When Rumors Have Legs

It was like a bad game of telephone. An old Chicago Tribune article about United Airlines filing for bankruptcy protection in 2002 either did or didn’t reappear on the Web site of the South Florida Sun-Sentinel newspaper last weekend. United says it did, the Sun-Sentinel says it was an old archived story that was mistakenly picked up by Google as a new story after it appeared in its “Popular Stories” section. (Read Google News’ explanation here.) A research firm, Income Securities Advisors, found the story when it did a search on bankruptcies. The research firm then posted it on Bloomberg News, thinking it was breaking news.

Innocent mistake? Well, instead of mishearing the details of the weekend from a friend of a friend of a friend (and no one being the worse for wear), the airline suffered a nearly 75% loss of the value of its stocks in less than an hour before trading was halted on Nasdaq. The stock ended up mostly rebounding by the end of the day – once United corrected the reports and trading resumed – but still closed at a loss.

Everyone is now pointing fingers, and the SEC has begun an “informal investigation” into the matter.

This isn’t the first time something like this has happened. Just a couple of weeks ago, Bloomberg erroneously reported that Apple CEO Steve Jobs had died, but the story was posted after trading hours, and a correction made before the stock price suffered. (Jobs joked about it when introducing the new iPods on Tuesday and referenced the Mark Twain line, “The reports of my death are greatly exaggerated.”) The company wasn’t as lucky last year, when a false internal email regarding a delay of the iPhone and Leopard (Apple’s operating system) was published on a tech blog, and the stock plummeted, losing $4 billion in market cap in less than half an hour, and even after the correction, still closed down $1.25 billion in market cap.

Each of these instances show just how damaging rumors can be in a hyper-speed information age, and how hard it can be for companies to correct and recover from them. It also demonstrates the necessity for intense vigilance and monitoring of rumors floating around online, and the importance for companies to do everything they can to try to correct them.

United would be wise to worry not just about rumors like this that immediately threaten its financial position, but about rumors, real or otherwise, that have the potential to cause long-term reputational damage. Many of its pilots, for example, have started a site demanding the removal of the company’s CEO called “Glenn Tilton Must Go,” campaigning for readers’ help in ousting the company’s leader. So far, though, as another blogger pointed out last month, there’s been no company response to the site. Maybe after this week, the leaders will be listening and responding a bit more actively. Any bets on whether they will or not?

“Easy choice” by 4T9R

p.s. I have been absent from this blog for some time for personal reasons, but look forward to restarting our conversation.

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Posted on: September 12, 2008
Posted by: Laurel

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