Every organization, no matter the structure, nature of operations, or size, has reputational risk. All risks are significant in and of themselves, but resulting reputation damage can be even more catastrophic, as a reputation is one of a company’s biggest assets. Sometimes all it takes is a rumour to make the public lose confidence in an organization, ending it quite quickly. As Warren Buffet said, “it takes 20 years to build a reputation, and five minutes to ruin it”.
A fire in a manufacturing facility can result in property damage, employee injuries, and lost revenues, but if operations can’t be quickly resumed or outsourced, customers will lose confidence in the availability of products and go elsewhere. If a popular restaurant is publicly exposed for discriminatory hiring practices, it will have difficulty attracting new staff and have to repair its reputation or risk going out of business.
For example, United Airlines received a huge amount of negative publicity in 2017 for forcibly dragging a man off an airplane that they had overbooked. A video of the incident quickly went viral, causing many travellers to voice their outrage and even boycott the airline. While overbooking flights is a common practice for many airlines, their treatment of the passenger and their failure to immediately correct the situation caused many people to no longer trust United Airlines and choose to fly with other companies.
This is a general guide to managing reputational risk; in our next two blog posts we’ll be discussing crisis management and the impact of social media on reputation risk.
There are several key steps in preventing and responding to reputational risk:
1. Make reputational risk part of strategy and planning
It’s important to recognize the impact that reputation can have on success. Investigate weaknesses and determine relevant reputational attributes within the organization. Brainstorm potential scenarios that could damage public perception with employees at various levels, as they may have unique contributions. Determine indicators and warnings for each attribute so you will know when to take action. For example, customer complaints about the cleanliness of a restaurant indicate that standards need to be raised before it becomes known as an unsafe place to eat.
2. Control processes
Standardization, technology, policies, and procedures reduce the likelihood and severity of events that could cause reputational damage. By focusing on consistently supplying quality products and services, it’s much less likely that there will be a harmful mistake. If something does happen, you can lessen the extent of reputational damage by explaining measures you had in place to prevent the incident and how you’ll prevent it from happening again. Carefully select third parties to work with and treat employees fairly to avoid scandals on the external front.
3. Understand all actions can affect public perception
The board and top management must recognize the importance of reputational risk management, and middle managers must lead by example to promote positive messages to key stakeholders. Organizational training, policies, and procedures can ensure that all employees know how to behave and respond appropriately in any situation. When reputation is at risk, employees must act quickly and responsibly while doing anything within their power to positively influence public ideas.
4. Understand stakeholder expectations
When you know what client expectations are, it’s much easier to meet them. Don’t try to set expectations too high by promising offers that you cannot follow up on — this will backfire when you become known as an organization that cannot live up to its word. Learn what customers, shareholders, and employees expect from the organization and management, and strive to satisfy these conditions.
5. Focus on a positive image and communication
In all situations, it’s key to consistently send out positive communications. Over time, this will build up your reputation in the public mind, lessening the impact of future damage. Always inform clients and employees what’s happening and how you are responding to incidents in the organization or environment. Customer service, transparency, good governance, and steady growth are some of the most important messages to convey. Obviously, you cannot always please everyone, so focus on satisfying your most important stakeholders first. We’ll discuss the impact social media can have on communications in a later blog post.
6. Create response and contingency plans
If the worst happens, your organization must be prepared to respond quickly and appropriately. Every minute that goes by can be crucial and reduce the respect the public has for your organization and its managers.
While seriously underestimated in some organizations, the risk that reputation presents is serious. It is a potential side-effect of any risk that can occur, so it's crucial to monitor it. Without effective reputation management, it may take an organization a long time to recover from an otherwise minor incident. For more information or advice, ClearRisk would be happy to help! Our risk experts can help you manage reputational risk.
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