In a time where social media publicizes events within seconds, businesses are under pressure to respond to even the subtlest events in a meaningful and genuine way. Out are traditional canned PR responses that are reactive. In is a comprehensive approach to managing reputational risk that is proactive and strategy focused. Looking ahead, businesses will need to adopt a framework to ensure that innocuous events do not turn into detrimental ones.
What is detrimental event
A detrimental event is an event where the outcome is harm to a business. Some events are obvious, like a natural disaster. Other events are less obvious in both their presence and impact that they have on a business. Examples of this include a freak accident, like the BP Gulf of Mexico Oil Spill, or the slow emerging changes in attitudes, like the increasing awareness around the environmental impact of meat products. Regardless the type, leaders need to continuously take inventory and assessments of what events may present harm to the business.
How do detrimental events impact a business and its reputation
Detrimental events impact businesses in many ways. First, they destroy significant brand value of a business. Brand value or equity can take years to develop. A single detrimental event can take a business from being benevolent to being cancelled. While brand equity is intangible, for certain business, a loss of brand value will impact the bottom line. This is because destroying brand value also destroys trust with customers, which leads to the second impact, profit.
Destruction of trust between customers will lead to a loss of customers, leading to a loss in profit. This has even greater implications for businesses in industry that require high degrees of brand trust.
Assessing reputation risk
There are three factors that every business should consider when assessing reputation risk: current reality versus perceived reputation, external expectations and beliefs and how they are changing, and internal coordination and support of reputation.
Current reality vs. perceived reputation
Business should star by assessing what they perceive as their reputation versus how the reality perceives them. By doing this, businesses can identify the gap between perception and reality. From there, they can take the necessary steps to address the gap. If the business’s reputation is greater than the actual reality of the business, this becomes a significant reputational risk as any single event can bring to light what the business is actually about. If the business’s actual reputation is greater than what the public perceives, then the business maybe losing out by not capitalizing on its true brand value.
External beliefs, expectations, and how they are changing
The next factor to assess is the changing external landscape, specifically whether external perception and or beliefs are changing. In some cases, a detrimental event may not need to occur in order for the reputation of your business to fall out of line with the expectations of external stakeholders. For example, as consumers continue to be concerned about the environment, businesses that operate in industries that destroy the environment will have a reputation that is diverging from public beliefs.
Another example, in light of recent protests, is consumers demanding for diversity at the most senior levels of leaderships. Organizations with leadership structures that do not represent any diversity of inclusiveness run a reputational risk.
Finally, the last factor is internal coordination among all the business units and departments in the business. When one department creates expectations that are out of sync with the rest of the organization, this creates a reputation gap. For example, if a sales team tells potential customers that their products are ethically sourced, but the product team decides to do otherwise, this creates a reputation gap that becomes a risk. If it is ever made public that the business does not in fact ethically source all their products, clients will lose their trust and faith with the company.
6 ways to manage reputation risk
- Build reputation risk management into corporate strategy
For businesses to sufficiently address reputational risk, they need to make it part of the corporate strategy and objectives. Implement and enforce proper controls and rewards to align different areas of the business. By doing this, the organization will improve internal coordination. Thus, ensuring that any reputational risk rising does not stem from within the organization. Additionally, make a single individual at the leadership level accountable for managing reputation risk.
- Control processes
Bad actor employees will always be a risk. However, being an organization that is proactive in taking preventative measures can potentially save face when a detrimental event occurs. Implement technology and standard operation procedures that serve to prevent or at least deter bad actors.
- Recognize and acknowledge that all actions impact public perception
All the actions of the business, including those who represent the company, are subject to public perception and opinion. This is more reason to have a corporate strategy that focuses on reputation risk and incentivizes employees to act in accordance to the values of the company.
- Understand the expectations of all your stakeholders
To manage the businesses reputation, leadership needs to understand what stakeholder expectations are. Doing this will allow leadership to make business decisions that meet those expectations.
- Focus on communication
A key piece of reputation management is communicating to stakeholders what the organization’s values are. In the face of a detrimental event, communication is the key tool for responding to stakeholders’ potential disappointment.
- Create a contingency plan
Some detrimental events are foreseeable. For example, BP could have reasonably foreseen the possibility of an oil spill. Given the attitudes and beliefs surrounding the environment, they knew negative publicity was on the horizon. Crafting thoughtful response with honesty and humility would better position the company for recovery.
- Events, overt and or subtle, can be detrimental to a business if they are not proactively managed.
- A businesses reputation gap is the difference between what stakeholders perceive as the reputation versus what is the actual reality of the business
- Businesses can employ a framework that builds reputational risk management as part of its corporate strategy in order to manage and minimize reputation risk