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Beware the reputation risks that come with a celebrity pitchman

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Companies putting their brand image in the hands of a key personality or celebrity pitchman need to know the reputational risks should that person make a public misstep or have a fall from grace, says Roger Sandau, managing principal of Integro Entertainment, a division of Integro USA Inc.

Brian Williams' “conflated” recollection of his helicopter under siege in the skies over Iraq has inflicted a reputational wound on Mr. Williams, the face of “NBC Nightly News,” and the network. Mr. Williams' employer, NBCUniversal, and parent company, Comcast Corp., also must be feeling the pain.

Mr. Williams' humiliation, and by extension that of NBC, over his apparently exaggerated experiences reporting on the Iraq War, has served to once again highlight the vulnerability of a company, team or sponsor that ties its own reputation and financial model to a single key personality.

While it is clear a publicly recognized entertainer, politician, athlete or executive can have a tremendously positive influence on a product or service he or she endorses, a converse risk also exists. A product or service that the public closely associates with a key individual may suffer greatly should the individual be publicly discredited, embarrassed or stigmatized.

Companies that rely on key individuals — be they top executives or celebrity endorsers — frequently secure insurance coverage for the financial loss to the business that may result from the death or disablement of such individuals. So it's an opportune time to remind these companies they should also consider the effect on their reputation, and all that entails, if their key executive or spokesperson falls victim to public disgrace.

Over the past several years, headlines have trumpeted the missteps of previously exalted heroes such as Tiger Woods and Lance Armstrong, and television personalities such as Paula Deen, whose actions or circumstances left them publicly besmirched, and left their advertisers and endorsement partners looking to quickly distance themselves. Nearly overnight, marketing campaigns featuring these well-known personalities were discontinued.

Perhaps even more challenging, and potentially more costly, was the recall of products that had been specially designed to bear the name or image of each of these personalities, ranging from the locker room to the kitchen.

Products that had once flown off the shelves thanks in large part to their close association with the success and high profile of their spokesperson, may have to be recalled and either destroyed or sold at liquidation prices. One such example was the “Tiger Focus” beverage product developed by Gatorade, which featured Tiger Woods' name and image. Following his notorious car accident in 2009 and admission of marital infidelity, Gatorade discontinued its “Tiger Focus” beverage, although Gatorade stated at the time that its decision to abandon the specialty drink was reached prior to the car accident.

When confronted by a sudden degradation of a spokesperson's public image, which can create negative vibes for a company simply by association, a company faces an array of potentially serious and costly outcomes.

A number of these negative outcomes would likely fall within the scope of coverage provided by a public disgrace policy, which can provide financial protection for: 1) money paid to the disgraced spokesperson to secure their services; 2) expenses incurred to hire a replacement spokesperson; 3) expenses incurred to replace or reshoot advertising and marketing materials that feature the name or image of the disgraced spokesperson; and 4) expenses incurred in the elimination of the name or image of the disgraced spokesperson from product packaging.

In the case of the “NBC Nightly News,” the discrediting of Mr. Williams' helicopter-under-siege account and his resulting six-month suspension could expose the network to several possible financial liabilities. These might range from the cost of managing the damage to NBC's public image and finding a replacement for Mr. Williams, to reshooting and redesigning its advertising and marketing campaign for the highly rated news program. These are among the risks a public disgrace insurance policy is designed to address.

Although it may be written on a stand-alone basis, a public disgrace policy is often combined with other perils such as death and disability, which may prevent the key person from rendering the expected or contracted services. Premium rates for public disgrace coverage vary based upon the age, reputation and history of an individual. Naturally, a spokesperson or endorser with a past that includes prior misconduct or scandals, will either be more costly to insure or, perhaps in the extreme, even uninsurable.

It also is important for the insured to understand and be comfortable with the definition of “disgrace” within a particular policy, and that the definition is sufficiently clear and broad to respond to misconduct that would be damaging to the insured's reputation, products, services or marketing efforts.

Today, such a situation can develop at warp speed.

Thanks to nearly instantaneous global communications via social media networks like Twitter and Instagram — coupled with the omnipresent recording of every movement made by a celebrity by paparazzi or a person with a camera phone — a single ill-fated comment or embarrassing action by a publicly recognized person carries the potential to destroy the reputation of the person overnight and cause businesses and products associated with that person to immediately sever their relationship.

So much is put at stake when a product or service becomes closely tied to an individual that companies would be foolhardy not to consider public disgrace coverage.

So the next time you read a headline of an athlete involved in a domestic violence scandal or a celebrity caught in a compromising situation, know that there is an insurance underwriter somewhere waiting for the phone to ring.

The likely caller: a client with the foresight to recognize its exposure to financial loss resulting from a public misstep by its celebrity spokesperson — and the acumen to manage such risk.

Roger Sandau is managing principal of Integro Entertainment in Austin, Texas, a division of Integro USA Inc. He can be reached at roger.sandau@ integrogroup.com and 512-982-2055.