In our recent posts on this topic, we discussed some of the essentials of reputation management and risks, the repercussions of not having an effective reputation risk management strategy in place, and the role of the CEO.
What are the characteristics of a successful reputational risk management approach? The mistake many companies make is focusing purely on risk avoidance – a reactive approach. No doubt, this is an essential aspect. There certainly are risks that can be averted altogether; continual and careful analysis of key trends can indicate potential threats, and corrective action can be taken accordingly. However, it is also critical to acknowledge the fact that not all risks can be avoided and to expect the unexpected. A proactive approach that acknowledges the possibility of external shifts and prepares for unforeseen events is key to successfully protecting the image of a business.
A business’ reputation is ultimately based on how its various stakeholders perceive it; hence, the importance of communication in reputational risk management cannot be overstated. When it comes to stakeholder perceptions, many companies monitor their customers’ views. Often, however, other stakeholders are largely ignored. This can lead to a rather limited understanding of the potential risks to reputation.
When an unexpected crisis strikes, a comprehensive and well-rehearsed communications strategy can minimise reputational loss – and later repairing the damage. Companies need to respond in a timely and appropriate fashion. Those that don’t may suffer losses that can take years to recover from. In an earlier post, we mentioned RIM’s public relations disaster in the wake of a worldwide BlackBerry service outage.
Another example is British Petroleum’s failure to use communication effectively during and after the Deepwater Horizon oil rig explosion. From downplaying the extent of the damage, to public quibbles between employees, to then-CEO Tony Hayward’s numerous faux pas in the press – the BP strategy left much to be desired. In the public mind, therefore, BP’s former reputation as an environmentally ethical company suffered greatly. Although various other organisations were part of the oil spill, BP became the name most associated with the crisis – accusations of irresponsibility, insensitivity and unethical behavior flew far and wide. In this case, a prepared strategic communications response could have gone a long way in handling the crisis better.
Reputation is not the icing on the cake any longer – it is a company’s most precious competitive advantage as well as an indicator of present and future value. In a world where information is shared instantly and transactions in global financial markets are the work of a moment, it is imperative for businesses to prioritise reputational risk management. Public trust and stakeholder confidence are drivers of enterprise value.
Eroded credibility negatively impacts sales, share value and employee behavior; at the same time, the probability of legal entanglements and regulatory fines increases. According to the Reputation Institute, “Stakeholder perceptions of company behaviour are now the lead driver of enterprise value. Studies show that companies with high reputations are worth as much as 150% more than those with low reputations.”
This post concludes the Corporate Reputation and Risk series.
To see specific case examples and learn how we can help your organisation manage reputational risk, please contact the Baird’s CMC team.