Twenty-six years ago, I co-authored a Journal of Marketing article that helped demonstrate the pivotal role of trust in maintaining the customer relationship. While there are many definitions of trust, we focused our attention on keeping promises, putting the customer’s interests and good, old-fashioned honesty first. Subsequent publications examined the caustic effects of opportunistic behavior on the part of the seller, i.e., taking advantage of the buyer’s vulnerability. At the level of the individual customer experience, the costs of trust violations and malicious self-interest by the seller are well-documented in both B-to-C and B-to-B settings: diminished loyalty, fewer repeat purchases and unfavorable word-of-mouth.

The costs of trust violations at the individual customer level pale in comparison to trust violations in the company-society relationship, but the two are related. While individual customers may be dissatisfied, that generally results in a slow erosion of reputation if the problems are systemic. However, when a company fails to live up to its end of the bargain, it falls off a reputational cliff and customer dissatisfaction quickly follows, regardless of the direct experience of individuals. Social responsibility is an evaluative criteria employed by many, if not most, customers. By failing to meet society’s expectations, all that hard work in building customer loyalty can quickly evaporate.

The word “scandal” is often associated with trust violations in the company-society relationship. Just recently, the now-former Wells Fargo CEO John Stumpf found himself in the crosshairs of the Senate Banking Committee for failing to stop cross-selling practices that resulted in the opening of more than 2 million unauthorized customer accounts. He was chastised on national TV by Sen. Elizabeth Warren for what she labelled a scam. Warren criticized Stumpf for fostering a high-pressure sales culture that spawned such behavior, all for the ostensible purpose of, according to Warren, driving up share price and lining the pockets of senior management.

Stumpf apologized for betraying the customer’s trust, and subsequently resigned. But the committee seemed largely unmoved by the bank’s firing (over five years) of 5,300 lower-level employees in connection with the unauthorized accounts, or that it had already agreed to a $185 million settlement that includes rebating $2.6 million in fees to about 100,000 customers.

Talk about vulnerability. It appears that most of the affected customer

s were unaware of being victims until notified by the bank, or when they found their credit scores plummeting due to late payments, overdraft fees or having unneeded credit lines or cards. Prior to that realization, those customers went blithely about their banking business, judging the customer experience largely on the basis of the quality of their interactions and routine transactions. Until the scandal broke, the satisfaction of Wells Fargo customers was very near the industry average based on the American Customer Satisfaction Index (ACSI).

In the wake of the financial collapse of 2007, society as a whole is very wary of bank behavior and is paying close attention to how these institutions are managed. Any whiff of unethical behavior, avarice or lack of internal controls sets off an alarm. This can quickly elevate social responsibility in the customer’s evaluation process and drive a wedge into an otherwise positive relationship. For banks, another cost of violating society’s trust is likely to be further regulation.

While the Wells Fargo story is still playing out, history is replete with many other examples of companies who largely met customers’ experiential expectations but failed society’s expectations and paid a steep price. A recent case is Volkswagen and its so-called “emissionsgate,” which erupted in September 2015. The EPA accused the company of programming emissions controls to pass government tests, while allowing the release of much higher emissions in actual driving. Up until that scandal broke, VW’s customer satisfaction was very near the national average for automobiles and light trucks (ASCI of 80 versus 79 for the industry).

As the news of the cheating began to hit the press, the head of VW Group acknowledged that the company had “broken the trust of our customers and the public.” By just about every measure, the costs of that violation have been high for Volkswagen. The CEO and other executives lost their jobs and one engineer may go to jail. VW’s ACSI score for 2016 fell four points below the industry benchmark as otherwise happy owners learned how much pollution their cars were actually releasing (40 times legal limits). Not surprisingly, VW’s Temkin Trust score dropped from 61 in 2014 to 39 in 2016. The company’s U.S. sales were down 5% in 2015 and 7% in the first six months of 2016. In April 2016, the company took an $18.2 billion charge to cover the cost of the scandal and later agreed to settlements that could total as much as $15.3 billion. VW currently faces 1,400 investor lawsuits in German court worth $9.2 billion.

Obviously, a number of factors can mitigate the magnitude and duration of the negative impacts of scandal on a company’s reputation, customer satisfaction and finances. For one, it’s a big world. Global players can offset losses in one country (U.S.) by gains in others (e.g., China) where social expectations may not run as high. It also seems likely that scandals involving ethical transgressions or deliberate cover-ups may have more deleterious effects than carelessness or simple mismanagement.

There is also the matter of attribution. Do customers and the public feel the problems were largely controllable or uncontrollable by the company? Take the case of the breach of Target’s customer databases in late 2013. Hackers were able to steal credit and debit card information for 40 million Target customers and personal information for as many as 110 million. Fortunately, according to Target, the breach resulted in low levels of a

ctual fraud. It is certainly the expectation of the public that companies will do everything they can to protect the personal information of customers. But while the Target hack was one of the most notorious of its day, many other high-profile breaches since then may leave consumers wondering how preventable such breaches really are. Looking at the ACSI data, it is difficult to make the case that the satisfaction of Target customers was materially affected by the breach (although Target faces some other challenges that are affecting its recent scores).

How the firm handles reputation-damaging events and disclosures should also be a mitigating factor, but many companies stumble badly in this regard. Did the company take immediate action when the problem was detected? Has it been up front and transparent as to what occurred and why? Did senior management take responsibility for what happened? Did their apologies sound sincere? Is there accountability at all levels for those who caused the problem or failed to prevent it? Are the remedial actions sufficient to prevent the problem from occurring again (e.g., improved management systems, addressing bad culture, etc.)? Has the company provided just compensation to those who were directly harmed, or has it tried to wiggle out of its duty?

Customer trust is a fragile thing. It is easily lost and can be difficult to regain. People have short memories and are somewhat inclined to forgive, but don’t count on it. Clearly, the best antidote for a scandal is not to have one. That requires vigilance, involved management that asks a lot of questions, strong and well-understood organizational values and the unimpeded upward flow of information no matter how unflattering.