales are a great way to get lessons about being transparent, communicating honestly, and running an ethical business. No organization can completely avoid reputation risks, but you can substantially reduce their likelihood and effect through careful monitoring, quick response, and genuine accountability.

Without doubt, your business reputation is your most valuable asset. Protect it with everything you've got.