Reputational Risk Management – ‘the 24×7 realities’…

Michael D. Moberly   February 4, 2010

Without argument, there are countless events and circumstances that can present ‘risk’ to a company’s stability, or perhaps more appropriately stated, its equilibrium.  A particular risk which various studies, reports, and professional association papers of late portray as receiving more (elevated) attention from company management-leadership teams is ‘reputational risk’, and for good reason. 

A relevant and very timely adage about a company’s reputation is ‘it takes years to build a reputation, but today, a company’s reputation can literally be severely damaged, if not irrevocably lost, in a single day’!  It’s certainly conceivable to assume then, in light of the current Toyota debacle, company reputational risk will be ratcheted up even further on the priorities of c-suites and boards across the globe, as well it should.

What is reputation?  In a 2006 report produced by the Opinion Research Corporation and authored by Jeffrey T. Resnick, reputation was described (defined), and appropriately I might add, in the following manner, i.e., ‘reputation is as much about perception and the perception of behaviors as it is about fact’.  The ORC report goes on to say ‘reputation is about ethics, trust, relationships, confidence, and integrity, and is built on the fundamental belief that management knows how to run its business and will win in the long run’.

What is reputational risk management?   Again, as cited in the ORC report, reputational risk management was rather broadly and unceremoniously defined as ‘a process, effected by an entity’s Board of Directors, management, and other personnel, applied in a strategy setting and across the enterprise, designed to identify potential events that may affect the entity and manage risk to be within its risk appetite, to provide reasonable assurances regarding the achievement of entity objectives’.

How is company reputation built?  Few would argue with the perspective that a key (principle) tenent of a company’s reputation is that it ‘cannot be manufactured’.   In other words, a company’s reputation will not likely evolve from an advertising agency or public relations firm.  Rather, a company’s reputation is generally characterized as being built as a result of consistent (on-going) interactions between a company and its primary (key) stakeholders.  More specifically, the experiences of the company’s various stakeholder groups, i.e., customers, consumers, clients, etc., are perceived (by them) as being consistent with the values conveyed and claimed (to be upheld by) the company itself, as well as the perceived promises it (the company) makes through advertising and other forms of marketing and communication directed to its consumers, customers, and clients.

Economic value of company reputation!  Most practitioners engaged in reputational risk management would find consensus in the notion that (company) ‘reputation is about walking the talk’!  However, those management-leadership teams that still assume reputational risks are merely public relations problems which are temporary, or can be pre-empted, mitigated, and/or quickly remediated through PR campaigns, would be considered out-of-step with what I refer to as ‘the 24×7 realities’! 

My so-called ’24×7 realities’ point to company reputation challenges as being substantive ‘wake-up calls’ for management/leadership teams to immediately, closely, and objectively examine how or whether their internal (company) culture is genuinely aligned with – reflective of its public behavior and the previous and expected experiences of its customers, consumers, and clients?  If there is no alignment, or perhaps, more likely, the one time alignment is now ‘out of sync’, then, of course, the economic value of the company’s reputation will likely fall short, and again, using my ’24×7 reality’ metaphor, company reputation that’s taken years to build, can go to zero very rapidly!

A good approach for management/leadership teams to perceive-conceive their company’s reputation is by understanding that it (reputation) is an intangible asset, and, as an intangible asset it (reputation) lacks conventional properties of physicality, unlike, for example, tangible (brick and mortar) assets which can be readily replaced, rebuilt, and re-sold.  To be sure, its not that easy for a company’s intangible assets, ala reputation!


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