19 Feb

United Breaks Guitars

Guitar

Back in 2008, singer/songwriter Dave Carroll was flying to Nebraska with his fellow band members.  As he was getting out of the plane, on a stop over in Chicago, he heard a passenger say “they’re throwing guitars out there!” Dave and his band members looked in shock as they realised that their guitars were being thrown out of luggage compartment. Indeed, his $3500 guitar was broken. Carroll filed a complaint with United Airlines, Airline, but he was informed that he was ineligible for compensation because he had failed to make the claim within its 24 hour time frame.

So Carroll, as a singer/songwriter, decided that writing a song was the only thing he could do. So he wrote a song about the incident called “United breaks guitars”. He put it up on YouTube and unfortunately for United Airlines it went viral. As of writing this it has 15,583,732 views.

After 150,000 views, United contacted Dave Carroll and offered to pay him to take the video down. He had changed his mind, however. It wasn’t about the money anymore. In fact, he suggested they donate the money to a charity.

United also discovered that “United Breaks Guitars” wasn’t just a single song. It was part of a trilogy. Furthermore, soon Carroll was doing interviews, there were parody videos and now there is even a book! This wasn’t just embarrassing publicity for United Airlines, the BBC reported that United’s stock price dropped by 10% within three to four weeks of the release of the video – a decrease in valuation of $180 million!

This story clearly shows the powerful impact that social media can have. It is also an illustration of the importance of good stakeholder relationships. Just one bad relationship with a customer cost United Airlines millions of dollars. While most bad stakeholder relationships don’t cost a company millions of dollars, their importance and the risk if they go wrong, is undeniable. Yet despite the potential for most companies do not measure or manage their stakeholder relationships.

In a recent interview with Global Reporting initiative, Mervyn King, Chairman of the International Integrated Reporting Council, argues:

“Companies need to be informed about the needs, interests and expectations of their stakeholders throughout the year and when they’re strategizing, otherwise the oversight that they have over management and its strategic proposals is not an informed oversight. At every board meeting there should be an agenda item that wasn’t there before: ‘Stakeholder Relationships.’”

According to King therefore, the boards of many companies are carrying out uninformed oversight. Therefore, for proper accountability and informed oversight, companies must be informed properly about their stakeholder relationships.

Some might see this simply as another unhelpful addition to all that companies have to do. However, proper management of stakeholder relationships can be a huge force for value creation. For companies that begin a dialogue with their stakeholders can develop a strategy that is much more informed. Furthermore, through such a dialogue, and through relationship measurement, companies can increase the levels of trust in their relationships with their stakeholders. This trust brings confidence, sustainability and innovation. So while companies will want to manage the risk in their stakeholder relationships to prevent any negative outcomes, investing in these relationships, measuring them and beginning a dialogue can drive a company forward and increase its value.

Photo: Guitar (by Shane Adams on Flickr)