Why should organisations protect itself against Reputation Risk?

Numerous studies have shown that the most significant issues facing business today are reputation risk (defined as the threat of any event that can damage a company’s reputation) and regulatory risk (defined as problems caused by new or existing regulations). 

Unfortunately many companies damage their carefully crafted reputations either inadvertently or through blatant and incredulous acts.

Most of the damage occurs when there is not a careful crafted strategy for building, sustaining and protecting the organisation’s biggest risk and asset – its reputation.

The new order of the day seems to be accounting principle restructuring, companies seeking to improve trust building, governance and ethics principles and practices, stakeholders seeking disclosure and shareholders becoming more and more frustrated.

Yet, there still seems to be a general lack of understanding the true value and potential of an organisation’s reputation. And, as long as management do not understand how reputation risk manifests negative articles and doubt about company practices will continue to dominate headlines.

Unwanted actions and negative publicity leads to reputation risk. And reputation risk manifests when perceptions and opinions are influenced by negative experiences, impressions, beliefs, feelings and knowledge that stakeholders have about a company. It often results in loss of sales, share value decreases and breakdown of relationships.

Companies should be asking themselves about what actions they are taking to protect and insure their good name against all types of crisis – especially those that are sudden, smouldering and perceptual!

More and more companies are finding that their once hidden “smouldering crises” are now becoming fully-fledged combustible crises. (A smouldering crisis is any serious business problem which is not generally known within or without the organisation, which may generate negative news coverage if or when it goes “public” and could result in fines, penalties, unbudgeted expenses or unwanted scrutiny).

The damage of a reputation crisis can be direct and indirect. These costs could include penalties incurred because of a lack of legal compliance, litigation, media conferences and advertising costs and the hiring of crises communication consultants to put forward positive messages after the wrongful deeds. BUT what about the indirect costs, the effects on various stakeholders? The customers that do not return or stakeholders that takes their business interests elsewhere?

I believe that managers have both a professional and a moral duty to try to protect their company’s reputation. The way to minimise their company’s reputation risk is to be vigilant and report anything, which they believe, could erupt into an issue of unwanted publicity and to act to rectify it. But they can only do that if they understand what reputation is all about and how it can be managed and damaged.

I therefore assist companies with minimising and mitigating reputation risk and advise them on how to react and manage any crisis or issue that might destroy reputation, relationships and market share. A large part of my work involves speaking at conferences; capacity building by facilitating workshops around the globe on Reputation, Crisis Management and Crisis Communication response and helping organisations design and implement robust reputation risk management frameworks. 


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