Why identifying and guarding against reputational risks is key for businesses

Reputational risk can be rooted in a variety of triggers, from changes in market situations to supply problems to quality issues and even geopolitical developments

By Jaideep Shergill

Reputation has a profound impact on a business’ performance, skewing earnings and investments and shrinking the customer base. Reputational risk can be rooted in a variety of triggers, from changes in market situations to supply problems to quality issues and even geopolitical developments. Naturally, businesses have to be more prepared than ever.

It’s a tough time to do business in and the lead-up to it wasn’t easy either. There is no guarantee that business leaders’ plans will play out as hoped and reputational risks only make the crafting of the right strategy even more critical.

Why is reputational risk on the rise? You could attribute it to the coming together of various reasons – the prevalence of social media, more empowered audiences, corporate and consumer activism, etc.

Information is more easily accessed and shared today, which makes crises burgeon even more rapidly. Today, audiences upload online information or visuals in real time, giving the crisis a life of its own even before a brand can react.

Even geopolitical issues, which are beyond the control of any brand, can have a crippling effect. Take, for instance, the recent border tensions between India and China. The clashes were followed by a call for the boycott of Chinese goods – from consumer electronics to industrial raw materials. That impacted several brands and forced some of them to dissociate from their Chinese origins. It forced them to also alter their marketing strategies.

Let’s not forget either the growing consumer awareness about climate change and the environment. Consumers and investors are quick to spot negative news on that front. Any brand perceived to be insensitive to the environment will feel the heat. No wonder then that reputation is now a strategic issue for business leaders. This is a huge change from even a few years ago when risk management was essentially inward-focused –the working of the business, production and quality issues, etc. However, reputation is shaped largely by external entities such as the media, customers and other stakeholders.

Now that most businesses regard reputational risk as a strategic matter, here are some things they can do to protect themselves:

Reputational risk should be a factor while formulating strategy

There’s no longer any debate on the impact reputation can have on success. Businesses must audit themselves for reputational weaknesses, build scenarios that could damage reputation and plan responses. The effort should be company-wide, taking into account varied aspects like processes, technology and policies. All of this will not only guard against reputational crises but will raise the standards of what you do in normal times. If a crisis does occur, its severity will be reduced and there will be valuable lessons on how to keep it from recurring. These would include consistent, positive communication internally and externally, institutionalised training, crisis handbooks, simulations and periodic reputation audits.

Understand audiences

Know all your stakeholders, not just the customers. These include regulators, communities, partners, etc. When you know what they expect, you can prepare to deliver that. Make sure you don’t make promises you can’t fulfill. Ensure positive communication goes out to them regularly and be honest at all times. Don’t ignore critical aspects like customer service and good governance. Over time, this will build your reputation.

Have a contingency plan

If a reputational crisis does hit, having prepared in advance for it will help you respond quickly. Ensure you have a crisis operating procedure, spokespersons identified for every situation, initial messages to be sent to all stakeholders and a quick mitigation mechanism.

Reputational risks are serious. Without effective reputation management, they would only amplify and have long-lasting effects when something does go wrong. Being aware of them and taking steps to guard against them will go a long way in ensuring business success.

The author is co-founder, Pitchfork Partners

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