Corporate reputation is an organisation's most valuable intangible resource and may be defined as the public perception of the company and how it operates. It has its monetary expression and influences financial and social capital as well as market share. It can be positive and negative. Reputation is an essential aspect of any business. In today's digital age, a company's reputation can be easily tarnished through websites, social media, online reviews and news articles.
Reputational damage can occur in many ways:
- due to unethical business practices;
- violation of duties and conflict of interest of the current or former employees and directors;
- poor customer service;
- data breaches;
- environmental issues;
- or any other negative event that puts the company in a bad light.
The consequences of reputational damage can be severe for a business entity. It can lead to:
- decreased revenue;
- reduced share price;
- difficulty in attracting and retaining employees;
- loss of board and shareholders' trust;
- diminished funding and partnership opportunities;
- negative effect on the company's supply chain.
Moreover, reputational damage can take a long time to recover from, and the process can be costly. The company may have to invest significant resources into rebranding, launching a public relations campaign or implementing new policies and procedures to regain the trust of its stakeholders.
Civil law protection in case of unlawful, intentional or malicious damage to company's reputation
1. Pecuniary damages
The company may claim pecuniary (economic) damages, which refer to the actual monetary losses incurred by the business. It is reflected in lost profits, lost sales and other financial losses that can be attributed to the negative publicity. These damages include the actual decrease in assets or increase in liabilities at the moment of the claim, as well as future lost profit. The case must be supported with adequate evidence and it may be challenging to prove the exact damages before the court, as a causal relationship must be established between reduced profit / outstanding losses and the actions of the wrongdoer.
2. Non-pecuniary damages
Non-pecuniary damages refer to the intangible non-monetary losses incurred by the business, such as damage to reputation, loss of goodwill and loss of brand value. These damages can have a significant impact on the long-term success of the business. However, Serbian companies may request compensation of non-economic damages only under Article 41 of the Trade Act in case of unfair market competition.
If the competing company did not act with the aim of damaging the reputation of another company, prevailing on the market in any way or gaining benefits or earning extra profit, or the damage occurred by the action of individuals, non-pecuniary damages cannot be claimed before the court.
An additional issue is determining the amount of non-pecuniary damages, as they are difficult to quantify. The case law in Serbia has yet to establish harmonised criteria on this matter. The court will assess the significance, duration and intensity of the reputational damage, the effect it had on the business acting as a plaintiff, and the purpose of the compensation.
Companies are not entitled to claim non-pecuniary damage in accordance with Article 200 of the Obligations Act, which stipulates that non-pecuniary damage may only be claimed for physical and mental pain suffered. As companies cannot suffer mental pain, according to the current case law, they cannot claim non-pecuniary damages for reputational damage in accordance with this Article.
In accordance with the Public Information and Media Act, in case of defamation, it is also not possible to claim non-pecuniary damages if the media published harmful prohibited information related to the company.
3. Punitive damages
Unlike in some other countries, where punitive damages may be awarded to the injured party where the reputational damage was caused by intentional or malicious behaviour, such as defamation or slander, these kinds of damages are not recognised by the law in Serbia. Therefore, an offender may only be punished in accordance with criminal law, misdemeanour law or the commercial offences procedure.
Appropriate preventive measures
Companies must be extremely careful and conduct all necessary measures to avoid situations in which their reputation may be compromised. Appropriate preventive measures include: ethical approaches and practices; business transparency; social responsibility; partnership and employee engagement; developing a good online image and media presence; agility in responding quickly and effectively to any negative online content to prevent the damage from escalating; providing effective customer support; and taking legal action in case damage occurs.
It is important to revise the regulations in Serbia to better safeguard companies' reputations. The current legal process can be lengthy and costly, and ultimately it is unclear whether the company could ever compensate the damages suffered, even if the claim is proven grounded before the court. The Act on Liability of Legal Entities for Criminal Offences has already stipulated the criminal responsibility of the companies, recognising their own "personality" and liability separated from its representatives. The European Court of Human Rights has recognised the possibility for companies to be awarded compensation for non-pecuniary damage, where consideration should be given to the company's reputation (see Comingersoll S.A. v. Portugal [GC], no. 35382/97, § 35, ECHR 2000‑IV).
The safeguarding of one's reputation often goes hand in hand with protecting the freedom of speech of others. Striking the right balance between the freedom to express oneself and the responsibilities associated with exercising this freedom is crucial. This balance should be subject to legal formalities, conditions, restrictions or penalties that are deemed necessary in a democratic society. These measures aim to safeguard the reputation or rights of others and to prevent the unauthorised disclosure of confidential information (as stated in Article 10, paragraph 2 of the European Convention on Human Rights). This is particularly important when actions are undertaken with malicious intent, causing harm, lacking foundation, and without proper endorsement through legitimate procedures by authorised entities.
By Tijana Levakov, Attorney at Law, Schoenherr