Managing reputation risks

Imagine you are working in a manufacturing company caught dumping toxic materials on a body of water that is the main source of livelihood of fisherfolk in a community. This, despite your glossy reportage of sustainability initiatives and much publicized efforts to “take care of the environment.” Or working as an executive in a digital payment platform firm that has suffered from data leaks either through an “inside job” or “cyber-attacks” resulting in massive loss of consumer patronage and is now subject of a Congressional investigation supposedly “in aid of legislation.” Or a senior official working in food company that has been a subject of numerous complaints of food poisoning that are now hogging social media given that a celebrity appears to have been a “victim” as well. Or a managing director of a creative agency where one male senior creative director was accused of sexual harassment by a woman executive that has led to more complaints from other women who allegedly fell prey to the creative director’s shenanigans.

These are just few examples of how your company’s reputation can be completely tarnished and destroyed when you are not prepared to handle, manage, and even prevent these crises from happening. At the end of the day, you must ask yourselves, “Are we prepared to manage reputation risks in our company?”; “How prepared are we to face these risks?”; “How do we manage reputation risks?”

In 2012, study of the World Economic Forum said that on average more than 25 percent of a company’s market value is directly attributable to its reputation. But we can all surmise that this figure could be higher given the hyper-connectedness in today’s businesses – where internal and external stakeholders interact simultaneously in an over democratized value and supply chains – where reputation can easily be attacked, not just locally but globally, with just a few clicks and shares. In the era of overly vigilant customers, inquisitive regulators, highly adrenalized competitors, companies should manage and protect reputation like their crowned jewel – as even a single smudge could turn into a life and death knell for their brands and businesses.

Given that reputation risk should and always be considered a top strategic business risk as it is a key business challenge, the responsibility of managing reputation risks  lies with the highest levels of the organization – the Board and the C-Suite.

Reputation risks

Senior executives should be wary and concerned about self-inflicted reputational risks and crises which arise from any misconduct of the company or its employees. These could come from all shapes, sizes, and complexities – from poor product and service quality, inadequate production or manufacturing conditions, working practices among executives and their business partners, hiding ill-behavior under the veil of corporate social responsibility, irresponsible behavior or negative public statements of officers and employees, mismanagement of public data, among others. Sometimes, and it happens most recently, unsuitable corporate communications or advertising campaign can lead to huge backlash that damages company reputation. When left unchecked these self-inflicted crises can trigger a tsunami of negative criticisms, boycott calls, regulatory inquisitions, social media outcry – all of which may lead to sales slumps, stock price plummets and a general loss of trust and confidence on the brand and company.

Company executives and brand custodians should also manage reputational risks and crises caused by external parties and stakeholders. Take for instance, cyber and digital attacks that criminals perform to gain access to and publish confidential data or information.

One must realize that these attacks, more than exposing vulnerabilities of the company’s IT infrastructure, are largely aimed at destroying a company’s reputation through “hack smear campaigns.” Thus, as one notices during these attacks, the criminals spread rumors or false information to create a large, albeit artificial, reach for their campaign through social bots and/or hashtag hijacking or other means necessary to attract large-scale attention.

Because reputation risks abound – where the reputation of a company is threatened from all sides, senior executives must give formal credence and recognition to reputation management as a key business function.  Regardless of whether self-inflicted or through external negligence, damage to reputation, if gone unchecked, is extremely difficult to repair as it has been said that it takes 3.5 years to fully recover from a reputation crisis.

The good news is that many reputational risks can be minimized, and reputational crises prevented. This is because comprehensive reputation risk management reduces the risk of reputational damage and helps to respond quickly and adequately in the event of such incidents.

Reputation risk management

Thus, it has become imperative for brand and companies to develop and implement a strategic reputation risk management plan that is laser-focused on minimizing all risks and dangers to reputation and on preparing the company for potential reputational crises to prevent negative economic effects caused by damage to reputation.

And a good reputation risk management includes several processes that need the involvement of the top honchos in the company.

As the first step, a risk assessment needs to be conducted to identify and evaluate as many reputational risks as possible. This evaluation should identify natural, physical, digital risks among others – all bases covered to protect the company in the best possible way. Once all the reputation risks have been identified and evaluated, a monitoring system needs to be established where all critical issues and threats are checked and re-checked for their potential to pose harm to the brand and the business. Monitoring enables executives to quickly act and react to any possible threat escalation to mitigate negative impact to the organization. There is also an urgent need to train employees to meet the challenges of any reputation risk. While it may incur some expenses, as training and retraining needs to be implemented to reflect the learnings from the before, during and after a crisis scenarios, equipping employees with the right skills, attitude, and behavior to manage the threats and on how to deescalate the crisis are of extreme importance. Sensitizing employees to all potential reputation risks will help them better prepare for any crisis that the organization will face or facing. Ultimately, brands and businesses need to develop a comprehensive strategy that plots specific actions from emergency to de-escalation. Protocols need to be in place to help all stakeholders act intelligently in managing crisis thereby preventing finger pointing that usually happens with ill-prepared organizations.

At the end of the day, all organizations must realize that an excellent reputation risk management strategy protects shareholder value and company value; ensures competitive differentiation and leadership and lowers risks that are vital to the continuity of any business.

*Ron F. Jabal, APR is the chairman and CEO of PAGEONE Group (www.pageonegroup.ph)  and the founder and president  of the Reputation Management Association of the Philippines (www.rmap.org.ph). Please correspond to [email protected] or [email protected]