REPUTATIONS take years to earn but can be lost in a flash. I thought of this last week as I watched, with some dismay, as the Economic and Social Research Institute committed reputational suicide while Barry Maloney's Balderton Capital earned considerable praise for the way it dealt with problems surrounding social networking site Habbo Hotel, following allegations that the site was being used by paedophiles to target children.
In retrospect, Mr Maloney was dealt a much harder hand than the ESRI. A company in which Balderton Capital has a substantial stake was accused on 'Channel 4 News' of funding an outfit that enabled paedophiles to prey on children. The accusations were made on prime time television.
Making money out of sick-minded child molesters -- it doesn't really get much worse in the business world.
But Mr Maloney and venture capital firm 3i knew what to do. Within hours, they dumped their stakes and ran. Mr Maloney sold his firm's stake for £1.
Just a year ago, that stake was valued at €32m. The loss shows why reputation matters in pounds and pence. The reaction shows how to handle a public relations crisis -- move swiftly and decisively. Mr Maloney did both and will live to invest another day.
But the poor old ESRI, the grand dame of Irish think tanks, was neither swift nor decisive and has paid an awful price.
The problems began when it was revealed that its former researcher, Professor Richard Tol, had published research on the ESRI website suggesting that 44pc of working parents could be financially better off on social welfare, when costs such as childcare and transport were taken into account.
To be honest, the figure does not surprise me at all. Most mothers of young children will tell you the same thing but they continue to work because they enjoy their job, want to stay in the workforce and hopefully get promoted -- and they will be repaid in later life when their pensions swell.
But this is neither here nor there. What is important is the ESRI's reaction to this research. It pulled Prof Tol's working paper from its website and then went on to cast doubt over his methodology. It issued a wishy-washy press statement and went on to suggest erroneously that Prof Tol had new research that cast doubt on the old research -- something the hirsute professor, who now works at an English university, was quick to deny.
What was an interesting story -- middle-ranking academic issues research that supports anecdotal evidence -- quickly became much more interesting and worrying. The ESRI's eagerness to withdraw a report that was embarrassing to the Government and criticise one of its own former staff members in public generated more questions than it answered.
The ESRI is, by and large, a sharp outfit, but I was disconcerted by the speed with which the research was withdrawn and the failure at the time to produce a single piece of proof to show there was any problem with Prof Tol's work. It was clearly labelled as a working paper so there was never any question of it being definitive.
The eagerness to pull the research and the failure to demonstrate that there was a problem naturally leaves question marks over the ESRI's independence that can really never be resolved.
There is no way the ESRI, which gets half its funding from the State, will ever be able to disprove the cynics. That is nothing short of a disaster for an organisation that thrives or dies by its reputation for independence.
The funny thing is that a short statement from the ESRI reminding people that the views expressed in a working paper are theories rather than fact would probably have done the trick and killed the story. Instead, the institute kept digging and digging.
All businesses will face similar dilemmas from time to time. You can hire fancy PR companies and research the ins and outs of crisis management -- but here's my advice: when you are backed into corner, come out with your hands up, sort out the problem once and for all, tell the world what you have done and then shut up.