Reputation and the importance of a good reputation is well understood; for businesses reputation is a vital and valuable commercial asset, albeit intangible. But how do organisations actively protect their reputation and manage the risks to it being damaged?
That is a harder question to answer. The 2014 Forbes Insights Survey found that 39 per cent of companies surveyed rated the maturity of their reputation risk programmes as “average” or “below average,” and only 19 per cent gave themselves an “A” grade for their capabilities at managing reputation risk. Clearly there is still much to be done – but what? In this blog, I offer some ideas for consideration and debate.
Influencers of corporate reputation
External perceptions of quality, transparency and trust are key influencers of corporate reputation, as found by research published in the Edelman Trust Barometer (an annual survey of more than 5,000 informed publics in 23 countries), the Fortune 500 listing of the world’s most admired companies and the Reputation Institute. But herein lie the first two problems for reputation risk management. Reputation is an intangible asset and its gift is in the hands of your stakeholders; both factors make it harder to gauge. Reputation risk is rising – why?
Trust is a key influencer of corporate reputation yet it is fragile and needs to be re-earned on a regular basis through delivering on your product or service promise, your business values, behaviours and decisions. Damaging trust in your brand, and thereby your reputation can happen fast and all too frequently, as demonstrated by the litany of crises (“an abnormal and unstable situation that threatens an organisation’s strategic objectives, reputation or viability”) wesee in the media every day – think Thomas Cook, Tesco, banks-various and others in just the last few weeks. The rise in reputational risk from increased public scrutiny and raised external expectations comes in part from the speed of the news cycle and proliferation of new channels for sharing and amplifying headlines, speculation and commentary. It means that your reputation must be managed and protected as a key asset, on a day to day basis.
Expectations about business responsibility are rising which, when matched with the desire for transparency, means that when something goes wrong, the pressure on the executive body to respond is intense and how they respond is critical. In many cases, the public understand that things can go wrong (apart from in cases of negligence) but they do expect that the response to an issue or crisis will be effective, efficient, transparent, well communicated and responsibly executed.
Surveys show that Board members now see reputation risk as one of the most important challenges they face and as a growing area of concern and vulnerability. At the same time, Boards also find it hard to deal with low frequency, high severity events (which is what most ‘crises’ are) and, more particularly, to prioritise preparing for them, allocating time and resource for training and exercising. Such crisis preparedness activities are a critical to help ensure that, when needed, the crisis response at the most senior level is professional, effective and well perceived by the plethora of stakeholders and commentators watching and judging intently.
Who owns reputation and reputation risk?
As a vital asset, building up reputation capital during the good times is as important as managing reputation risk. However, this raises a further problem within most organisations; finding the ‘owner’ of reputation at a strategic level is very challenging.
Reputation is not the same as brand and does not sit easily within marketing where brand is at home; it is not the sole preserve of the risk function (although more mature businesses do now bring reputation into risk management). Communications or Corporate Affairs may be seen as the owners but they do not generally have the processes to manage the multi-departmental perspective required to identify reputation risks. Some may say it is owned most readily and appropriately by the chief executive or chair, which in the ultimate analysis is true but is not where it will be ‘driven’ day to day. How many other facets of business with such value do not have readily identifiable owners – few, if any, in reality?
Integrating reputation management into governance frameworks
Ownership may be a ‘cloudy’ issue but the need to manage and protect your reputation is crystal clear. Unfortunately, all too often this is only recognised in the glare of the media when the crisis has happened and the fight is on to protect what reputation remains.
I would suggest that there are two key considerations central to protecting reputation which should be embedded in the governance of any organisation:
- Reputation ownership – a clear owner of reputation and reputation risk should be established in the organisation during business as usual. This should also include issues management leadership, strategies and procedures for recognising emerging issues (potential crises) whilst still in their nascent state and managing them appropriately with an integrated, multi-disciplinary approach.
- Crisis and reputation management – provision of well-constructed and rehearsed strategic crisis response procedures and reputation management approaches (through communication, investor relations and stakeholder management strategies) for when a crisis strikes.
It is interesting to see directors increasingly report that they are uncomfortable with reputation risk management within their organisations, yet its effective integration should be a natural part of good internal governance and compliance. Both the controls and the assurance mechanisms should be in place to allow visibility, clear assessment and management. However, this is an arena that is immature at best while governance remains an area of development and continual growth, as evidenced by the recently issued UK Corporate Governance Code (2014) from the Financial Reporting Council. Although this is focused on ‘premium listed’ companies, it does – quite rightly – strongly recommend far wider take up among the broader business community.
The code sets out that ‘one of the key roles for the Board includes establishing the culture, values and ethics of the company’; in essence those things that derive a large part of its reputation such as quality, transparency and trust. Much of the code is focused around how risk is managed, controlled and reported – and, of course, to manage risk requires a clear understanding of risk appetite, and to understand risk appetite requires an understanding of reputation and the reputational risk impacts that may be incurred. The loop is continuous, yet to many, an understanding of reputation, reputation risk and reputation risk appetite remains an aspiration rather than a reality at this stage.
How well prepared are you?
If you can answer the questions below with comfort and clarity based on widely understood information within your organisation, you are in a better place than most. And if not, it would be well worth your while developing more informed perspectives to be better prepared for when something bad does – or has the potential to – happen.
- Does your business acknowledge that reputation is a valuable asset and a Board level responsibility?
- Do you understand what makes up the core elements of your organisation’s reputation?
- Do you know who, at the executive level, ‘owns’ reputation and reputation risk – and do they?
- Does reputation risk form an element of your risk management controls?
- Is reputation and reputation risk regularly discussed at Board level?
- Do you have clear, integrated plans for the executive’s response to issues and crises?
Maintaining valued ‘trust’ in your organisation and believing in its importance to the business and its reputation means being prepared to consider those ‘high impact, low frequency’ events that can so easily damage reputation.
As the news breaks of a major crisis – internally or publicly – is not the moment to try and pin down consensus views on transparency and “how should we approach this” or “what is our view on how much we should say” and “who should we be talking to”. These are the hard miles that must be driven beforehand in order to behave responsibly and effectively in the eye of the media, the public and your critical stakeholders. This is when your corporate value come under scrutiny, the quality of your management and leadership is assessed and when your reputation capital can diminish in minutes. Reputation and its development, management and protection is definitely a marathon and not a sprint, and those who endeavour to sprint almost inevitably fall over!