Reputation risk is both an old and new phenomenon. If you ask senior executives whether they worry about their business’s reputation, they’ll always say yes; that’s the old part.
More and more, however, regulators are also looking at reputation risk as an area of potential harm — and yet, reputation risk management is still sometimes overlooked in the risk assessment process. That makes little sense. Your company’s reputation is delicate, and managing the risks surrounding it should always be a top priority.
Why is reputational risk important?
Reputational risk is important because it can pose such a dire threat to your business. Ruined reputations scare away current and potential customers, reduce revenue and profits, drive away employees, and sow distrust amongst your board members and stakeholders. Moreover, recovery from reputational risk can be difficult, since the internet allows past incidents to remain in your search results for years after the fact.
The consequences of reputational risk risks are not always immediate or easy to track. Small incidents can do cumulative damage over time, or explode when a pattern of misbehavior or neglect suddenly appears. It’s in your best interest to track and manage reputation risk as much as you can.
How does one manage reputational risk?
Broadly speaking, risk management has five main strategies:
- Avoidance. Avoid any areas or activities where a risk might occur.
- Retention. Retention means that the organization accepts the risk and understands that losses are inevitable.
- Sharing. Distribute the risk among multiple parties to reduce the losses for any single party.
- Transference. Transfer responsibility for risk onto another party entirely (say, by taking out an insurance policy).
- Loss Prevention. Accept the inevitability of the risk and instead seek to minimize the potential loss and damage as much as possible.
Applying these traditional risk management strategies to reputational risk can be tricky. Reputation risk management is harder to pin down than most operational risks, and consequences can arise long after an incident occurs. Insurance policies (a standard solution for most of the above strategies) aren’t available for your reputation. So your best defenses against these risks are vigilance and preparedness.
How do you manage reputational risk?
Reputational risk is challenging to contain and can be unpredictable. There’s also no time limit on when a risk event could cause harm to your reputation down the line. Some steps you can take are:
- Track mentions and conversations surrounding your brand. Social media can be a helpful tool for preventing reputational risk and minimizing its effects. By paying attention to the comments on your posts and the way users talk about your brand on Twitter, Instagram, and Facebook you can maintain a real-time grasp on the way your company is perceived.
- Instill a strong ethics program at your company. Develop a Code of Conduct for your organization and make those ethical values the core of your business planning. While it’s impossible to avoid reputational risk entirely, you can prevent its effects by integrating ethics into your corporate practices and decision-making regarding hiring practices. It’s also important to move swiftly when infractions of these values occur.
- Hire marketing and public relations professionals. Positive brand building and unified messaging can be a strong asset in managing reputation risk, and marketing and PR can be an indispensable part of your crisis response team if your reputation takes a hit.
What risks do third parties pose to my organization?
Suppliers, vendors, and contractors can also potentially harm your organization’s reputation. While you may perform due diligence when entering a contract with a third party, these relationships can change over time. You may not be privy to personnel or policy changes that happen within your business partners after the relationship begins.
Reputational damage by association is also a possibility. Celebrities or politicians who mention your brand can harm your reputation if they personally are viewed negatively by your customer base.
- Include third-party reputational risk in your risk assessment strategy. Before embarking on a relationship with an outside company, consider what reputational risks it may pose; undertake “adverse media reports” to see whether any issues might arise. You may find nothing, but the risk is significant enough that it shouldn’t be ignored.
- Monitor your contractors and vendors as carefully as you do your own organization. Their names should be tracked on social media and through standard news outlets. You’ll want to be the first to know if their public image begins to sour.
- Have a plan in place for mitigating third-party risks. Whatever trust you place in your vendors, it’s still wise to have contingency plans and be prepared to distance yourself from them if necessary. Your public relations and crisis management teams should also be prepared for handling negative press caused by third-party mentions.
Strategic risk assessment of any kind is a difficult endeavor. ZenGRC is an easy-to-use platform that allows you to track your compliance and enterprise risk management, giving you more time to run your business. Schedule a demo today and learn how ZenGRC can help your company succeed.