“The Risk of Risks” – Six Building Blocks For Effective Reputation Risk Management
Although the Economist called reputation risk the “risk of risks” in 2007, the concept of reputation risk is relatively new – it has been around since the early 2000s but has only been more seriously examined in the last five years or so. Across all sectors and sections of society, we have witnessed the consequences of not paying enough attention to reputation when it comes to decision-making, and there is ample evidence that organisations that proactively build reputation, and integrate reputation risk considerations into the fabric of day-to-day decision making, are more successful in the long term.
In a world of shifting reputations, radical transparency and global uncertainty, there has never been more scrutiny on organisations and their leaders. At ReputationInc we are committed to ensuring that reputation guides better decision-making to create a more sustainable, prosperous world. It’s our purpose, and we live by it every day in all of our work.
Unfortunately, there is no “one size fits all” magic formula that can or should be applied indiscriminately to mitigate against reputation risk. However, drawing on our experience working with some of the world’s leading organisations in addition to research from my colleagues Dennis Larsen and Dr. Kerstin Liehr-Gobbers for the European Association of Communications Directors, we believe there are a number of building blocks that can offer guidance for communicators and leaders in enhancing their organisations’ reputation risk resilience.
Block 1: Risk classification
Even if you are an organisation that enjoys a “perfect” reputation with all you come into contact with reputation risk management should still be an integral part of how the organisation is run. The sources of potential disruption and damage are innumerable, and the impacts of not properly managing these risks are immeasurable. Our collective consciouses are filled with examples of seemingly reputable organisation that have turned out to have systemic governance failures or compliance issues, or that have failed to react to changes in the external landscape and been consigned to the annals of catastrophe. Effective reputation risk management involves advanced strategic insights gathering combined with the right governance, processes and cultures that integrate long-term and short-term reputation risk thinking into the fabric of the organisation.
Block 2: Internal versus external risks
At ReputationInc we believe that reputation is the result of everything you do, everything you say and everything your stakeholders say about you. Unfortunately, some organisations often overlook crucial internal stakeholders – their employees. Clearly the way employees behave, internal culture and management styles all have a massive impact on an organisation’s potential for risky conduct, with potentially damaging reputation and business ramifications. Conversely, the way in which issues and crises are handled can have a potential dampening or amplifying effect on reputation. This points to the need for organisations to focus not only on external issues and threats, but to address internal aspects such as compliance, risk governance, culture and capability.
Block 3: Reputation intelligence
As the media and social landscape continues to present complexities for organisations of all shapes and sizes, effective monitoring tools are a necessity. As the ways in which we measure reputation become more advanced, ensuring that organisations have the capability to analyse this data, and translate it into actionable insights, will be important. A combination of quantitative and qualitative research is key, with ongoing, in-depth monitoring of stakeholder expectations and experiences as a need to do, not a nice to do.
Block 4: Risk governance
Reputation risk should be seen as a shared responsibility for all. Having the appropriate governance structures and processes in place to manage and communicate reputation risk on an ongoing basis is essential. What this looks like in practice will be different for every organisation, but there are a number of principles that are universally applicable. These can include: treating risk management as an extension of the overall strategy, establishing who is responsible for managing reputation risk, ensuring adequate oversight of reputation among boards and executives, and laying out how reputation is governed both integrated with and alongside other risks within the business, such as strategic, operational and financial.
Block 5: Culture
Ensuring understanding amongst employees regarding the role they play in reputation risk management, and putting in place the relevant expertise, is a significant part of cultivating an effective risk management culture. Although there will be specific individuals within a company for whom reputation management or risk management is their prime responsibility, our research shows that there is a huge opportunity to involve the broader organisation and tap into a greater sense of collective responsibility. Unquestionably, reputation risk is minimised by building a stronger sense of employee identification around core reputation drivers and empowering teams to take responsibility for both taking reputation implications into account in decision making and helping protect the entity’s reputation from harm in all interactions with stakeholders externally and internally.
Block 6: Leadership
Reputation risk is ultimately a collective responsibility but one that requires strong leadership and accountability at the top. Within executive committees and boards there is a requirement to have sufficient focus on reputation risk and to ensure the right skills are in place to manage it. Essential skills include the ability to assess and predict the issues that could harm corporate reputation most, the capability to identify the reputation assets that could help to mitigate the issue, and the understanding of how reputation risk management can contribute to organisational success.
Leading organisations are ensuring that reputation risk management is a regular c-suite and board level agenda item, and that reputation risk intelligence is used to guide business decisions cross-functionally. Many are assessing specific reputation risks associated with new initiatives and ventures, as well as regularly gathering actionable insights on reputation and specific risks. Trying to achieve excellence across all the building blocks at once can seem a daunting task. In many cases, however, great enhancements can be realised by using existing insights and metrics and extracting the reputation risk components. We hope these initial insights will give some food for thought for embracing strategic reputation risk management as a proactive essential management activity and help build better organisations that are held to a higher standard of account.