Reputational Risk

We all want to be perceived in a certain way by those around us. That affects how we present ourselves to others and how we carry ourselves when we are around them. This is because we understand the importance of creating a good perception about ourselves that ensures we have a good reputation.

When it comes to business, it is not any different…Every business has a brand persona and that determines how it operates which eventually creates a certain perception about it. A good reputation is good for business, a bad one, can be crippling. It is therefore very important for stakeholders to create and maintain a good brand reputation.

Reputational risk is a threat to the positive perception others may have about your brand in general, a product or service you offer. Reputational risk can be categorised into:

• Direct risk: This is as a result of a company's actions or internal issues.
• Indirect risk: This results from actions of the employees of a company
• Peripheral risk: This arises from the actions of business partners.

So what are some of the causes of reputational risk?

• Poor workplace operations and conduct: Misconduct of employees, management and third-parties you work with can affect your reputation. It can lead to your business receiving negative media coverage and consequently affect your reputation.
• Inadequate quality of products and services: Faulty products or substandard services by a company may make its customers lose confidence in their ability to offer quality products and service. This in the long run will create a negative perception about your brand and customer will opt not to buy from you.
• Misleading investors or the public: Companies that intentionally mislead investors and the public with fabricated claims of product success and capabilities or falsified financial reports risk damaging their reputation
• Poor data security and privacy: Data breaches are a major source of reputational risk. Companies whose customer data is stolen by hackers experience significant repetitional damage as consumers lose confidence in their competency to safeguard sensitive data.
• Poor regulatory compliance: A company with poor compliance could be publicly investigated, convicted of crimes, and forced to pay hefty fines – all of which negatively impact the brand’s perception in the marketplace.

How to manage reputational risk

1. Make reputational risk part of strategy and planning

Start by brainstorming with your employees at different levels the potential scenarios that could damage your brand’s reputation. Determine the indicators for each scenario and possible solution to mitigate it before the issue gets out of hand.

2. Control processes

Standardisation, technology, policies, and procedures reduce the likelihood and severity of events that could cause reputational damage. By focusing on consistently supplying quality products and services, it’s much less likely that there will be a harmful mistake.

3. Understand all actions can affect public perception

Your company should have well spelt out policies and procedures to ensure all employees at all levels know how to behave and respond appropriately in any situation.

4. Understand stakeholder expectations

Make sure it is clear and you understand what customers, shareholders and employees expect from the organisation and management, and strive to satisfy these conditions. Don’t set expectations too high by promising offers that you cannot deliver.

5. Focus on a positive image and communication

Customer service, transparency, good governance, and steady growth are some of the most important messages to convey. It’s not possible to please everyone at the same time, so focus on satisfying your most important stakeholders first.

Consistently send out positive communications. Over time, this will build up your reputation in the public mind, lessening the impact of future damages. Always inform clients and employees what’s happening and how you are responding to incidents in the organisation or environment.

6. Create response and contingency plans

What’s the worst that can happen to your organisation and how will you respond to it from a reputation perspective? You should think of the worst-case scenario and how to appropriately respond to it in case it happens.

In conclusion, while in some organization reputational risk may be underestimated, its potential side effect can hugely harm your business. Without an effective reputational risk management, it may take an organization a long time to recover from an otherwise minor incident.