Reputation at Risk – Does it still matter?
Yes it does, and latest international research backs this statement. Not only does it back the statement but the research also reveals a struggle to cope with, manage and mitigate this volatile risk.
For a long time, the debate has raged on. Is Reputation Risk a Strategic Risk or just a consequence of a risk?
Perhaps it is because of the misunderstanding that exist in management circles about it. Just because Reputation Risk is the domain of intangibles, does it make it so elusive that we leave it till it is too late, and then try and patch up the embarrassment with PR and fake apologies? Also, to treat it as a simple consequence is not adequate and indicative of the level of thinking that is needed to deal with it appropriately.
Often Reputation Risk incidents have been water shed moments for companies, necessitating whole sale changes to value systems and modus operandi.
In South Africa, there has been many reputation risk incidents that have damaged the names of individuals and organizations a like. We have had our share of naming and shaming, mamparas and Wikileaks moments.. From unauthorised usage of our airspace by the Gupta family to the huge Construction Industry fall-out and subsequent Competition Commission fines to court cases and huge expenditures on Nkandlagate. The list just goes on unabated, which certainly points to a lack of understanding to manage intangibles and perceptions, to manage reputation risk in the Southern African environment.
So, let’s evaluate some of the latest research findings in search of some answers and direction.
On the 15th July, an article appeared in the Risk Management Professional that was called “Is reputational risk management yesterday’s news”?. The article states that a new survey into the emerging professionalization of reputational risk management tells us quite the opposite. It then quotes the findings of a study from Schillings on reputation risk that brought together a group of key practitioners, including general counsel, communications directors, public affairs directors, group heads of risk and CEOs from over 150 leading public and private companies to try and move the debate forwards. After all, this is a shared concern, and as one general counsel at a FTSE100 company remarked: ’Reputation risk will always touch our business somewhere.’
On the 23rd July – ACE Research publishes the findings of their latest study ‘Reputation at Risk’, which was conducted across 15 countries within its EMEA (Europe, Middle East and Africa) region. This study found that “Reputation is the Hardest Risk to Manage. Their findings reveal that 92% of companies believe that reputational risk is the most challenging category of risk to manage.
This certainly ties in with a 2011 Deloitte report that found Reputation Risk to be a “meta-risk” – The Report stated that Reputation is an important factor across all four major risk areas of the Risk Intelligent Enterprise — strategic, operational, financial, and compliance — especially because it is a constantly evolving and fully embedded as part of the why and how a company achieves its objectives.
In May this year, The Compliance Week wrote and I quote: “After financial risk, reputation risk is the biggest concern that keeps board directors awake at night, according to the latest poll from EisnerAmper via Survey Says Boards Troubled by Reputation Risk.
Ace Research’s findings also revealed that while 81% of companies in the survey see reputation as their most significant asset, most of them admit that they struggle to protect it and identifies a number of key reasons why companies in the region often find reputational risk challenging to manage:
- 77% of companies find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional, more tangible risks. This is understandable as it is a very volatile risk. Sometimes a small incident can have worldwide repercussions, sometimes it will have no effect. I wrote about this in my post – “One Event. Multiple Stakeholder Impacts”.
68% of companies believe information and advice about how to manage reputational risk is hard to find, compounding the sense of uncertainty and confusion about how best to manage it. This carries another element of truth. Without adequate stakeholder profiling and analysis, issues management and systemic thinking, incorrect mitigation might be the order of the day. No longer is PR the only preferred tool to manage Reputation Risk, what about Governance, Ethics and Compliance functions role and input?
- 66% of companies feel inadequately covered for reputational risk from an insurance perspective. Again the problem exists because you can outsource many risks, but reputation is a risk that is integral to your businesses’ DNA and cannot be outsourced.
56% of companies say social media has greatly exacerbated the potential for reputational risk to affect their business. This is the new world we are living in and it implies more scanning, monitoring and training.
And another report, “With CSR In Global Demand, Corporate Reputation Is At Stake”, (by Cone Communications And Echo Research) stated that CSR is no longer a nice-to-do, corporate social responsibility is now a reputational imperative – or liability. The study revealed in the 2013 Cone Communications/Echo Global CSR Study, that companies are expected to be an active participant – if not a driving force – in solving the most pressing social and environmental issues. Corporations that disregard this consumer-demanded role risk more than their reputation – nine-in-10 global citizens say they would boycott if they learned of irresponsible behavior. This report shows that CSR is now a direct driver of Corporate Reputation and major cause of Reputation Risk.
The Ace Research findings also proposes a number of solutions to adopt, including:
Companies need a clear framework for managing reputational risk.
Effective management of ‘traditional risks’ will help avoid reputational events, and management teams need to put in place a culture and instil a risk appetite across the company that will reduce the potential for crises to emerge in the first place. In addition, taking a multi-disciplinary approach that involves the CEO, PR specialists and other business leaders will also help to build the broader perspective that is necessary for identifying and managing less obvious reputational risks.
My thoughts: I found this interesting as this was the approach that I recommended to Vodacom when I assisted them with embedding Reputation Risk in their Enterprise Wide Risk Management system prior to their listing.These recommendations certainly shows up the Construction Cartel and the need for PR/Reputation Managers to be involved earlier in the risk management & mitigation process. It also implies that the help of OD/Organizational Behavior experts is necessary.
Companies should work harder at measuring how their reputation is perceived. Understanding perceptions of key stakeholders, their interplay and their impact on corporate reputation, is essential for tracking and managing reputational risk effectively. Companies must ensure that they are collecting an “outside-in” perspective to complement their own internal perspective.
Again I rest my case. I have been teaching this in my Stakeholder Reputation Management Master Classes since 2006.
Companies should sharpen up their crisis management plans to keep pace with today’s faster-moving world. Our research suggests that many companies may be over-confident in their abilities to respond to a crisis. Regular review and testing — including the incorporation of social media scenarios — will allow a faster response when disaster strikes.
Again I rest my case. I have been teaching and facilitating the need for Nano-Seconds Crisis Management Plans for a long time – even in China.
The insurance market can do more to help companies manage reputational risk. This includes the provision of more holistic solutions that include crisis response assistance. It also includes helping companies to take a ‘reputational lens’ to more traditional risks to evaluate the reputational consequences in each case. In this respect I work closely with Business Continuity and Health & Safety specialists to advise my clients.
Andrew Kendrick, President, ACE European Group, goes on to say:
“Reputational risk can be difficult to predict. However, some clear pointers emerge from our research as to the source of companies’ key worries. One of these is the globalisation of business, with complex supply chains, expansion into new markets and the challenge of maintaining consistent standards across multiple borders all giving cause for concern. The other noticeable theme is regulation. Post-crisis, compliance has taken on a new importance and businesses of all shapes and sizes are more keenly aware of its relationship to their corporate reputation.
“Insurance is not a panacea for the fast-evolving world of reputational risk. Nevertheless, I believe there is much that insurers and brokers can do collectively to help their clients. This includes the evolution of new more holistic insurance solutions that involve the input of crisis and PR specialists. More generally, professional risk engineering can help to improve risk management processes and governance, allowing clients to manage the more ‘traditional risks’ better and reducing the likelihood of a reputational event in the first place.“
The Schilling researchers asked respondents: ’How useful is your organisation’s formal risk management process when it comes to protecting corporate reputation?’
The response was mixed. On the positive side many communications directors and general counsel rated the risk process as ‘useful’. Interestingly legal respondents were significantly more likely to rate the process as ‘very useful’ compared with those from a communications background. Over 30 per cent of communications respondents to the survey felt that the risk management process was either ‘not useful’ or were unaware of such a process.
One risk manager we spoke to at a leading private company gave us an example of how things work when they are going well: ‘In terms of the communications team and reputation risk, it is dealt with in a high-level and strategic manner. The head of communications prepares incident scenarios. As a risk function we input to those scenarios. This helps to make sure that we have communications and incident response plans in place for our major reputational risks’” However, scenario planning is just one part of the picture.
I fully agree. Reputation Risk is inherent in everything we do. It can be positive or negative. But it needs a dedicated approach and robust thinking processes.
To assist leaders with their questions, struggles and issues I will facilitate a Protecting Corporate Reputation Master Class in Johannesburg from the 22 – 23rd August. This 2 – day training course will provide a deep dive into Reputation Risk and will equip delegates with the necessary competencies (knowledge, skills & attitudes) to protect and defend their organization’s most valuable asset – its reputation against potential threats, risk and potential damage, and is based on more than 25 years research and experience on how to protect business reputations.
The course weaves inputs from best practices in Reputation Management, Risk Management, Communication & PR, Crisis Management & Crisis Communication, Ethics & Corporate Responsibility to provide companies with tools and know-how to protect, defend and deal with reputation risk events of any kind, and should provide you with a strategic direction on how to manage reputation risk in your organization.
To find out more on how to register, click here.