Michael D. Moberly February 3, 2011
There’s little question that a company’s reputation (image, goodwill, relationship capital, etc.) are increasingly valuable (intangible) assets and in most instances, critical to the growth and sustainability of a company. But, once a company’s reputation has become tarnished, undermined, or been the subject to scrutiny, sometimes, regardless of the reason, whether it be successive missteps, a one time glitch, and/or a pattern of unethical behaviors or neglect, the path back to achieving, even some semblance of operational and revenue normalcy and consumer-stakeholder stature, is going to be a costly multi-year process.
In my view, any initiatives that a company’s management team and board undertake to try return to that previous state of normalcy, in addition to having thoroughly vetted contingency plans in place, may be for naught, if the groundwork for a viable ‘reputation risk intelligent company culture’ is absent from the equation. A ‘reputation risk intelligent company culture’ is an effective and complimentary path that will deliver returns far greater than the alternative!
There have been numerous studies, surveys, and papers published that address various facets of reputation risk, conceptually, practically, and operationally. Ultimately, reputation risk has been ratcheted up considerably on c-suites ‘to do’ list. The respondents admissions in those surveys (advocating reputation risk management) have no doubt been driven, in large part, by recent adverse events by companies such as BP, Massey Energy, Craig’s List, and numerous others that have been on the receiving end of stakeholder, consumer, and regulatory agency ire. In a percentage of those instances, consumer ill-will can be relatively short-lived, in other words, it can ‘bounce back’. But one need not look far to see evidence in which such ill-will is longer lived, if not permanent and irreversible. This is particularly relevant in the consumer products and consumables arena. And, for publicly traded companies, materialized reputation risks frequently manifest themselves as downward spikes in the stock market and an overall loss in company value.
The current state of (company) reputational risk is not entirely an expectation of companies that operate in what we may refer to higher or lower risk sectors , i.e., baby foods, drilling in the Gulf of Mexico, or coal mining compared to say the graphics arts, for example. Nor is it necessarily due to the reality that risk events can expand and exacerbate so rapidly today.
Instead, its important to recognize that the materialization of some (types of) reputation risk can be attributed to the absence of a ‘company culture’ that understands the (a.) relevance and potential (enterprise wide) adverse and potentially long term impact on a company’s reputation when certain risks materialize, and (b.) how such risks can, sometimes instantaneously reverberate through the media and find resonance with citizens and a company’s consumers and stakeholders that can literally take down a company in a matter of days.
A company’s reaction and the speed which a reputation risk can manifest can be particularly acute if a company has no advance ‘horizonal monitoring and assessment’ apparatus in place that provides timely and objective insights and updates into (a.) the source or sources (internally and/or externally, and (b.) how the risk emanated or evolved in terms of reaching internal consensus on executing an effective and appropriately timed and themed response, if any.
Let’s be clear though, some companies, get precisely what they deserve. That is, if or when there is a clear pattern of knowingly engaging in ‘risky behaviors’ or giving only lip service to regulatory mandates and oversight, be it in the Gulf of Mexico, a coal mine in West Virgina, a chicken processing plant in Arkansas, or a toothpaste plant in China, all reasonable and legal efforts should be mounted against them to ‘make things whole’ if that’s possible for the victims and/or complainants. Obviously, when deaths or irreversible physical injury are a consequence, seldom, can ‘things be made whole’ again.
But, let’s go inside a c-suite and/or board room after a significant reputational risk has risen. While few companies today don’t have, at least on paper, various types of business continuity and contingency or organizational resilience plans, its instructive to recognize the types of questions that will likely arise in those c-suites and boardrooms. Obviously, there are variations to each of the questions below, but these three questions are likely to be prominant…
1. what is the origin(s) of the particular reputation risk, how-when did it start, and by whom or what…?
2. how likely is it that this risk will subside (die down, run out of steam) on its own volition, making a formal response from the company unnecessary or toned differently…?
3. what type/manner of company response to the various reputation risks will resonate best with consumers, stakeholders, and the supply-value chain?
While we’re inside that c-suite or board room, it’s also instructive to examine, in a case study context, the decision by Craig’s List (September, 2010) to shut down its ‘adult services’ section. While, in my view, this clearly fell into the proverbial ‘no-brainer’ category.
While I pretend to have no insider information on this matter, I am genuinely confident there were numerous meetings over the previous months (well prior to September, 2010) among the company’s hierarchy, in which ‘what should we do about the adult services section’ was repeatedly a part of their discussion agenda, albeit probably unwritten. After all, the propriety of the ‘adult services section’ was not a single source phenomena.
I am equally confident the room in which those discussions took place had a fair number of legal, public/media relations, reputation risk, and financial advisors on hand, each offering their perspectives and prognostications about the outcomes of various courses of action under consideration.
Again, while I was not a ‘fly on the wall’ to hear those discussions first hand, so to speak, I’m thinking it’s not rocket science to assume the consensus reached in most of those meetings, at least up to the September 4th decision to suspend the adult services section, had something to do with the economic fact – business reality that the adult service section was a consistent revenue generator to the tune, it’s been reported, of $37+ million per year.
I further suspect, during some of the initial discussions among Craig’s List managerial-strategic hierarchy, when the ’what should we do about the adult services section’ question was posed, on multiple occasions consensus was reached to ‘ride this risk out’ for as long as possible. If that were true, I would be inclined to interpret it as, unless and/or until the adverse public reaction rises to some, perhaps pre-determined level, e.g. 15+ state’s attorney general’s filing civil actions and going public with their admonitions, only then would the option of closing down the adult services section be executed.
Presumably, the strength, depth, and ‘width’ of the adverse reaction, among other things, was being assessed. Should my assumptions be close to correct, which I suspect they are, I would be inclined to characterize Craig’s List response in the context of ‘no decision is a decision’. Ultimately, the situation Craig’s List soon found themselves in, was, pure and simple, ‘company reputation risk management 101‘ instead of a graduate level course it should have been.
It perhaps would be unfair to overlook the reality that if such (adult) services were not in demand, particularly in a semi-anonymous web-based format, ala Craig’s List, it’s likely, from a business perspective, Craig’s List would have made the decision to discontinue that particular offering probably at the initial hint of problems (reputation risks) on the horizon. By doing so, it’s likely they could have leveraged that decision (to discontinue their adult services section) in a manner that they could reap strategic and perhaps well deserved accolades from their stakeholders and consumers versus being on the receiving end of civil actions from a growing list of detractors, special interest groups, and politicians at the start of the mid-term political-election campaigns, i.e. August-September, 2010 which certainly provided the proverbial ‘low hanging fruit’. Bad timing on their part perhaps? But, I would say it’s another good business reason to invest in a ‘reputation risk intelligent company culture’.
Reputation glitches, such as the one Craig’s List experienced, represent genuine ‘wake-up calls’ for management teams and boards to immediately, closely, and objectively examine how or whether their company culture (a.) is attuned to and observent of reputational risk, (b.) genuinely reflects the company’s public behavior, and (c.) consistently meets the expectations of its customers, consumers, stakeholders, and clients?
(This post was inspired by a paper produced by Deloitte titled ‘The People Side Of Risk Intelligence: Aligning Talent And Risk Management.)