Flawed Decisionmaking is Dangerous

Every decision that an organisation must make has four broad sets of implications. The obvious three sets of implications are operational, financial and legal.

Namely:

• Is it legal?
• How much will it cost?
• Can we implement it?

The fourth set of implications is generally either ignored, delegated or included in the process only on the basis of the "gut instinct" of one of the participants.

This fourth set of implications is reputational.

The reputational implications of a business decision can be defined as those that impact the way in which an organization is regarded by those with whom it interacts, including shareholders, customers and employees, as well as suppliers, government regulators, the media and even competitors (and any other stakeholder).

Any organisation is dependent on its stakeholders for support and the strategic importance of any stakeholder depends on how dependent the organisation is upon it. And this relationship can change over a period of time or due to indiscretions.

It is important to realise that a decision has reputational implications if it has the potential to affect the relationship between the company and any of these stakeholders. In other words, it is difficult to think of a decision that does not have reputational implications.

Reputation, most managers today would agree, is an asset, even if only a perceptual asset (or, if mismanaged, a liability). It certainly is not optional. Every corporation, organization, institution, individual has a reputation. The only option is whether to manage it or allow it to be inferred.

If it is to add value, it should be managed with the same care and attention as any asset. It should be obvious that if a decision has four broad sets of implications, and only three are formally and routinely considered, the potential exists for flawed decision making.

After all, the role of a manager is to manage all the assets under his or her control effectively. Tangibles and Intangibles.

Research has clearly shown that risk increases in patterns of decisionmaking. Those patterns can often easily observed in a boardroom situation. This risk increases when there is a lack of asking these types of questions:

• Who are our stakeholders? (This is not a given. Stakeholders change position based on interest or need)
• What are our stakeholders’ stakes? (Is it legal, moral, economic, public interest or self – interest?)
• What opportunities and challenges do stakeholders present?
• What economic, legal, ethical, and social responsibilities does our organisation have?
• What strategies or actions should we take to best manage stakeholder challenges and opportunities?
• Do we have a system for managing relationships with stakeholders?
• How do we measure results? What metrics do we use to assess and gauge stakeholder relationships?
• In a crisis how quickly can we communicate with our relevant stakeholders?
• Do we know the various methods to engage with stakeholders and when not to use it?
• Do we know how much we are spending on each stakeholder group and what the ROI is?
• Have we developed a set of rules and guidelines on how best to manage the process of building stakeholder reputation with each stakeholder group?

Unless you can answer these questions, you cannot assess the fourth set of implication of a decision, and your decisions will at best remain skewed.

The question I want to ask is whether managers will make certain decisions if they have been sensitised to the answers to these questions?

(To learn the answers to these questions and many more, attend the Stakeholder Reputation Master Class at the Hotel Apollo in Randburg from the 20th – 21st January 2010. Go to http://stakeholderreputation.invite43.com/ or e-mail reputationeducation@icon.co.za for a brochure and registration form)

Technorati Tags: Stakeholder Management,Decisonmaking,Stakeholder Reputation Management Masterclass event

Best Practices for Managing & Protecting Business Reputation

According to Wikipedia, “Best practices can also be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people.”

There are best practices for identifying and mitigating reputation risk in different types of companies as well as best practices for managing reputation as an asset. Please note that not every environment or every company is the same. Your unique environment may require different configurations in order to provide the best protection results.

If you have questions about your environment and would like some guidance on mitigating reputation risk, contact deonbin (at) icon.co.za

Like all of the intangible assets whose value has escalated in recent years (other examples are talent, knowledge, know- how and intellectual property), reputation has often been overlooked by organisations because it is so difficult to comprehend.

It is only when a reputation incident severely damages the credibility of an organisation or one of its brands, or its standing in the eyes of its stakeholders, that the potentially catastrophic consequences of not managing the crisis properly become apparent. Studies of organisations that have handled crises affecting their reputation badly have identified long term and irreparable damage to share price, market share and brand value.

The recent eye-gouging incident by the Springbok flanker, Schalk Burger is a classical example of this. Not only was he suspended for 8 weeks, but the incident itself has raised the ire of the rugby loving public and the matter was compounded by the inept handling of the media conference by the coach, Peter de Villiers about the matter.

http://www.walesonline.co.uk/rugbynation/rugby-news/2009/07/03/i-m-no-thug-insists-banned-springbok-schalk-burger-91466-24062279/

Many organisations make the mistake of assuming that all that is needed is media training and crisis planning. However, a reputation crisis exposes to public and media scrutiny not only the organisation’s competence at crisis handling, but the values, standards and shortcomings that existed beforehand.

In this instance, The Schalk Burger affair was compounded when he only formally apologized about a week after the incident.

While crisis communications largely remains a case-by-case practice, the author Laurence Barton said there are two essential immediate steps both individuals and companies should always use to control the media storm during a scandal.

1. Come clean. Issue a statement admitting to wrongdoing and accepting full responsibility (assuming the allegations are true, of course).

2. Apologize. Sincere acts of contrition can go a long way in getting back into the good graces of the public and media.

 

Every crisis must be handled differently, but in every crisis there should be a party accepting blame, and that party should apologize as soon as possible for being the cause of that blame. The end result – The Company’s integrity and reputation must be maintained at all cost.

Who said so: Warren Buffett and David Glass, CEO of Wall- Mart!

 

The problem is that apologizing does not come easily. The starting point of any reputation recovery process is a believable apology.

According to Wharton marketing professor Lisa Bolton, three key components ensure that an apology will work:

1. The CEO must deliver the message,
2. A solution to a problem must be outlined (Like a product recall process) and
3. Some remuneration should be in place. The initial response is the most important," she says. "The general advice is to admit mistakes and try not to be defensive. Get out in front of the story. Get your admission and mitigation out there as well, and consider financial compensation. Also, customize your response in relation to the magnitude of the failure."

It is my belief that apology also goes hand in hand with the strategic communication process in any organization. For instance , if a company have not debated PRIOR to a crisis whether they are going to be open and transparent, do you think an apology will be forthcoming? (See the article Use this tool to improve transparency in your organisation in Powerlines Number 39 dated 20 November 2002).

The reputation best practice strategy should, therefore, have two simple objectives – to prevent the causes that could damage your reputation, and to minimise the impact if, despite your best endeavours, a reputation crisis should occur.

Here is a partial list of some of the best practices to consider:

1. Develop ways to understand the nature of your reputation
2. Design & develop a reputation risk management strategy that can act as a roadmap for strengthening risk management in particularly vulnerable areas
3. Work together with PR, Risk and Compliance departments to close gaps
4. Develop standards and controls for the action that the strategy places most importance on
5. Learn how to proactively manage elements of reputations
6. Provide reputation management training, education and communication to obtain the vital support and commitment of your employees and managers
7. Design analysis and monitoring mechanisms to provide early warning of problems or crises
8. Develop a process of continuous crisis assessment
9. Conduct regular crisis planning and testing
10. Ensure regular reporting and monitoring of reputation risk, including incident analysis, issue management, environmental forecasting and online reputation monitoring.

Some organisations have attempted part of this best practices process themselves, particularly the first few stages. In my experience, they are severely disadvantaged by being too close to the issues, or by risking avoiding taboo or politically difficult areas, or by not challenging assumptions vigorously or objectively enough.

If you would like to learn more about best practices in building, managing and protecting corporate reputation, why not attend one of our learning interventions?

Technorati Tags: Reputation,Reputation Risk,The Art of apologizing,Sport Reputation