Reputational risk frequently heads the list of top strategic risks for organizations, and a consensus of studies suggest that reputation accounts for approximately 1/3 of an organization’s value. Yet we find that while organizations may have developed some strong isolated components, they rarely have the fully integrated risk, crisis, and issues management program—or the management culture and perspective—that is critical to build and protect an organization’s reputation.
What Is Reputational Risk?
An organization’s reputation is the collective beliefs that your multiple stakeholders have about your products/services, values and management capability. Reputational risk is when there is a significant gap or disconnect between stakeholder expectations and the decision-making of your organization causing potential long-term and sometimes unrecoverable damage. Reputational risk is highest during a crisis event but slow-evolving, unaddressed issues can be as corrosive over time as any crisis.
Whose Responsibility Is Reputation?
Reputation and reputational risk, it is often stated, is everyone’s responsibility which is essentially the same as saying it is no-one’s. Or, it is the chief executive’s responsibility, which while true is not that illuminating and doesn’t really move the discussion forward. The only solution is a truly cross-functional approach in which finance, legal, operations, strategy, communications and risk acknowledge the breadth of the risk and its importance. By aligning otherwise disparate approaches and by focusing on stakeholder expectations an organization will be able to truly protect and build a reputation that will last.
Can Reputational Risk Be “Managed?”
In our experience, most organizations have developed some aspects of what is required but rarely a fully integrated approach incorporating risk, crisis and issue management aligned to their core business strategy. For example, organizations tend to have a solid Risk Management strategy with insurance, business continuity, compliance, enterprise risk, and emergency response programs firmly in place. However, Crisis Management is generally poorly defined or understood. It can be confused with or assumed to be the same as emergency response, or business continuity, and/or just about communications. Likewise, the role of Issues Management is often viewed as post-decision “spin control,” rather than a critical decision-making process and input into the organization’s strategy. When poorly defined and misunderstood, crisis and issues management programs will never be sufficient to build and protect an organization’s reputation.
Our Reputational Risk Framework
Effective reputational risk management requires a framework and a proactive process that is built on a solid risk management program and is able to identify strategic opportunities as well as reputational risks, effectively manage crises or significant issues when they do arise, and create the reservoir of goodwill amongst the multiple stakeholders it requires to thrive. This approach requires a mind-set that actively incorporates reputational risk as critical input into decision-making so that the organization can withstand the credibility test of intense external scrutiny and protect its reputation and ability to meet its strategic objectives.
There is no easy, off-the-shelf answer to solving one of the biggest challenges organizations face today. But Blue Moon Consulting Group has developed a rigorous, comprehensive methodology and approach and has the team and the experience to work with you to reduce the impact of reputational risk.