The Consumer Protection Act poses Reputation Risk


The new SA Consumer Protection Act 68 of 2008 (CPA), which was gazetted on 29 April 2009, and which is scheduled for implementation in two phases, will have an effect on the reputations of companies.

A risk emerging about this Act is that a lack of knowledge in complying with the Act could cost a business dearly. Courts are given comprehensive powers to grant orders dealing with any contravention of this Act. Should a business be convicted for contravening the act, it may face a hefty fine or even imprisonment!

But that is a minor impact compared to the potential impact on reputation.

Such fines will attract negative publicity which could have a spiral effect. Reputation risk means the risk that an institution’s reputation is damaged by one or more than one reputation event, as reflected from negative publicity about its business practices, conduct or financial condition. Such negative publicity, whether true or not, may impair public confidence in the company, result in costly litigation, or lead to a decline in its customer base, business or revenue. Lots of research has shown the impact on shareholder value of incident mismanagement.

Complying with the requirements of this Act will necessitate changes to decision making patterns, procedures, systems and attitudes*. Many a service or product delivering businesses, amongst others, will require specialist advice to ensure that they are complying with the provisions of the CPA.

REPUCOMM with its specialist stakeholder management knowledge and training solutions are ideally placed to assist organisations with this mammoth task of not only complying with the Act’s requirements but bringing about a mindset shift and culture that will factor in the consumer’s stakeholder right from the beginning of the planning cycle and value chain and not after the fact.

Stakeholder Reputation Risk refers to the risk that emerges when the reasonable expectations of stakeholders are not met. For many years companies professed that they took the interests of the consumer at heart when they planned strategies. However continuous scrutiny, scandal revelations and stakeholder complaints have highlighted that basic consumer expectations have not been met, with the result that the regulator decided to take action and protect society. Ultimately this law is a direct result of companies mismanaging the stakeholder process.

It is generally concurred that the CPA, through its specific focus contributes to a more fair and balanced relationship between suppliers and consumers. However the issue is that it is enforced, raising even more mistrust. Will Businesses comply because they are forced or out of free will? Believe you me, actions will now be even more thoroughly scrutinised.

Ultimately, this Act together with legislation such as the National Credit Act and the Competition Act will provide more rights and greater protection to the consumer stakeholder. This will lead to potentially more negative publicity and consumer activism.

Footnote – The impact of the Competition Commission in the Bread and Pharmaceutical pricing collusion sagas should also not be discounted. As one article stated – Look out for Early Morning Raids…..! Intentions will be measured and weighed.

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