By Paul Dillon
Many organisations fail to address reputational issues and prepare for future shocks until it is too late. Perhaps this is because the science of reputation management is a relatively recent one; there are still relatively few established tools and techniques to deal with reputational risk. However, the importance of managing a corporate reputation is undeniable; ignoring it can have massive ramifications for companies.
What exactly is reputation and why is it considered so very important in today’s world? And what are the factors that threaten it?
The Financial Times Lexicon defines corporate reputation as “observers’ collective judgments of a corporation based on assessments of financial, social and environmental impacts attributed to the corporation over time”. This intangible yet critical asset governs the actual value of a company. In an age of worldwide connectivity and instant communication, a company’s reputation is more vulnerable than ever before. In this context, the importance of a comprehensive reputation management programme cannot be overestimated.
Reputation comes into play with regard to how various key groups of stakeholders perceive you: customers, employees (potential and existing), partners and shareholders, and regulatory bodies. A robust reputation helps with each of these groups: consumers prefer to buy from you; it is easier to hire new people and keep employees motivated and satisfied; business partners are happy to work with you and make positive decisions regarding investment; and regulatory authorities are less likely to scrutinise you for compliance issues.
Reputational risks include any event that can negatively impact an organisation’s reputation. A few years ago, the Economist Intelligence Unit conducted a global survey in which a majority of respondents placed reputational risk as the No. 1 threat to their business organisations. (They ranked it over human capital risks, IT network risk, terrorism, and natural hazards!) Despite this widely prevalent view, many companies do not have a reputational risk management strategy in place. Those who do tend to have programmes that are reactive, instead of proactive.
Stay tuned for our next post in the Corporate Reputation and Risk series, in which we will outline some of the repercussions of not having a reputational risk management programme.
To see specific case examples and learn how we can help your organisation manage reputational risk, please contact the Baird’s CMC team.