Reputation Risks vs Public Relations?

Michael D. Moberly     March 20, 2014      ‘A long form blog where attention span matters.’

‘Houston, we’ve got a problem’!  The problem is, in my view, that far too many decision, makers, c-suites, boards, and management teams are conceiving and seeking resolution to their public persona challenges through conventional public relations lens and not as they should, through a very nuanced and sector specific reputation risk lens.

There is no question each of these corporations have taken substantial ‘direct hits’ over the past few months, and there are not likely to diminish anytime soon given relevant Congressional Committees are now gearing up for hearings and investigations, all seeking answers to the proverbial questions, i.e., who knew what, when did they know it, and what, if anything, did they do about it upon knowing about it’.

I must ask readers…

  • are these mere public relations issues which presumably can be managed or otherwise expected to dissipate over a period of time with no long term detrimental – adverse financial and/or competitive advantage affects?
  • or, are they merely the inevitable outcome of internal process and/or procedural malfunctions that repeatedly failed and will manifest as substantial and long term risks to each company’s reputation?

But, let me make a personal point before we proceed much deeper in this conversation, which is, while the three companies (examples) noted above, each are clearly among the Fortune 500’s, much smaller firms succumb to precisely the same circumstances, but the latter seldom makes national and international media headlines.

So, I believe what Target, GM, and Toyota are experiencing, can and should only be conceived and addressed through the lens of reputation risk.  Interestingly yesterday, Attorney General Holder pointed out that Toyota sought to handle their long running accelerator problems as a public relations problem.  If that is the case, clearly someone received consistently bad counsel. So, public relations is clearly the wrong lens to address, what may ultimately be determined to be systemic – internal process, procedure (company, business unit cultural) breakdowns that produce obvious and substantial consequences financially and competitively.

When does a public relations problem become a reputation risk problem…?

Admittedly, having worked almost exclusively on the intangible side of businesses for many years, this is not necessarily an easy question to answer, nor perhaps, should it be.  My experiences lead me to conclude however, that boards, c-suites, and many management teams, have yet to transition from characterizing – framing such events in public relations to reputation risk contexts, as inferred by AG Holders’ remark.  Clearly, in my view, the problems experienced by Toyota, GM, and Target, to name just a few, reached well beyond a conventional public relations challenge months, if not years ago, and have moved into a much longer term reputation risk cycle.

So, perhaps, that was the distinction between a public relations problem and a reputation risk problem applied by these companies, i.e., the time frame in which the problem can and/or will fester with consumers to the point it materializes to adversely affect a company’s reputation, which as we know is often for extended or perhaps even, indeterminate periods of time.

But, using time as the primary metric for distinguishing adverse events as being public relations vs. reputation risk problems falls short of a critical aspect, that is rapidly and correctly assessing the gravity of the problem, through the eyes of (factors) consumers, investors, and other stakeholders.  Ultimately, materialized reputation risks are often found to be a failure or breakdown in a company’s structural capital, i.e., processes.

Again, my familiarity with such circumstances is that frequently those responsible for making (business) decisions remain challenged insofar as their inclination to characterize many adverse events in quarter by quarter contexts which, as it so happens, is more aligned with public relations ‘fixes’, versus longer term and much more adverse reputation risks.

The intangible asset ‘risk of risks’ is a company’s reputation!

Company reputation is an intangible asset of the first order.  So, perhaps it would be useful to say again it an economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, competitiveness, and sustainability lie in or evolve directly from intangible assets.  Respectfully, I suspect this economic fact may have prompted The Economist’s Intelligence Unit (EIU) to produce a ‘global risk briefing’ paper titled Reputation: Risk of Risks.

Company reputation is defined (in the Economists’ report) as ‘how a business is perceived by stakeholders, including customers, investors, regulators, the media, and the wider public’.  To be sure, it ‘declines when a company’s experiences fall short of expectations’.  When not one, but multiple consumers – users die or incur serious physical injuries because their expectations were not met by a company’s product, then, ‘Houston, we do have a problem’ and its unlikely it can be readily fixed through conventional public relation strategies.

However, before this definition can be fully translated into effective (reputation risk) countermeasures, it’s important for company decision makers, not unlike, Toyota, Target, and GM to achieve crystal clear operational clarity regarding…

  • whose experiences
  • what experiences, and
  • which expectations.

Company reputation is certainly a prized and increasingly valuable, yet vulnerable and fragile asset which the respondents to the EIU survey agreed by stating that sustaining a positive company reputation is a main concern for the majority of risk managers, ahead of, for example…

  • regulatory risk
  • human capital risk
  • IT network risk
  • market risk, and
  • credit risk.

It’s fair to say now that company reputation risk has risen to the level of being a fiduciary responsibility (and concern) that extends well beyond senior risk managers to being permanent fixtures on company management team, c-suite, and board dashboards, i.e., Stone v Ritter.

What these companies needed was a deeper appreciation for the asymmetric nature (elements) of reputation risk today, which is, unsatisfactory (poor) company reputation can rapidly, and often times irreversibly and adversely affect a company economically and competitively, aside from the embarrassing and probing questions that will be inevitably posed by Congressional Committee members, especially, those who have constituent(s) who personally suffered due to a company’s obvious absence of understanding and correcting reputational risks in a timely manner that preferably exceeds regulatory agency oversight requirements and before unwitting consumers die or become injured.

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or [email protected]

 

 

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