Reputation risk is driven by a wide range of business risks. A good reputation is difficult to build and easy as pie to destroy. The impact of traditional risk is substantial but the impact of a reputation risk can be even more damaging and it can take companies years to rebuild deteriorated reputations. It’s a business imperative to manage the company’s reputation carefully.
With today’s electronic and social media, the news cycle reporting on the downward spiral of a once-proud organization that has suffered severe reputation impairment is not a pleasant one to watch. Unfortunately, such news events capture our attention all too frequently, leaving an indelible impression about a company’s reputation and brand image.
Applied to a business, “reputation” represents an interpretation or perception of an organization’s trustworthiness or integrity. While the truth ultimately prevails over the long term, reputation can be based on false perceptions in the near term. If accurate over time, reputation provides a barometer of how an organization is likely to respond in a given situation. However one defines reputation, everyone agrees it’s a precious enterprise asset and recognizes a reputation that has been damaged beyond repair.
We define “reputation risk” as the current and prospective impact on earnings and enterprise value arising from negative stakeholder opinion. To one author, it is “the loss of the value of a brand or the ability of an organization to persuade.”1Bottom line, reputation is fragile. What takes decades to build can be lost in a matter of days.
This plan is recommended for Large Enterprises as they have multiple folds of objectives which is difficult to summarize in priority as it varies from company to company. Plans are to be customized based on their priority.
IMPACT ON BRAND PERCEPTION
Perception is a reality. If someone does a search for your brand in Google, what will they see? Hopefully, there will be a link to your website, but what if there is a link to a site that talks about a bad experience someone had, or worse yet, what if there was a video that showed how your brand caused harm to someone? Perception of the brand at that moment is probably pretty poor.
IMPACT ON SALES
Would you buy something or avail service from a company where 5 out of 6 customer ratings blasted the company for poor customer service, lousy quality or late delivery? Probably not. You might search a little longer for a company that didn’t have such bad customer reviews. And, you might even be willing to pay a bit more if you knew the company had a solid reputation. This negative feedback can directly impact sales.
IMPACT ON RECRUITMENT
Today’s job candidate will typically research a company online before they submit their resume. Candidates will want to understand whether the company they are about to work for treats their employees well, if there is high turnover and what the current employees think of the working conditions. A company’s ability to recruit for key positions can be negatively impacted by the information posted on these sites.
IMPACT ON INTELLECTUAL PROPERTY
A substantial amount of time and cost go into securing the necessary rights to a company’s trademarks, copyrights, and other intellectual property. Unscrupulous businesses can leverage your brand’s equity to redirect unsuspecting customers to their business. This infringement can cause confusion amongst your customers, damage brand perception and impact revenue.
IMPACT ON INVESTOR RELATIONS
Like prospective job-seekers, investors look to blogs and other sources of unbiased financial data to make decisions on whether to buy, hold or sell a position in a company. Since blogs and other sources of user-generated media allow for frank discussions, investors can gain additional perspective on the health of a company.
IMPACT ON FINANCIALS
When Starbucks announced the closure of certain stores throughout the United States in July 2008, activity in the blogosphere spiked. This spike in activity corresponded with a dip in the company’s stock price below $14 a share – the lowest point it reached for the entire month of July. The perception that Starbucks was in trouble spread quickly online and thus negatively impacted the company’s stock price.