I start every seminar and presentation with definitions, sothat I can establish a common framework through which I can work with my audience. In particular there are a number of definitions to describe reputation and reputation risk, each serving a slightly different purpose.
These need to be further explored so that you can decide on how you will manage reputation.
The classic definition is that Reputation is all that isgenerally believed about your character, respectability, credit, integrity or notoriety. (Latin: reputatio – reckoning). But it is not enough to guide us.
I also use these definitions that give it more meaning:
Reputation is a state of mind – A Set of memories,perceptions and opinions that sits in your stakeholders’ consciousness.
Reputation is the net result of the interactions of all theexperiences, impressions, beliefs, feelings and knowledge all stakeholders have about a company.
So what then is Reputation Management?
It is essentially a consultingdiscipline that realizes that Reputation is both an asset and a risk. The definition that I therefore like to work with says that Reputation Management is the building, sustaining, and protection of an organization’s good name, generating positive feedback from stakeholders and resulting in the attainment of strategic and financial objectives. It implies that there is a definitefinancial link between the work we do in reputation management and the bottom line.
However reputation is also the greatest risk that anorganization can face.(Think of a run on a bank). As Warren Buffet have said: ” It can take twenty years to build a good reputation, and only five minutes to destroy it”.
WE therefore have to consider the following definitions aspart of our approach to building and protecting reputation.
Definition 1: (Stakeholder Perspective) - Reputational Riskemerges when the reasonable expectations of stakeholders about an organization‘s performance and behavior are not met. This has been listed insome surveys as the most dangerous reputation risk of all. It essentially involves taking a look at each stakeholders needs and expectations, matching the drivers of an organization reputation and minimizing the gaps that exist.
Definition 2: (Asset Perspective) – Some studies show that Reputation makes up between 55 – 73% of a company’s asset value. In this instance, Reputational Risk is defined as the loss of earnings that occur in a situation of negative public opinion. It normally results in loss of sales, share value decreases and breakdown of relationships. Many a crises have led to stock price decreases and impact in other areas of the business.
Definition 3: (Incident Perspective) - Reputational Risk isthe exposure incurred from unexpected incidents, or from unanticipated response to the institution's initiatives, actions or day-to-day activities. This definition implies that Reputation Risk is the risk that an activity, action or stance performed or taken by a company or its officials will impair its image in the community and/or the long-term trust placed in the organization by itsstakeholders, resulting in the loss of business and/or legal action, and is closely linked with the asset perspective.
Definition 4:(Compliance Perspective) - Reputational Risk can also be defined and viewed asthe loss or negative publicity that can arise from failure to meet regulatory or legal obligations.
From the above definitions it must be clear that essentiallyall risks and all related components of an organization potentially impact on reputation. This implies that reputation needs to be systemically managed if an organization wants to extract maximum value from it.
Tip – It is essentialthat you define Reputation Risk in these four ways in your business, as each definition implies a different mitigation strategy and potential danger.
My question to you - Have you adequately defined Reputation Risk in your Business? Do you have a Reputation Risk framework that spells out how you will mitigate, treat and respond to Reputation Risk? If you don't, you have some work to do.
Comments
It stands to reason that if an organization does not perform in this area that it will affect and impact its overall reputation. But it goes beyond this. There is even a movement to day to just call it Corporate Responsibility.
Reputation could be defined as how a company is perceived by each of its stakeholder groups and reputation risk as the risk that an event will negatively influence stakeholder perceptions. Many reputation risks are the secondary result of other, more traditionally recognized risks.
For example, if a manufacturer produces an unsafe product, it may lose customers and is likely to suffer financial costs due to a product recall, both of which impact reputation. Reputations may be damaged for any number of reasons, including that stakeholders perceive a company to be unethical.
"Safeguarding reputation is even more critical today because companies have developed successful ways to make reputation risk management part of their overall risk management," says Ellen Hexter, Director, Enterprise Risk Management at The Conference Board.
"In addition, different stakeholder groups are becoming more sophisticated in how they drive corporate reputations. Critics on the Internet can now transmit their opinions and complaints around the world with ease. Most importantly, consumers have high expectations that companies will not only produce quality products and services, but also will act ethically in their creation and distribution."
Not paying adequate attention to CRS/CSI can negatively affect your reputation because it will demonstrate that you are not a caring citizen.
The type of Reputation Risk could cause you to lose your societal license to operate.
Very interesting thread as I'm sure we underplay the importance of reputational risk.
One thought, where does CSR, philanthropy and D&I sit re RR?
I have recently learnt (July 2010) that the UK arm of a global l&p insurer had its bid for a £multi-million corporate pensions scheme kicked into touch because it had no evidence of charity giving or wider philanthropy.
I found this fascinating as this type of risk to revenue is not generally experienced or defined at this stage of income generation. Accordingly, there must be other risk factors we should be dimensioning that are preventing us from winning bids and deals, and costing us money to do so. The focus seems more on risk once we've got the client/revenue, not what's stopping us getting more...
In the above example, as the UK corp pensions market is driven by EBCs (employee benefit consultants), I doubt this will be a one off. Neither does the insurer - they are now supporting a charity in order to ensure they don't get caught again.