What is Reputational Risk?
Reputational risk is any threat to your company's reputation. This can happen when your company's character or ethics are called into question as well as factors including negative media coverage, legal action, or even rumors. Damage to your brand and reputation is one of the top risk management concerns.
Why is Reputational Risk Management important?
Reputational risk management is the process of protecting and improving an organization's reputation. It’s important because your company's reputation is a priceless asset. Conducting a reputational risk analysis will help you uncover where your business may be at risk.
Brand risk can have a lasting and dramatic effect on your company's financial health. It can even hurt your company's chances of survival. A good reputation can help an organization attract and retain customers, employees, and investors. It can also help your organization weather crises and setbacks.
How to Minimize Reputational Risk Management
The following are six ways you can help prevent and mitigate reputational risk.
1. Protect your brand against data breaches.
It's not uncommon today for hackers to gain access to confidential customer and employee information. While this may be beyond your control, how you react will make a difference in mitigating any reputational risk you might run.
Whether the cause of the breach is your company's fault or not, the best course of action is to be immediately upfront with the information. Reacting quickly to inform those affected, showing accountability, and swiftly putting plans into action to restore safety of information can help you stem the flow of negativity that can become a major reputational risk.
There are a number of steps that you can take to prevent or mitigate brand risk from data breaches. For example, you can educate your employees and other stakeholders on cyber safety practices, such as knowing how to recognize a phishing email.
Other ways to prevent data breaches include:
- making sure you issue cyber protection policies and procedures
- updating your information security controls and following through on every security update
- hiring encryption experts to boost your cyber security
- using advance threat analytic tools to help you detect suspicious activity so that you can react accordingly
- setting up a task force trained to be the first respondents when disaster strikes
- purchasing cyber insurance protection
You can also check out the resources provided by The U.S. Department of Homeland Security to help you keep your business cyber safe.
All of these initiatives may send a message that you're proactive in doing your best to safeguard your customer and employee information. They could be a reputation guard.
2. Be vigilant about customer service mishaps.
Today social media has empowered customers to quickly spread the word about any dissatisfaction with your product, service, or personal treatment by employees. This is a reputation risk that's difficult to recover from, since negative reviews can leave a permanent digital footprint. What is said about your company online is like an indelible electronic tattoo.
One way to prevent this reputational risk is customer service training. Frequent reminders to employees about the importance of creating situations that generate positive reviews instead of bad ones can help as well.
Another way to avoid bad reviews is by empowering frontline employees to do what's necessary to professionally deal with complaints and rectify issues promptly. Remind everyone in the company to be conscious of preserving the relationship with the customer throughout the interaction. Customers remember, above all, how you made them feel when they lodge a complaint.
Part of managing brand risk is also hiring the right people in the first place. Consider selecting employees who show the right mix of the hard skills you need and a pleasant disposition or a more empathetic approach. No matter how knowledgeable or talented an employee is, there may not be a place in your company for someone who is curt with customers and colleagues, or otherwise may leave your customers with the impression that their business is not appreciated.
3. Keep your employees happy to prevent reputational risk.
An oft-overlooked source of reputational risk can be a disgruntled workforce. After all, who is more knowledgeable about your company culture and practices than current and past employees?
To avoid this, you can make sure that employees are all treated fairly and that your people practices are beyond reproach. Are your employees happy to work for you? If not, what can you do to boost employee satisfaction?
There are a handful of practices you can employ to keep your employees happy – and to help shore up your own reputation as a manager, leader, and business-owner. Consider frequent check-ins with employees, both as a group and one-to-one. A regular standing meeting can be helpful in tracking your employees' engagement over time, and one-on-one meetings may provide employees who are reluctant to speak up in front of their colleagues a chance to speak their minds.
Consider what your employees say seriously and even if you ultimately disagree, take the time to process it and offer them perspective into your thinking about why. Your employees may not remember what every disagreement or conflict in the workplace is about, but they may remember how it made them feel. If you can remain in their minds a leader of integrity and fairness, even when things get uncomfortable, you may end up helping you and your company's reputation without even knowing it.
Apart from being the right thing to do, happy employees are more likely to treat colleagues and customers well, thereby boosting your reputation as a good company.
4. Illustrate your company values.
What do the values on your website and marketing materials say about you? Do your employees believe in these values? Do their actions match these descriptions?
A potential gap between espoused values and actual behaviors can be a reputational risk if people consider your company values are merely for cosmetic purposes.
You can guard against this potential brand risk by making your values truly operational. One way to start this process is by modeling your values and getting all your senior people to do the same. This means "walking the talk." For example, if you say employees are your most valued asset, do you show this in the way they are treated?
Next, identify where there's a misalignment between values and behaviors and take steps to correct the misalignment. Then you can incorporate your values into every aspect of the company, whether it's employee selection, performance management and rewards or allocation of resources. This can help send a clear message that your values are not just window dressing.
5. Be mindful of ethical conduct.
Another cause of reputational risk is lapses in ethics. You can make sure this crucial area of reputational risk doesn't fall under the radar by having clear workplace practices and policies.
Is there a code of conduct in your company to guide employee behavior?
What is appropriate in terms of giving gifts to clients or accepting gifts from suppliers, vendors, or other third parties trying to gain your business? If you're dealing with overseas companies, is everyone aware of laws governing gift giving in other countries?
Reputational risk that stems from ethical slips, whether intentional or unintentional, can cause a great deal of damage.
6. Handle external reputational risk management.
Some reputational risks may stem from outside the company. These could come from unethical partners, agents, suppliers, contractors, and any other third parties you deal with.
While you cannot always foresee these risks, it's important to take proactive steps to mitigate any negative fallout that could be triggered by association. Keep your ear to the ground and know who you're dealing with.
Damage to your reputation, even when repaired, can create a dint in the perceived credibility of your brand. By following the practices in reputational risk analysis in this article, you can help your company avoid and mitigate reputational risk—and maybe even save your brand's reputation.
Read more articles on risk assessment.
A version of this article was originally published on April 09, 2018.
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