The value of a company's public image is hard to quantify. For companies that sell directly to consumers, damage to a reputation can be quite costly. Case in point -- widespread negative publicity connected to a recent episode at Wendy's (NYSE:WEN). When a customer alleged that she found a finger in her chili, the fast-food chain suffered a dramatic downturn in sales.
It might seem that business-to-business operators are somewhat less vulnerable to such shocks, given that they operate primarily outside public scrutiny. Logic suggests that the primary concern for such firms should be their reputations in the eyes of their clients, who, after all, are the ones who pay the bills. The public, meanwhile, doesn't even need to know that business-to-business outfits exist.
But such business-to-business assumptions appear to be too simplistic, if contract research company Covance (NYSE:CVD) is any indication. Back in the mid-May, People for the Ethical Treatment of Animals (PETA) held a news conference and issued a press release claiming that Covance workers had repeatedly violated the federal Animal Welfare Act. PETA's allegations of animal cruelty might strike some investors as the inconsequential rantings of a special interest group, especially since Covance's business requires it to test drugs on animals for pharmaceutical companies like Motley Fool Inside Value selection Pfizer (NYSE:PFE).
Still, PETA should not be dismissed lightly. It is organized and vocal. The interest group has filed a complaint with the U.S. Department of Agriculture requesting that Covance's Virginia laboratory be shut down. Further, PETA's very public claims could also make pharmaceutical companies cautious about dealing with Covance for fear of being drawn into the melee and suffering a backlash from drug consumers.
Covance, in turn, has filed a lawsuit against the animal-rights group and a PETA member who worked undercover at the company. The Covance suit claims fraud, contract violation, and conspiracy. For investors, this is definitely a case worth watching.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
