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Reputation Risk Management: 5 Steps to Protect Your Business

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Written by: Natasha Drilon

A financial services company’s reputation is made (or lost) on the basis of any number of moving parts, some of which are notoriously hard to quantify.
 

A corporate reputation is part good management, part social responsibility, part public image and honesty, and part quality products and services.

What shouldn’t be doubted , is that the ways in which a company’s reputation can be damaged are also numerous and that a damaged reputation has a direct impact on a company’s bottom line. 

So do businesses really understand the risk that reputational damage poses? The short answer is, absolutely. Global provider of risk management services, Aon, surveys over 1,400 global companies of all sizes and across all industry sectors annually and asks which they believe are the biggest risks they face. The resulting Global Risk Management Survey provides a list of these risks and tracks them year on year. In 2015, companies ranked the number one risk they face as damage to reputation/brand, far outranking more tangible risks, such as business interruption or even property damage. 

This is nothing new, damage to reputation hasn’t always ranked number one, but it has consistently been listed in the top 10. 

At the same time, companies ability to manage and protect their reputation doesn’t rank well. A recent Deloitte Touche Tohmatsu survey which polled 300 executives reported that less than 20% would award their company an ‘A’ for its capability in protecting against and responding to reputation risks. And nearly 40% ranked their risk-management programs as at best average, and often below average. 

2015 AON Global Risk Management Survey 

Warren Buffett famously said that it takes 20 years to build a reputation and five minutes to ruin it, and if you think about that, you might do things differently.  According to recent figures, the combined value of the reputations of all S&P 500 companies is almost US$3 trillion, or 22 percent of total market capitalisation.

And if you have any doubt about the effect on your bottom line, just take a look at  Volkswagen.  Since the emissions scandal hit, Volkswagen’s  market cap has declined by 30%, or over 20 billion euros. Part of this is down to the market’s estimation of the direct cost of product recalls and fines, but a good proportion is attributable to the more intangible aspect of the damage. Corrupted trust, and the lost sales which are the inevitable result. 

There’s no question that reputation has an economic value, so taking steps to protect and manage it makes good business sense. 

1. Invest early to preserve value
 

Investing proactively in your company’s reputation over a long period of time will help mitigate reputational damage in a crisis. Make sure reputational risk is not overlooked in your traditional risk frameworks. 

The first step is to quantify the value of your brand and then track reputation among stakeholders. 

Community trust, for example, is established through ongoing outreach and proactive media relations and corporate social responsibility can also help build community rapport, creating a trustworthy brand.

2. Make reputational risk management a top organisational priority
 

Leadership drives reputation in a crisis and reputation management starts at the top. This is a fact that too many companies overlook.  It’s crucial that your C-Suite buys in to and supports a reputation management plan, and commits to dedicated resources across functions and teams.

Board and management have different but overlapping responsibilities for reputation management. The Board is responsible for the management of a business’ reputation and management is responsible for the systematic application of risk management systems and processes.

For example, BNP Paribas has a special committee under the Board of Directors called the Internal Control, Risk Management and Compliance Committee. This Committee examines the key orientations of the Group’s risk policy, based on measurements of risks and profitability of the operations. The Committee also tackles all compliance-related issues, particularly those in the areas of reputation risk or professional ethics. Reputation risk is specifically listed as one of the Board’s obligations.

3. Proactively manage key reputational risks
 

As we said a few weeks back, failing to prepare is preparing to fail. Proactive management relies on a good plan that considers all the things that could go wrong, and what could be done to mitigate the possible risks.

At a time when we are hostage to a 24-hour news cycle and social media, crises can spread globally within minutes, which means the response must be immediate and cohesive. Therefore you will need meticulous planning, a thorough understanding of individual roles and responsibilities and the development of a plan to respond. 

To develop your plan, start by doing an audit of all possible reputation risks your organisation could face. This should assess the internal and external environment and enable you to create action plans around the risks identified. This will help you actively work to mitigate risk.

Make sure you keep a risk log that outlines the full range of issues that may damage your organisation’s reputation and maps what the reputation dimensions mean to different stakeholders. Your corporate messaging and reporting activities should be aligned with key drivers for stakeholders.

Then, think about your issues management response framework, including who would need to be contacted if a crisis did occur and what would need to be said in each scenario.

Once this is in place, everyone at your organisation should know the process to follow in the case of a crisis. A good way to do this is via crisis simulation, which uses case study methodology during the training session. Of course, training and preparation for any company spokespeople is vital.

4. Develop a structured system for reputational risk reporting and evaluation
 

As always, measurement and awareness are essential. Managing reputation requires soft skills like prudence, anticipating future needs and trends, understanding stakeholder’s requirements, listening to their needs, planning and taking action in a positive way.

Develop easy to use reporting tools that you can incorporate into your existing planning and response work and use the data to focus your risk management meetings.

Simple tools like media and online monitoring will enable you to scan the environment and alert you of any potential warning signs early on.

5. Integrate reputation management into the business process
 

Finally, an important part of reputation risk management is ensuring that everyone joins the journey, which means that employees should be engaged in risk management planning. 

Once organisations have a broad view of reputation risk, they can understand what is within, and outside, their control. They can then put in place a plan which mitigates risk, allows them to maintain their social license to operate, and ultimately helps them to minimise financial damage in a crisis.

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