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Business Risk: Managing Your Reputation Risk

Business Risk: Managing Your Reputation Risk

By Eddy Brett
23/03/2016

I would stake my reputation on it!

It’s an old saying and indicative of the value we place on our personal reputation

Shakespeare wrote in Othello “He that filches of me of my good name….makes me poor indeed".

Benjamin Franklin expressed it this way, “It takes many good deeds to build a good reputation and one bad deed to lose it”.

And Warren Buffett famously said that a reputation takes twenty years to build and five minutes to ruin.

So true we hear you say.

Reputation Risk is difficult to manage

In a commercial sense, reputation is recognised as a highly important and vulnerable business asset and one that is very difficult to protect.

Deloitte’s 2014 Global survey on reputational risk found that 87% of the executives surveyed rate reputation risk as more important or much more important than other strategic risks their companies are facing. In addition, 88 percent say their companies are explicitly focusing on managing reputation risk. (You can read the full report here) 

More recently, Aon Risk Solutions noted in its Global Risk Management Survey 2015 that a long list of well-known companies saw their reputations tarnished by unexpected incidents last year.

No industry is free of exposure to reputation damage.

There are many documented cases across a range of businesses in aviation, vehicle manufacture, banking and finance, oil and gas, shipping and so on. Small business enterprises are just as vulnerable. The biggest impacts are in revenues, increased operating cost, destruction of shareholder value, particularly customer confidence, and regulatory investigations.

I have had no difficulty in engaging with executives on the potential risk exposure to reputation damage. Many have said they regard the company reputation as more important than any other asset including intellectual property. The challenge is to how to protect it.

I have worked with organisations who have had significant and potentially very damaging events occur – some sudden and unexpected and some slowly building circumstances which were ignored until they were serious. Unfortunately, there have been cases where the business’ reaction was too slow to avert significant reputation damage and increased costs.

How do you manage reputational risk?

 A major issue in protecting reputation is understanding that reputation damage is the result of one or more other risks, for example, compliance failure, service or product failure or arising from contractual issues. Third-party relationships are another rapidly emerging risk area, with companies increasingly being held liable for the actions of their suppliers and vendors.

Any function within the company can impact the overall reputation. It can result from failure to maintain operational standards, to meet regulatory expectations or not reacting quickly or transparently to ensure problems are addressed. It is worth remembering that the media will make or break a reputation under fire. This includes traditional media outlets, but also the blogosphere, Twitter feeds and social networking.

Protecting your business reputation or brand is a major challenge— but it’s also a manageable one. Although you can never be 100% certain that your business is safe, by factoring reputation risk into your risk management planning and investing in the right capabilities, you can substantially reduce your potential exposure and clear a path for continued growth and success.

 

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