Negative Case Studies
Equifax and Boeing are two B2B companies with a bottom line negatively impacted by the brand's reputation. Equifax's reputation suffered from a data breach in 2017 affecting 147 million of its customers. Boeing's reputation for safety suffered when two jets in its most modern and technologically advanced airline models crashed. This case study includes a company overview, a short explanation of the incident leading to the negative reputation, and the financial impact the incident had on the company.
- Equifax is a data, analytics, and technology company providing consumer credit reporting services to other businesses, governments, and individuals. The company is traded on the New York Stock Exchange (NYSE), employs over 11,000 persons at its operations and investments in 24 countries, and has headquarters in Atlanta.
- On 29 July 2017, Equifax discovered a data breach impacting the private data of 147 million customers personal and financial information. The breach, which began on May 13, 2017, exposed a website application vulnerability named Apache Struts CVE-2017-5638, in an open source software used by Equifax.
- During the investigation into the breach, Equifax admitted that it was told in March 2017 of the vulnerability in the software and of patch to fix it. Equifax failed to apply the patch in a timely manner.
- On 22 July 2019, Equifax announced that it had arrived at a settlement amounting to $671 million that resolved class action litigation from multiple districts, and investigations from the New York Department of Financial Services (NYDFS), the Attorney General of 48 states, Puerto Rico and the District of Columbia, the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC). Estimates of the cost to address fallout from the breach stand at $1.4 billion.
- The settlement comprise payments of $425 million to a consumer restitution fund and $290.5 million to pay attorney's fees and cost related to the multi-district litigation, and to various state and federal agencies. Under the settlement, persons affected by the breach have four years to access free credit monitoring from Experian and TransUnion, and ten years from Equifax.
- Shares fell 2.5% on the announcement of a Federal Trade Commission (FTC) probe, and in September 2017, just two months after the breach, the share price was down 33%. On 5 September 2017, Equifax's shares were worth $141.39. By 19 September 2017, the share price fell $45.39 to $96.00. In the intervening years, the share price has recovered to $154.72 as at 9 February 2020.
- In the company's annual report for 2018, revenue increased by 1% over the comparative period in 2017, but net income decreased to $300 million when compared to 2017 figures. Equifax attributed the decrease to a $307 million investment in data security. Overall revenue for its US operations decreased by 1%, however, international operations increased by 7%. The WorkForce Solutions subsidiary increased its revenue by 8%.
- Boeing is an aerospace company operating with three business units: defense, space and security, commercial airplanes, and global services. With corporate headquarters in Chicago, Boeing employs over 153,000 persons in over 65 countries.
- On 29 October 2018, a Boeing 737 airline with 189 persons onboard, operated by Lion Air, crashed into the sea off the coast of Jakarta, Indonesia. On 10 March 2019, another Boeing 737, this time operated by Ethiopian Airlines, crashed with 157 persons on board.
- Despite the Boeing 737 being the company's newest and most advanced jetliner, the Federal Aviation Authority grounded the entire fleet on 13 March 2019, after several other countries had already done so. A Joint Authorities Technical Review Committee (JATR), comprises 28 representatives from nine civil aviation authorities across the globe, and from the FAA and the National Aeronautics and Space
- The JATR released its final report in October 2019, where culpability for the crash was attributed to Boeing and to the FAA. On Boeing's part, developments of the MCAS flight control system changed it from a "benign to an aggressive" system, and the company's failure to communicate the impact of these changes to the FAA, were the cause of the failure. The FAA was reprimanded for failing to update the aircraft certification process.
- Boeing fired David Muilenburg as CEO in December 2019 and replaced him with David Calhoun. US Treasury Secretary Steve Mnuchin is quoted as saying the Boeing Max 737 crisis has the potential to slow US gross domestic product growth by 0.5% in 2020.
- The grounding of the Max 737 impacted orders for the airline, the share price of the company, and annual financial returns. Orders fell by 53% over the comparative period in 2018. Overall orders ended up at a net minus 87.
- On 26 February 2019, Boeing's share price was $435.44 and by 26 March 2019 the share price had fallen $61.23 to $374.21. On 21 January 2020, the share price was $309.00. By 9 February 2020, the share price had rebounded to $344.67.
- In 2019, company revenue fell 24% over 2018 figures. Annual revenue for 2019 was $76 billion, down from $101 billion in 2018. The commercial airlines business unit revenue fell 44% to $32 billion from $57 billion.
- The company had no new orders for jetliners in January 2020. It was also reported that Boeing was seeking over $10 billion in loans to offset expenses emanating from the Max 737 crisis.
To create the two case studies where brand reputation impacted negatively on a B2B company's bottom line, the research team began with a search for B2B companies with negative brand reputations. This search led to an article from bankinfosecurity.com on the total cost to Equifax of the data breach which occurred in 2017. It also led to an article from CNBC on the change in CEO for Boeing. Next, the team completed background research on the specific incidents causing the negative brand reputation. This yielded valuable information on the incidents from the New York Times and from USA Today for both companies. The team then searched for information on the impact of the incidents on company bottom line, beginning with an examination of share prices prior to, and after the incidents. A targeted search for press releases on financial data from the website of both companies were sought, and found. The brief for both companies was completed with a general review of business publications articles in CNBC, CNET, CNN and marketwatch.com.