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• What is Reputational Risk?

What is Reputational Risk and How to Manage it

C-suite executives and board directors believe reputational risk poses the greatest strategic threat to businesses. It can wipe out billions of dollars in market capitalization and impose sweeping changes to company leadership. But what does it mean and how do you manage it?

In this article, I’ll define reputational risk and explain how it impacts your business. I’ll also show you several easy steps to measure and manage it.

Reputational Risk

What is reputational risk.

By definition, reputational risk refers to the potential for negative publicity, public perception or uncontrollable events to have an adverse impact on a company’s reputation, thereby affecting its revenue.

Reputational risk strikes without warning and shifts your corporate landscape. Even worse, it injects an unfavorable narrative into your search results which affects customer opinions and impacts revenue. There are countless statistics about online reputation that support this conclusion. We commissioned a study by Forrester Consulting to find out what executives at large brands think about SEO strategy and reputation.

• 43% of executives think removing unwanted search results would increase sales
• 43% of brands believe improving search results would increase conversion rates
• 42% of brands say search results are tied to lead generation
• 38% of brands believe minimizing unfavorable search results would improve close rates

54% of executives believe reducing unfavorable search results would drive revenue growth

Reputation risk vs strategic risk

Unfortunately, reputational risk is often neglected or confused with other types of corporate risk. Let’s look at how they all relate to one another.

Strategic risk is specific, measurable and predictable. Therefore it is controllable.

Reputation risk , on the other hand, is largely unpredictable. In fact, it can even be tied to events that aren’t your company’s fault. Still, opinions of clients, investors, business partners and the general public can have a profound impact on your firm’s revenue. Therefore, it’s critical to be aware of hazards that result in reputational damage to a business.

Types and causes of reputational risk

There are numerous types of risk to guard against, including outside adverse events, workplace practices, data retention failures, product recalls, bad financial statements, and CEO reputation issues. Let’s dive into the scenarios that pose the greatest threat.

CEOs, company leadership and employees

If your CEO has a negative reputation , then so does your company. And that, ultimately, affects revenue, investments and shareholder value. That’s because a CEO’s reputation cannot be separated from that of the company, and vice versa.

Executives attribute 45% of their company’s reputation to the CEO’s reputation

25% of a company’s market value is directly attributable to its reputation

Even if a beleaguered CEO leaves the company, his or her reputation may continue to damage the brand. That can make it difficult and expensive to find a replacement, and could further feed the negative news cycle.

Company leaders aren’t the sole source of reputational risk; any of your employees could spark public outrage. Imagine the consequences in each of the following scenarios:

• A bank teller or branch manager calls the police for racially motivated reasons
• One of your wealth managers refuses to serve a gay couple
• A director at your VC firm is accused of sexual misconduct

Any of those situations could cause a viral news cycle that results in boycotts, customer defection, and significant revenue loss for years.

Negative articles

Company layoffs, lawsuits, scandals and regulatory penalties can impact revenue for years if you don’t remove those articles from your Google search results . Whether brought on by unsettled employee disputes, customer complaints or regulation violations, negative media attention can shackle profits for global banks, financial services companies and other businesses.

According to a new commissioned study by Forrester Consulting, 42% of brands believe reducing unfavorable search results would improve lead generation. Moreover, 54% of executives believe improving search results would drive revenue growth. Read the full study here .

Furthermore, sometimes good business decisions don’t sit well with employees or the press. Events like mergers and acquisitions or closing down an underperforming factory could trigger negative articles that damage your reputation.

Maybe an old article won’t go away. Or perhaps something from the past resurfaced. Whatever it is, we can help mitigate your brand’s reputational risk.

Let’s discuss how much a negative reputation is costing your brand. Contact us to set up a call.

Social media

Social media can be both a cause and a catalyst for a negative reputation. When company leaders post controversial comments online, their statements affect the entire business, not just the executive’s reputation.

Additionally, unsolicited brand mentions by influential political figures or celebrities can also lead to social media backlash. Although your company may have been casually mentioned, the public will likely infer a reciprocal endorsement.

Furthermore, social networks can amplify negative press that may otherwise have gone unnoticed.

Services and pricing

Whatever your business model, if your company underperforms or overcharges, it will eventually develop a bad reputation. For example, a journalist may publish an expose about shady sales techniques or reveal hidden fees. Or a financial analyst could write a damaging article about the quality of your investment funds.

Your customers trust you with their data. In fact, finance companies handle some of the most sensitive personal information, including: names, social security numbers, passwords, logins, pin numbers and bank account numbers. A data breach will corrode your institution’s reputation and could cost you hundreds of millions of dollars.

Regulation changes

Government regulations can change with each election cycle. Under one administration your bank may meet stress test requirements, and under another you could face liquidity risk. When the public thinks your financial institution is unstable, they’ll take their money to your competitors.

Reputational damage

Your business’s reputation is your most valuable asset, especially if you’re a bank or financial institution.

A negative corporate reputation harms client and investor trust, erodes your customer base and hinders sales. A poor reputation also correlates with increased costs for hiring and retention which degrades operating margins and prevents higher returns.

Furthermore, reputational damage increases liquidity risk which impacts stock price and ultimately slashes market capitalization.

Reputational risk examples for banks

Wells Fargo is probably the best example of the impact of reputational risk. The bank’s employees opened millions of fake accounts, overcharged for mortgage insurance, signed up customers for unnecessary car and pet insurance and accidentally foreclosed on hundreds of homes.

Those actions prompted the bank to take the following actions to mitigate reputational risk:

• Fired 5,300 workers
• Replaced longtime CEO
• Replaced board chairman and directors
• Paid $185 million to atone for shady sales practices
• Reserved $285 million to refund wealth-management clients for pricing and fees

“There’s no question that Wells Fargo’s scandals are responsible for seriously eroding shareholder value.” William Klepper , management professor at Columbia Business School

As a result, the wealth and investment management unit has struggled to generate new business. The Federal Reserve also limited Wells Fargo’s growth until the bank changes its management and risk control procedures.

These incidents, coupled with the soured reputation of the former CEO, have created a substantially negative online presence that’s hyper-saturated with bad press. If Wells Fargo wants to recover their damaged reputation , they’ll need to make a significant investment in enterprise-level reputation management

Next, let’s look at some reputation risk management best practices.

Four steps of reputation risk management

It’s important to develop a framework for managing reputational risk prior to an issue. The following steps will help you measure, monitor, manage and mitigate damage to your reputation.

1. Measuring reputational risk

Step one is to execute a reputational risk assessment to establish the baseline for your company’s image. That will help you determine public perception of your company and competitors as well as the industry in which you operate.

Reputational risk is highly subjective. So, segment your stakeholders into separate groups to determine areas of exposure. You may want to include regulators, analysts, investors, clients or employees.

Next, indicate the level of danger for each segment. For example, you may use a numeric scale or colors. See the reputational risk assessment template below:

Finally, take inventory of each groups’ perception of your company. This can be accomplished through internal and external surveys or search engines. All media outlets worth their salt have an online presence. So, search engines are incredibly useful reputational risk assessment tools.

However, brand sentiment analysis isn’t as easy as popping your organization’s name into Google. You’ll need to analyze discussion topic density within Google’s index to determine the underlying drivers of unfavorable content. Then, you can set goals around diluting those narratives.

It’s best to enlist the help of online reputation management services like our company to help you quantify and mitigate reputational risk. We mine insights from hundreds of listings in your search results to inform our strategy. Then, we develop a roadmap to naturally inject favorable, forward thinking discussion topics about your brand into Google’s index. This desaturates unfavorable narratives and allows more evergreen assets to anchor your search landscape.

If you want to attempt things yourself, use a reputational risk assessment matrix like the one below to designate the severity of all neutral and negative content.

2. Managing reputational risk

Use your assessment as a framework to develop a reputational risk management plan. You may need to create more than one process or strategy depending upon the type of risk your firm is exposed to.

For example, racial discrimination accusations will require a different approach than customer complaints or inappropriate CEO comments on social media.

It’s impossible to offer specific recommendations for this step because there are an infinite number of possibilities. Ultimately, it’s best to work with a crisis management firm or public relations agency to resolve an active crisis as quickly as possible.

Then, invest in a corporate reputation management strategy to restore your search results.

3. Mitigate reputational risk with ORM

Once your situation is under control, you’ll need to mitigate the damage to your brand’s image through online reputation management (ORM) . That process involves syncing your company’s online presence with its real-world accomplishments.

However, it’s no small feat to influence a large organization’s Google results. This requires social media management, brand management, content creation, strategic outreach, digital asset creation, and most importantly search engine optimization . I can’t overstate the importance of working with the right reputation management company .

In addition, firms should run marketing campaigns to shift the negative narrative and repair a damaged reputation . Use those campaigns to promote your company’s corporate social responsibility programs (CSR).

4. Monitor your reputation

The final step in a reputational risk management program is to diligently track brand perception against your baseline. Monitor opinions of employees, customers, vendors, shareholders, analysts and activists. Here are just a few ways you can continuously monitor brand reputation :

• Run surveys
• Hire a brand sentiment tracking agency
• Set up Google alerts
• Manually search your brand and your executives Google
• Work with a reputation management company like us

Reputational risk insurance policies

Reputational risk is a massive expense that squeezes your bottom line. What’s worse, it may even go undetected for years. Because it poses such a substantial threat, company’s might consider taking out a reputational risk insurance policy .

While insurance can help pay for the cost of a damaged brand image, it won’t fix the underlying issue. Therefore, is the cost really worth it? Rather than wasting capital on reputation risk insurance, consider strengthening your online presence instead.

Contact us and we’ll develop a plan to manage your reputation and protect your company for the long haul.

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6 Ways to Manage Reputational Risk

https://www.clearrisk.com/risk-management-blog/manage-reputation-risk-0-0-0

Every organization, no matter the structure, nature of operations, or size, has reputational risk. All risks are significant in and of themselves, but resulting reputation damage can be even more catastrophic, as a reputation is one of a company’s biggest assets.

Sometimes all it takes is a rumour to make the public lose confidence in an organization, ending it quite quickly. As Warren Buffet said, “it takes 20 years to build a reputation, and five minutes to ruin it”.

A fire in a manufacturing facility can result in property damage, employee injuries, and lost revenues, but if operations can’t be quickly resumed or outsourced, customers will lose confidence in the availability of products and go elsewhere.

If a popular restaurant is publicly exposed for discriminatory hiring practices, it will have difficulty attracting new staff and have to repair its reputation or risk going out of business.

For example, United Airlines received a huge amount of negative publicity in 2017 for  forcibly dragging a man off an airplane that they had overbooked. A video of the incident quickly went viral, causing many travellers to voice their outrage and even boycott the airline.

While overbooking flights is a common practice for many airlines, their treatment of the passenger and their failure to immediately correct the situation caused many people to no longer trust United Airlines and choose to fly with other companies. 

This is a general guide to managing reputational risk; in our next two blog posts, we’ll be discussing crisis management and the impact of social media on reputation risk.

There are several key steps in preventing and responding to reputational risk:

1. Make reputational risk part of strategy and planning

It’s important to recognize the impact that reputation can have on success. Investigate weaknesses and determine relevant reputational attributes within the organization. Brainstorm potential scenarios that could damage public perception with employees at various levels, as they may have unique contributions.

Determine indicators and warnings for each attribute so you will know when to take action. For example, customer complaints about the cleanliness of a restaurant indicate that standards need to be raised before it becomes known as an unsafe place to eat.

2. Control processes

Standardization, technology, policies, and procedures reduce the likelihood and severity of events that could cause reputational damage. By focusing on consistently supplying quality products and services, it’s much less likely that there will be a harmful mistake.

If something does happen, you can lessen the extent of reputational damage by explaining measures you had in place to prevent the incident and how you’ll prevent it from happening again. Carefully select third parties to work with and treat employees fairly to avoid scandals on the external front.

3. Understand all actions can affect public perception

The board and top management must recognize the importance of reputational risk management, and middle managers must lead by example to promote positive messages to key stakeholders.

Organizational training, policies, and procedures can ensure that all employees know how to behave and respond appropriately in any situation. When reputation is at risk, employees must act quickly and responsibly while doing anything within their power to positively influence public ideas.

4. Understand stakeholder expectations

When you know what client expectations are, it’s much easier to meet them. Don’t try to set expectations too high by promising offers that you cannot follow up on — this will backfire when you become known as an organization that cannot live up to its word. Learn what customers, shareholders, and employees expect from the organization and management, and strive to satisfy these conditions.

5. Focus on a positive image and communication

In all situations, it’s key to consistently send out positive communications. Over time, this will build up your reputation in the public mind, lessening the impact of future damages. Always inform clients and employees what’s happening and how you are responding to incidents in the organization or environment.

Customer service, transparency, good governance, and steady growth are some of the most important messages to convey. Obviously, you cannot always please everyone, so focus on satisfying your most important stakeholders first. We’ll discuss the impact social media can have on communications in a later blog post.

6. Create response and contingency plans

If the worst happens, your organization must be prepared to respond quickly and appropriately. Every minute that goes by can be crucial and reduce the respect the public has for your organization and its managers. 

While seriously underestimated in some organizations, the risk that reputation presents is serious. It is a potential side-effect of any risk that can occur, so it's crucial to monitor it. Without effective reputation management, it may take an organization a long time to recover from an otherwise minor incident.  For more information or advice, ClearRisk would be happy to help! Our risk experts can help you manage reputational risk.

If you found this article helpful, you may be interested in: 

Reputation Management in a Crisis

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What Is Reputational Risk? [+ Real Life Examples]

Published: December 23, 2022

Running a business would be much easier if every negative situation came with prior warning. Instead, business leaders are typically left to mitigate the reputational risk that comes during the aftermath of a worst-case scenario. Sound familiar?

In this post, we’ll outline what these types of unexpected risk scenarios are, explain how to rebuild your business's reputation, and give tips on putting your best foot forward in the eyes of your customers.

What is reputational risk?

Reputational risk is any sort of threat or danger that can damage the good standing of your business and negatively impact your reputation with consumers and overall business success. These risks are typically unexpected and can occur with little to no warning.

Why is reputational risk important?

All reputational risks typically cause consumers to lose confidence in your business, which negatively impacts all areas of operation; trust of employees and consumers, customer satisfaction, customer retention, revenue generation, and more.

Social media has made reputational risk scenarios even more dangerous for businesses as consumers can quickly (and easily) take to their accounts and share negative experiences with global audiences. In addition, breaking news sources can also easily disseminate information on multiple platforms.

With reputational risk you're up against several battles including speed, reach, and optics. However, there are several types of risk and each one comes with its own risk management strategy. Next, let's look at these types of risk and what makes each potentially damaging to the reputation of your business.

Types of Reputational Risk

There are four main types of reputational risk:

1. Actions of the Company

These reputational risk scenarios are caused by direct actions of your company and company practices. Some possible example scenarios include:

• Not complying with regulations, like federal or local laws or industry regulations
• Data breaches due to unsafe practices that threaten the personal information and safety of consumers and employees
• Consistent inability to meet customer needs or falling short of customer expectations
• Legal actions involving your business that become public knowledge
• Layoffs and internal scandals that become public knowledge
• Poor working conditions for employees or exploitative working conditions
• Poor quality products and services
• Purposeful misaction that consumers become aware of

Whether the company action was intentional or not, this type of risk can affect the way public entities view your business. This can bring about negative press and even government scrutiny if decisions your company makes are regulated by a governing body. This type of risk can potentially cost millions of dollars in litigation fees and corrective action.

2. Actions of Company Representatives

These risks typically occur because someone with direct ties to your business acts unacceptably, or engages in unethical or immoral practices. Here are some possible scenarios:

• C-Suite employees engaging in unethical conduct
• Business leaders with negative reputations, or that develop negative reputations through specific actions
• Employees involved in misconduct that becomes publicly known
• Employees poorly representing your brand to others
• Individual employee misconduct towards customers
• Negative social media posts by those associated with your business

Although it might be tempting to think that actions of company representatives and employees are not actions of the company, the public likely won't agree. Since businesses don't have personalities or faces, its representatives fulfill that role. This opens any organization up to a host of liability and reputational risks.

3. Actions of Partners

Partners and suppliers often provide critical support that helps businesses run, but their behavior can pose a reputational risk to your business, especially if you have an established relationship. Here are some possible scenarios:

• Partner experiencing service interruptions that critically affect a pillar of your business, like malfunctioning software
• Partners or suppliers engage in misconduct that becomes public knowledge
• Partners or suppliers speak negatively about your business

Depending on how closely tied your business is to partners and suppliers will determine how much of a risk to your reputation their actions can be. This is also true with marketing partnerships, influencers, sponsorships, and advertisers.

4. External Actions

External actors like customers and past employees can have a significant impact on your business reputation, especially if they have a bad experience. Some example scenarios include:

• Negative social media posts from consumers about their experience with your business
• Negative reviews left by customers on public review sites, especially if based on false experiences
• Negative articles and press about working conditions as told by past employees
• Attacks on computer systems or data breaches

This type of risk carries a lot of weight with the media and potential customers because it helps them form an opinion about how people are treated after they've received goods, services, or employment from your company. Does your organization stay true to its values or is it apathetic toward (or completely disregard) those values once the job is done?

The possible situations listed above are just examples of reputational risk scenarios that can cause serious damage to your business. Next, let’s go over some real-life examples of experiences businesses have had that put their reputation at risk.

How to Mitigate Reputational Risk

Mitigating reputational risk involves lessening the blow when a threat occurs, essentially getting out in front of the problem. Acknowledge that it is occurring, and have PR teams create crisis messaging that will help your business explain what is happening to consumers. Explain what you’re going to do about the issue, and, most importantly, be transparent.

Although not every reputational risk can be predicted, there are measures you can take to prepare for a worst case scenario and prevent it before it happens. Here are a few ways you can mitigate reputational risk.

Honor your core values.

The first method of preventing reputational risk is to lean on the core values of your organization. You can include the mission and vision in your decision making, too. By relying on these building blocks of your company culture, you can not only shield it from harm, you can double down on your choices internally and externally because they will align with the purpose the founders had in mind when building the company.

If you're leading a new company or building a startup, check out these tips for developing an authentic set of core values , an inspiring mission statement , and a forward-thinking vision statement .

Require internal compliance training.

Although some risk reduction measures may seem like common sense to some of your employees, especially those in leadership, it's a good idea to have all employees of your company (and even contractors, if possible) take a course or complete a knowledge check on company policies around social media, press, and speaking about the organization in public. In other words, your employees should do a compliance training session. The more transparent you can be about what you're requiring of your team and why, the better off you'll be in managing reputational risk.

Use social listening tools.

Keeping your metaphorical ear to the streets is another way to prevent potential risks or diffuse those that are starting to gain traction on the web. Tools most notably used for social media, like Sprout Social, are perfect for spotting conversations that may position your brand in an unsavory light. But you'll want to have a plan for addressing these issues, too.

It's not wise to go into a conversation between unhappy customers and prove them wrong or explain yourself. Rather, consider these smart ways to handle disgruntled customers and turn them into brand advocates.

Invest in public relations.

Finally, when you've exhausted each of these efforts but still find your company in hot water with the public, it's time to remedy the situation. Public relations and marketing are the best ways to get your brand back in the good graces of customers, employees, and other stakeholders who may be turned off by recent changes in your reputation.

Public relations isn't about spinning a narrative in your organization's favor, but instead making a good-faith effort to meet your stakeholders where they are and make the best decisions using the most accurate information available to you at the time. Get started with a positive PR strategy with this comprehensive guide .

Reputational Risk Management

Reputational risks are often unanticipated and surprising, so there is no specific way to plan for them. However, the contingency plans that your business should already have created and consistent reputation management will help you deal with situations if they occur.

These plans you’ve created likely outline individuals responsible for taking immediate action, and sample action items to be followed. If you were to experience a threatening situation, responsible individuals can act on the existing plans and tailor the response to the specific risk at hand.

For example, if the risk situation is an explosive tweet by a former employee, your baseline crisis management plan may be adapted for a social media response.

Download the Crisis Management & Communication Kit

In addition to general crisis management, standard business practices that lessen the likelihood of reputational risk scenarios occurring are all things that your businesses should already be doing, like:

• Prioritizing customer relationships and customer satisfaction .
• Listening to customer feedback and acting on their needs.
• Compliance with legal rules.
• Managing conversation about your business online (like responding to Google reviews).
• Safe storage of consumer and employee information, especially when collecting secure financial information.
• Consistently monitor product quality.
• Maintaining safe work environments for employees, both physically and mentally.
• Internal groups conduct routine checks of all business operations to identify possible risk areas or areas for improvement.
• An understanding that everything and anything can affect public perception of your business and has the potential to risk your reputation.

Reputational Risk Examples

Kendall jenner and pepsi.

Reputational risk caused by direct actions of your company and company practices.

Pepsi Cola, a soft drink company, released an advertisement with Kendall Jenner, an American celebrity, in 2017. In the ad, Jenner attends a protest and hands a can of Pepsi to a police officer as a peace offering.

Consumers were immediately outraged, as they felt the ad trivialized the Black Lives Matter movement and widespread protests of police brutality that were happening that year. Many interpreted the ad to say, “All it takes for us to get along is to share a can of soda,” ignoring the years of systemic oppression felt by marginalized communities.

Pepsi pulled the ad and apologized, but it damaged their reputation and standing with American consumers as the brand experienced nine months of the lowest perception levels it had seen in eight years. In addition, approval ratings with millennials, a generation with significant purchasing power, fell, too.

Jenner experienced similar fallout, as consumers believed her apology was insincere. Her participation in the advertisement is still referenced frequently on social media channels almost six years later and has become somewhat of a meme. An article was even published in May of 2021 titled “Here's Why Kendall Jenner Will Never Escape The Backlash From That Pepsi Commercial.”

McDonald’s and Stella Liebeck

Reputational risk caused by external factors and direct business action.

79-year-old Stella Liebeck bought a cup of coffee from fast-food chain McDonalds in 1992 and experienced third-degree burns after it spilled in her lap. Liebeck sued McDonald’s for damages in court, which put the business’s reputation at risk because of the publicity of the lawsuits.

During the trial, McDonald’s admitted to knowing about the risks posed by the high temperature of its coffee but had not taken any sort of action. As mentioned above, a business’s purposeful lack of action is viewed as negligence by consumers, a significant cause of reputational risk. External factors, namely press and articles that outlined the lawsuit for the general public, also threatened the business reputation.

Uproar from this specific event has died down today. Still, McDonald’s has shown commitment to rebuilding public trust through actionable steps like providing significant warnings about liquid temperature and serving hot drinks in sturdy foam cups that are less likely to tip over.

Shein and Clothing Suppliers

Reputational risk caused by actions of suppliers and partners.

The Chinese fast-fashion giant, Shein, stepped onto the scene in 2008, but has been widely popular in the last five years. The inexpensive clothes paired with quick shipping made it an accessible site for consumers to purchase the latest trendy pieces on a budget. But this convenience came with a price.

In recent years, major news outlets and documentaries have reported on the unsafe and unfair working conditions that Shein suppliers and manufacturers endure to produce the clothing at an expedited rate. But why the rush? Shein relies on influencer reviews to sell products. With social media apps like TikTok and Instagram delivering content at a dizzying pace, fashion trends come just as fast as they leave which only puts pressure on the supply chain operation at Shein.

In late 2022, Shein made a commitment to pledge $15 million to improve standards at its supplier and manufacturing warehouses.

Over To You

As reputational risk scenarios are sometimes unexpected, the best way to be prepared is to practice consistent crisis management by creating actionable plans and taking immediate action if and when a scenario arises.

As Warren Buffet says , “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Editor's note: This post was originally published in [Month Year] and has been updated for comprehensiveness.

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How to Manage Reputational Risk

A strong risk culture, a proactive board and operational resilience are among the keys to successful reputational risk management..

Friday, March 1, 2019

By John Thackeray

As Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it.” This rings especially true today, as high-profile crises - including cyberattacks, product recalls and damaging social media posts - become more prevalent.

Reputation represents an interpretation or perception of an organization's trustworthiness or integrity. Reputation equals integrity and integrity equals social responsibility - i.e., sustaining the “social license to operate” and ensuring that business practices, operating procedures and corporate behaviors are acceptable to employees, stakeholders and the public.

Reputational risk is the current and prospective impact on earnings and enterprise value arising from stakeholder opinion. To understand and address reputational risks, and to create a sustainable plan for mitigating them, an organization must first identify and assign ownership for each of its risks and then determine its appetite for risk/reward.

Management of reputational risk can then be addressed via the three lines of defense, which include strategic alignment, cultural alignment and operational focus.

Strategic Alignment

Create effective board oversight.

Reputational risk management starts at the top. Matters of strategy, policy, execution and transparency (particularly with respect to reporting) must be closely overseen by the board. Indeed, these issues are vital to effective corporate governance, which plays a huge role in sustaining reputation.

Managing reputational risk doesn't typically fit neatly into a single function. Ultimately governed by the board, it requires clear accountability, leadership and engagement across numerous teams.

Integrate risk into strategy setting and business planning.

The board and executive management must ensure that risk is not an afterthought to strategy setting and business planning. Reputational risk must be identified as both a material risk and a strategic risk, and should be inextricably linked to the company's risk management and crisis management disciplines.

Board and senior management should also ensure that there is adequate focus on the critical enterprise risks that could impair the firm's reputation. What's more, a process for identifying emerging risks on a timely basis must be established, and the company's risk profile must be continuously appraised.

Emphasize effective communications, image and brand building.

Building brand recognition unique to a business is vital to market success and, when all else is working well, augments reputation. A good story is easy to tell. Typically, though, the best companies (1) develop powerful and distinctive messaging; (2) establish accountability for results with metrics and monitoring; (3) work social media effectively; and (4) passionately live up to their values every day.

Pay close attention to crisis planning and operational resilience.

Successful management of a crisis event can mitigate potential reputational damage. Through an effective crisis management framework, an organization can integrate the right processes, roles and governance into existing contingency plans.

Of course, it often takes practice to know when to mobilize a crisis response, what information to communicate to which stakeholders and how to coordinate communications across different teams. Companies can test processes and gain experience by running crisis simulation rehearsals based on the most critical reputational risks.

Collaborate with stakeholders .

The executive team and board of directors should interact more with customers, employees, suppliers, regulators and shareholders. News about risks, business operations and branding should be communicated proactively.

No organization or brand will be able to succeed without doing good and doing well - i.e., delivering ?nancial performance while also making a positive contribution to society. Social purpose needs to be embedded into the very fabric and heart of the enterprise.

Cultural Alignment

Establish strong corporate values, supported by appropriate performance incentives .

Boards need to ensure that executive management implements a strong tone at the top, a variety of effective escalatory processes and periodic assessments of the tone in the middle and tone at the bottom. To shape and influence the corporate culture from end-to-end, the executive team must align performance incentives with corporate values.

Moreover, executives and directors need to pay attention to the warning signs posted by the independent risk management function and to audit reports that offer evidence of possible dysfunctional behavior.

Comply with laws, regulations and internal policies.

Few incidents undermine reputation more than serious compliance violations. The accompanying media headlines can drag a company's brand through the mud. Senior executives, with board oversight, should take steps to implement effective, compliance-driven internal controls.

Operational Focus

Build a strong control environment.

Embarrassing control breakdowns, especially in the arena of public reporting, can tarnish reputation. Every board should therefore expect and demand a strong control environment that not only signals management's commitment to integrity and ethics but also lays the foundation for a risk-aware culture.

Develop an early warning system.

Embedding risk sensing into an organization's risk governance program enables the continual identification of emerging threats. To spot potential risks, many leading companies perform 24/7 monitoring of traditional and social media outlets and internal data sources.

Monitoring teams can support both daily reputational threat sensing and crisis management response. Companies with strong monitoring capabilities can more effectively analyze and interpret data, leading to better, more-informed business decisions.

Parting Thoughts

Reputation is everything, and financial institutions must therefore do everything in their power to better measure and mitigate reputational risk. This is a challenging task, but a strong risk culture, a proactive board and a comprehensive framework for operational resilience are excellent starting points. To be effective, they must all act in harmony with each other; this is not the place for compromise or shortcuts.

John Thackeray is the founder and CEO of Risk Smart Inc . Over his long career, he has held many risk positions, including CRO posts where he interacted and engaged with US and European regulators. He frequently contributes articles on his risk insights to the Financial Executives Networking Group (FENG).

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Managing Reputation Risk: A start-to-finish guide

Whether you’re a private client or a large family business, managing your reputation and reputation risk will be key to your success. In this start-to-finish guide, we look at how reputation works, how to quantify reputation risk, how to control reputational crises, and how to ensure you have an effective crisis response.

Whether you’re a private client or a large family business, managing your reputation and reputation risk will be key to your success.

Introduction

Private clients and companies now dedicate more time to managing risks around their reputation than ever before. In a recent survey, Deloitte found that 87% of executives now rate managing reputation risk as more important than any other strategic risk.

This wave of concern has been triggered by an appreciation of its value. Reputation damage severely affects confidence in both a company’s executives and a company’s financial performance.

More than 55% of reputation crises lead to long-term financial loss for a company, according to recent research, with the majority of these losses being classified as “significant” and “large”.

As you start to think about managing your own reputation, in this article, you will find out:

• How reputation works
• How to quantify reputation risk
• Why reputation risk is increasingly important for both individuals and companies
• Putting in place internal controls
• How to manage your personal and corporate reputation risk
• How to respond to emergent reputation risks quickly
• How to control reputational crises
• How to ensure you have an effective crisis response

How to understand reputation risk

The first step in any effective risk plan is building a comprehensive understanding of reputation: how are positive reputations shaped , how do you quantify reputation risk, and who does it affect? We’ll start there.

Who is exposed to reputation risk?

Individuals, families, companies, charities and all other organisations are exposed to reputational risk. Sadly, many people still think reputational risks only lies with corporations, which is not true.

In fact, shareholders, founders, CEOs and executives are more exposed to reputational risk than their organisations. It takes individuals five times as long to recover from a reputational crisis, according to academic research, damaging many executives' long-term careers and business relationships.

On top of that, it is the reputation of the company owner that drives the reputation of the company, not the other way around, according to research from corporate communications agency Weber Shandwick . The tone at the top matters.

% company market value attributed to the reputation of CEO (source: Weber Shandwick )

What is the definition of reputation risk?

Most people know a reputation risk when they see it, but it is actually surprisingly difficult to define.

You usually know a reputation risk by its impact. Most communications professionals will, therefore, say a reputation risk is any information, coverage, data, video, or other content with the potential to:

• show an individual or company in a negative light …
• ...with an important audience …
• ...leading to immediate or long-term financial, brand or personal loss .

What shows an organisation or individual in a bad light?

There are, of course, many ways for content to shine an unfavourable light on the activities of individuals or businesses. But it is helpful to categorise this unfavourable content in the following three categories:

• Direct criticism of business practices . Information that pours scorn on a company’s corporate activities, such as their sustainability credentials, HR policies, or financial track record.
• Direct criticism of personal decisions . Content that questions the personal decisions of individual people and executives, such as their personal tax residency, their personal pay, or individual behaviour in the workplace or otherwise.
• Content that engenders the wrong impression . Material that may inadvertently or otherwise create unhelpful perceptions in an audience’s mind, even if it’s not directly critical of an individual or company. Flaunting wealth on social media, for example, often creates negative perceptions that impact long-term reputation .

Who is your target audience?

Relevant reputation risks will change depending on target audience of an individual or company.

For example, while the public may perceive relocating offshore for tax purposes poorly, this may not be the case with financial partners. Managing reputational risk must always be done with a specific audience in mind.

Audiences will be unique to a private client or business’s individual circumstances, but there are a number of key common audiences that all individuals and companies should consider:

• local community
• policymakers
• financial institutions
• business partners
• professional advisers

Is the target audience always external?

One important, yet overlooked, audience is employees. Many reputation crises start not from customer boycotts or regulatory change but from employees taking a public, critical stand against the company or family they work for.

Many employees see their own reputation through the lens of the individuals they work with or the company they work for, so they are more likely to take a public, visible stand against bad practices they witness.

For example, employees at Google recently wrote an open letter to highlight concerns about the company’s approach to business in China.

This high-profile intervention had a significant impact on Google’s reputation, generating a wave of negative press coverage, and likely damaging the company’s reputation more than an attack from an outside critic.

Where does reputation damage usually take place?

Damaging information does not emerge out of thin air.

Instead, it makes its way to your target audience through established communications channels. Of course, the most obvious way is through the publication of negative news coverage in the traditional media, whether that’s a national newspaper, industry publication, or TV news channel.

Nonetheless, the popularity of social media means more reputational damage is now being done on Twitter, Facebook, LinkedIn and other social networks. There are many examples of social media content going viral and reaching audiences of multiple millions overnight, more than would have read the information if it was published in a traditional news media outlet.

Does this always have to happen on public channels?

Reputation damage does not need to take place on public communications channels. Negative stories can spread on ‘dark’ channels too, such as email, SMS, WhatsApp, or through face-to-face communication, especially among employees and business partners. Sadly, this source of reputation risk is much more difficult to monitor.

What are the most common forms of reputation risk?

Trends in the media, politics and specific industries fluctuate in and out of public consciousness.

But while the key common forms of reputation risk will vary over time, some of the most significant trends in 2020 have been:

• Workplace behaviour . In light of the global #MeToo movement, there has been widespread, highly publicised backlashes against poor workplace conduct.
• Sustainability . In response to increasing global concern about climate change, there has been significantly more focus on the environmental credentials of individuals and companies.
• Diversity . Following the high-profile Black Lives Matter campaign, there has been a push for business owners and companies to introduce progressive recruitment policies for people from diverse backgrounds.
• Gender pay gap . Following the introduction of gender pay-gap reporting in the UK and elsewhere, there has been an increased focus on the pay differential between male and female colleagues across businesses.
• Supply chains . In response to consumer activism, there has been increased scrutiny on the treatment of supply chain partners.
• Data breach and privacy . A lot more attention has been put on how companies are using customer data following the introduction of GDPR in Europe, a number of corporate data-loss scandals, and high-profile coverage of how companies like Cambridge Analytica have used social media data to micro-target messages.
• Fraud and accounting standards . On the back of a number of high-profile accounting scandals, such as Patisserie Valerie in the UK and Wirecard in Germany, there has been increased scrutiny on the integrity and accuracy of company reporting.
• Tax contributions . In light of taxpayer-funded support schemes for businesses impacted by a coronavirus, there is now significantly more press attention on where business owners base themselves for tax purposes and whether they accept taxpayer-funded government support.

How do you quantify reputation risk?

Quantifying exposure to reputation risk is often a complicated combination of factors, both known and unknown, which makes it difficult to accurately calculate.

It is, however, possible to get a good snapshot of an individual or company’s reputation risk by estimating the following factors:

• Probability of a negative event happening . How likely are you or your company to be implicated in a negative reputational event?
• Financial and brand damage this event would have . If this negative event did come to pass, what would be the financial implication on the individuals or business involved?

How do you quantify the risk of a potential negative event happening?

Many PR professionals will use a scorecard or risk assessment to estimate reputation risks, itemising the individual risks that a company or individual faces to determine its risk level.

As this process is often inaccurate and slow, Transmission Private has developed its own proprietary data-driven methodology for evaluating risk on an ongoing basis:

• Track similar individuals or companies . We track qualitatively similar individuals and companies to calculate how regularly they are involved in events that impact their reputations
• Quantify impact . We quantify and qualify the impact of these events on the basis of their structure, sentiment and severity
• Determine risk . We adjust a client’s risk by their visibility within that class of individuals or companies, as well as their exposure to those same risks

Why is reputation risk important?

Putting in place an effective reputation risk management strategy is key to both:

• avoid reputation damage and harm, and
• realise the benefits of positive reputations

The negatives of a poor reputation

Evidence shows that a poor reputation leads to worse financial performance, increases the difficulty of doing business, and creates a cycle of increasingly negative, harmful public, press and regulatory attention.

On one hand, customers are increasingly concerned about reputation. In Europe, 80% of consumers say they are “likely” or “very likely” to take into account company and brand reputations before making a purchasing decision, according to polling agency Ipsos MORI . This number rises to 85% in North America, and 90% in Asia, Latin America and Africa.

Impact of corporate reputation on buying decisions (source: Ipsos MORI )

This has sent waves of concern through business supply chains, with public-facing companies choosing to distance themselves from individuals and companies who may open them up to criticism. In the context of private clients, many banks are now taking a particularly aggressive approach to their client book, turning down customers who may expose them to even tangential reputation risk.

On the other hand, there are an increasing number of communications channels that expose individuals and companies to potential criticism, increasing the stakes for individuals and companies. The Internet and social media have turned everyone into a publisher:

• 500 million tweets are posted on Twitter every day
• 600 million blogs are active at any moment in time
• 500 hours of video are uploaded to YouTube every minute

It is infeasible to believe this content will not mention you, your company or brand.

At the same time, the immediacy of social media means that negative stories, whether misinformation or otherwise, travel much faster than ever before. According to research from the University of Warwick , it takes an average of 14 hours for a false claim to be corrected on social media, and by this time the damage is usually already done.

The positives of a good reputation

While many individuals and companies recognise the drawbacks of a poor reputation, they overlook the numerous benefits of positive reputations. There are, in fact, many, including:

• Financial performance . Corporate reputation accounts for more than 25% of a company’s stock market valuation, according to academic research .
• Attractiveness to investors and business partners . More than 87% of CEOs, entrepreneurs and other individuals say that a strong personal reputation attracts investors and new business partners, according to Weber Shandwick .
• Recruitment and retention . More than 8 in 10 executives say that a strong personal reputation helps them attract talent, and another 7 in 10 say it helps them retain talent.
• Company resilience . Companies with stronger reputations recover more quickly from crises than those with lower levels of trust, according to Ipsos MORI .

How do you manage your reputation risk?

Now you know how to understand, evaluate and assess your reputational risk, how do you manage it? What management planning do you need to undertake?

1. Clearly define your audience

An individual or company’s reputation risks will differ from audience to audience. Different audiences care about different factors. Get clear in your head where you want to manage your reputation risk first. Ask yourself the following question:

• If a crisis were to hit tomorrow, which audience would be the most important for continuity of your personal activity and business?

That is the first audience you should focus on to manage reputation risk.

When individuals and companies ask themselves that question, they tend to answer by saying their suppliers, customers and funders. But do not overlook your employees. If your team loses confidence in your reputation as an individual or business, it can lead to devastating walkouts.

2. Build a picture of where they currently acquire information

Taking each of these audiences in turn, take the time to understand:

• where they read about you most often, and
• how they go about acquiring information about you or your company.

This may be on both public and non-public channels. For example:

• Suppliers will most likely acquire information from the industry trade press
• Employees may read through internal company newsletters
• Members of the local community may read regional newspapers
• Senior industry contacts may acquire information through face-to-face engagement
• Financial institutions and other partners may read your quarterly financial statements and annual reports
• Members of the public may read the mass media and social media, or even acquire information through their customer service experience

There will often be no single answer for any audience, but this exercise will give you a clear sense of how information is acquired about you or your company. It enables you to identify the communications channels where a reputation crisis is most likely to develop, spread and evolve.

3. Understand current perceptions

Any effective reputation risk strategy must start with understanding current perceptions. In light of the previous steps, you should have a sense of where your most important audiences acquire new information about you.

Now undertake a research exercise to evaluate all the material on these channels about you as an individual or company. For example, you may want to read, evaluate and categorise the last decade of content about you or your business to understand the sentiment of this material and uncover any recurrent trends and themes. In many ways, this is the first step of a risk assessment exercise.

You may also want to use big data tools to evaluate raw information at scale. Transmission Private uses its own proprietary tool to conduct this analysis for clients at scale . But there are other standalone tools on the market, including Sprout , Brand24 and Awario , that enable you to digest large amounts of historic data on social media, and elsewhere, for your own sentiment analysis.

4. Understand current risks

The research exercise will give you a sense of whether you are perceived negatively or positively on different communications channels. Now look at the negative and positive mentions, and pick out the key themes in the data:

• What issues repetitively led to positive coverage and comments in the past?
• What issues repetitively led to negative coverage and comments in the past?

Reputation events tend to reoccur in cycles, with individuals and companies being criticised for the same decisions, missteps, and choices time and again.

This will provide key data for you to develop a risk assessment strategy to mitigate similar reputation crises in the future or, if desired, recover your personal or corporate reputation on these topics. This will require a communications plan .

5. Track mentions to you, associates, partners and other entities

You will now have a baseline understanding of how your reputation sits as well as the risks that you have been exposed to in the past. But risks evolve on a daily basis – and the most dangerous are those that are new and unexpected.

Next, implement robust online monitoring to track mentions that may expose you to reputational risk. This should go beyond mere monitoring of mentions of you or your company, and should include monitoring of key business partners, associates and other related entities. You need 360-degree intelligence on what is happening across all communications channels.

While extra weight should be put on monitoring the channels where your key audiences acquire information, a robust solution monitors all channels in as close to real-time as possible:

• print media
• social media
• online news media
• public filings, including company registers
• parliamentary records
• stock image sites
• video websites
• comment sections

There are a number of solutions that enable you to monitor these channels on an individual basis. For example, Hootsuite , Mention and TweetDeck enable companies to monitor references on Twitter.

If you want a comprehensive, fail-safe solution, Transmission Private provides its own fully-managed reputation monitoring service that tracks all of these channels, and is tailored to private clients, family offices and family businesses.

6. Track references to your competitors

Key reputational risks tend to affect whole industries. They do not simply attach themselves to single individuals or companies. If you restrict your monitoring to your own company, you will miss the most significant reputation risks.

It is very unlikely that you will be the first individual or company to be subject to public scrutiny on a specific topic or trend. For example:

• If you run a luxury fashion business , you may be hit by negative reporting about the carbon footprint of your supply chain. If you were monitoring competitors, you will have seen this was a common reputation risk.
• If you are a political donor , you may be hit by accusations of cash for access. Again, if you were monitoring other donors, you will have seen this was a common risk.
• If you’re the founder of a construction firm , you may be subject to questions about safety on your sites. Yet again, if you were monitoring similar companies to yours, you will have seen this was a common line of questioning.

Putting in place robust monitoring of either individuals or companies who are in the same industry as yourself – or are exposed to the same types of risks – will provide important future intelligence on the emergent risks in your sector.

7. Spot emergent trends before they become risks

It is not enough to simply monitor and track similar individuals and companies passively. This monitoring will return a substantial amount of raw data in the form of news stories, social media posts, and other content.

This data needs to be analysed either:

• Manually through human-led intelligence to identify spikes in negative and positive content, or
• Automatically by software to tease out the key themes and topics

If a trend has impacted a competitor’s reputation or brand, it is likely only a matter of time before it impacts yours as well.

While many themes will reoccur from month to month in the data, the most dangerous are those that peak rapidly. You should track the amount of coverage about different themes in your industry to evaluate whether there is new-found interest in a particular area that needs specific attention.

8. Request information from internal departments to assess risk exposure?

Emergent risks need to be assessed in the context of how well you or your company are doing on this particular theme or trend. It is only possible to assess this properly with full, transparent, up-to-date information internally.

It should be within the power of the person responsible for managing reputation risk in the family office or company to request detailed information from across an organisation to evaluate the risk that a new trend may present to a family office, charity or company.

Often there is resistance in any organisation to the candid sharing of information which could make either the business, its departments or its executives look bad. This resistance needs to be eliminated so that risks can be properly assessed and evaluated.

9. Change behaviour in response to emergent trends

If the company is exposed to a new reputation risk, its executives should decide how to respond. The most immediate way is to change behaviour, such as putting in place more robust internal controls, undertaking product recall, relocating for tax, or otherwise.

In assessing whether this is the most appropriate response, it may be worthwhile comparing:

• the financial impact of this change in behaviour to the individual or business, against
• the risk-adjusted financial cost of the reputation risk being realised

It is worth adding that it is not possible to simply manage or control reputation risks through crisis management and communications strategies . The only way to truly eliminate risk is to take concrete action to change behaviour.

10. Preparing for a reputational risk

In many cases, it may not be possible, easy or financially feasible to change behaviour in response to an emergent reputation risk.

In these cases, it is best to collectively recognise the risk and prepare through developing a comprehensive communications plan :

• Draft a fact sheet with clear factual information about the issue to brief and update stakeholders
• Write a statement for internal use to communicate clearly with employees about the issue
• Draw up an external statement for use with the press and media
• Create clear guidelines on who can and cannot speak with different stakeholders
• Develop a comprehensive communication plan to set strategy for managing stakeholder response

Each risk will require a different strategy and approach. If you need assistance, Transmission Private can provide time-critical, expert communications and PR advice to you, your family, family office or family business.

11. Build a platform to respond to reputation risks directly

Ultimately, the best strategy to manage reputation risk is to speak directly to your stakeholders via your own controlled channels as soon as possible after a crisis starts to emerge.

By speaking directly to your stakeholders, you get complete control over how you respond as well as the opportunity to articulate your perspective in your own words.

Private clients and companies should consider how best to build their own controlled communications channels rather than communicating only via national, local and trade publications.

Common controlled communications platforms include:

• corporate websites
• family office websites
• family foundation websites
• quarterly updates to stakeholders
• financial statements and annual reports
• social media channels

For business owners and private clients, we find one of the most powerful and overlooked ways to respond to a reputation risk is via their own website. That will often mean building out a website for the family ahead of time in the form of a holding company website, for example, which provides the family with a direct route to respond to risks, trends and questions.

Good luck and happy monitoring.

Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.

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How To Manage Reputational Risk

• May 24, 2023
• Brand Management , Reputation Management

Why is Reputational Risk Important?

It’s crucial to manage and address reputational risks. When a reputation is harmed, it leads to consequences such as:

• Large financial losses
• Lack of customer trust
• Unable to attract new customers or employees

With the rise of digital technology, negative news spreads rapidly and reaches many people. This makes it crucial for businesses to manage the reputational risks they face in a proactive way.

A strong reputation helps companies withstand challenges and gain a competitive edge. Here is what a good reputation provides:

• Increased customer loyalty
• Ability to attract top talent for your business
• Positive relationships with stakeholders

Examples of Reputational Risk

It’s crucial to understand the different types of reputational risks that businesses may encounter. Knowing about the risks will help you effectively manage and mitigate them.

Let’s look at some common types of reputational risks that can affect how a company is seen:

Negative Reviews and Press

In today’s internet age, a single negative review or negative press article can harm a company’s reputation in no time. With the power of social media and online review platforms, disgruntled customers can voice their complaints to a large audience.

This can cause significant reputational damage. To maintain a positive brand image, it’s important to respond to reputational risks quickly. This is done by actively monitoring and addressing bad reviews and press in a timely manner.

Data Breaches

Companies are increasingly relying on technology and tracking customer data. Because of this, data breaches have become a huge reputational risk for businesses.

Data breaches can lead to customer mistrust, damaged relationships, and negative publicity. To decrease the risk of data breaches, it is vital to use strong internal controls and robust commercial security measures.

Operation Risk

Operation failures can significantly impact a company’s reputation. Examples of these risks can include:

• Supply chain disruptions
• Product recalls
• Service outages
• Equipment failures
• Human error
• Staffing issues
• Environmental events

Since many of these risks are beyond your control, having a risk management plan is crucial. That way, you can minimize the impact of operation risks. Customers expect reliable and consistent experiences, and any failure in delivering on those expectations can lead to reputational damage.

Social Responsibility Issues

In today’s socially conscious environment, customers care more and more about a company’s commitment to social responsibility. Any perceived failures in these areas can result in reputation damage:

• Eco-friendliness
• Ethical sourcing and fair trade
• Fair labor practices and employee well-being
• Community engagement
• Diversity and inclusion
• Corporate governance and transparency
• Responsible marketing and advertising

Companies can enhance their reputations by emphasizing social responsibility. It isn’t enough to just talk about it, you must integrate it into your core business practices.

Competitor Actions

The actions of competitors can pose reputational risks to businesses. When competing companies engage in unethical practices, it can negatively impact the entire industry. This can be a result of misleading advertising or getting involved in public controversy.

To mitigate reputational risk caused by competitor actions, companies can take the following steps:

• Maintain strong ethical standards
• Focus on openness and transparency
• Prioritize customer service

6 Effective Strategies to Manage Reputational Risk

How can businesses manage their reputational risk? Follow these six strategies, and keep reading to learn more about each.

• Develop a crisis management plan
• Monitor your online presence
• Encourage transparency
• Prioritize ethics and compliance
• Train employees on reputational risk management
• Foster strong relationships with stakeholders

1. Develop a crisis management plan

Establish a comprehensive business crisis management plan. This will outline how your organization will respond to potential threats and crises. This plan should include:

• Designated spokespersons
• Communication strategies
• Contingency plans for various scenarios

Review the plan regularly to make sure it is still effective. Update the plan as necessary.

Conducting crisis simulations, drills, and risk assessments can help your organization prepare for unexpected events. Overall, this will minimize the potential impact on your reputation.

2. Monitor your online presence

Through online presence management , businesses can regularly review your business’s online presence. This includes social media platforms, review sites, and news outlets. One of the best things you can do is to identify and address negative feedback head-on

Engage in reputation risk management best practices by:

• Responding to negative comments promptly
• Being professional at all times
• Being sensitive to the issue at hand
• Leveraging good feedback to maintain a positive brand image

3. Encourage transparency

Many companies shy away from being transparent, thinking that being secretive will help their reputation. However, being open and honest goes a long way toward building your credibility.

Create a culture of transparency in your business by:

• Being open with stakeholders about your company’s goals, strategies, and progress
• Encouraging employees to voice their concerns
• Creating open channels for communication
• Demonstrating accountability
• Being responsive to stakeholder feedback

4. Prioritize ethics and compliance

Ensure your company maintains a solid ethical foundation and complies with laws and regulations. Misconduct and illegal activities are huge reputational risks. Demonstrate a commitment to ethical business practices to reduce the likelihood of reputation damage.

Here are a few ways you can do this:

• Implement clear corporate ethics policies
• Provide regular training
• Establish a system for reporting and addressing ethical concerns

Practicing integrity can safeguard your reputation. It will also help attract and retain customers, employees, and investors.

5. Train employees on reputational risk management

Educating your employees about the importance of reputation is vital. Here are a few tips to help you do this:

• Give them the tools and guidance they need to identify and report potential risks
• Offer training sessions and workshops
• Teach them best practices in communication, social media, and customer interaction
• Empower employees to act as ambassadors for your brand to promote a positive image and prevent reputation damage

6. Foster strong relationships with stakeholders

Build positive relationships with key stakeholders, such as:

Engaging with these groups and addressing their concerns can help mitigate risks and maintain your company’s credibility. 

Regularly solicit stakeholder feedback, and demonstrate your commitment to addressing their needs. Nurturing these relationships will create a network of advocates that can protect your reputation in times of crisis.

In Closing: Managing Reputational Risk

By managing reputational risks, businesses can avoid the negative effects of a damaged reputation. By using these strategies, businesses can create a set of protocols to mitigate risks.

Business reputation is an important part of any organization to navigate through the complexities of your online presence. Set up an initial consultation with Reputation911 to learn more about business reputation management services , and how to mitigate reputational risk.

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Home Blog Online Reputation Management Reputational risk explained: Effective strategies to buildtrust and credibility

Reputational risk explained: Effective strategies to buildtrust and credibility

11 min read Last Updated Oct 16, 2023

Your business’s online reputation management is your bread and butter. Your brand reputation management should be your #1 marketing priority. It takes years to build and only takes seconds to destroy. In our digitally connected world, information spreads like wildfire.

Mistakes that threaten a business’s good reputation leave lasting effects. This constant threat to your brand’s name is known as reputational risk. Understanding reputational risk and how to manage it effectively can safeguard your business.

We will break down how to measure reputation risk, strategies for identifying vulnerabilities, and what you can do to protect your reputation in this blog. 

Table of contents

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Reputational risk is potential damage to an organization’s image caused by negative publicity, scandals, or crises that can impact revenue, brand value, and stakeholder loyalty. 

A company’s reputation is shaped by public opinion. Customers, partners, investors, and the public shape how they feel about a company and its services.

Even small mistakes can damage brand perceptions . A poor reputation creates a far-reaching fallout throughout your organization. 

What are the indicators of reputational risk?

Here are some key reputational risk indicators. Monitoring these indicators can help identify and mitigate emerging reputational risks proactively:

• Negative media coverage 
• Social media backlash 
• Ethics scandals
• Data breaches and cyberattacks 
• Lawsuits and legal issues 
• Leadership crises 
• Culture problems 
• Poor financial performance 
• Poor product quality 
• Regulatory noncompliance

Your reputation is your lifeline. Once it’s damaged, your relationships with consumers take a hit. Managing your reputation isn’t a luxury. It’s a need. Know the following pitfalls that can negatively impact how others perceive you and your brand:

1. Dishonesty and deception

Being deceptive and falsifying facts, even about small matters, can undermine customers’ trust. Lying and cheating is a surefire way to damage your reputation.

2. Poor communication

Things can fall apart if you don’t communicate clearly. Being unclear, rude, or failing to listen to your customers leads to silent phones and poor sales. You’ll earn a bad reputation if you alienate your customers with poor communication.

3. Inappropriate or damaging social media use

Social media marketing is an art. And many companies have dug their own graves by sharing posts that miss the mark. Inappropriate social media content will damage your brand and your social media reputation. 

4. Lack of integrity

Using your position to benefit unethically can quickly lead to a damaged reputation. Any actions that lack moral integrity affect how the consumer views your services and their purchasing decisions.

5. Failure to self-monitor

Public sentiment around issues and content is constantly shifting. Don’t fail to monitor the dynamic between the public, trends, and your business. Doing so will surely misstep and damage your brand’s reputation.

Reputational risk is a hazard for any brand. These real-world reputational risk examples will show you how easily companies damage their public image and customer trust.

#1. Nike and Asian Factory Workers

In 1991, activist Jeff Ballinger released reports detailing the poor working conditions and low wages at some of the Indonesian factories for Nike. Workers regularly put in grueling 60-plus-hour weeks. Yet they still earned a measly 14 cents an hour. 

Some factories also didn’t have basic safety services. The public outrage damaged Nike’s image. And consumers saw that the brand didn’t care about ethical labor standards. Nike sales fell.

Nike didn’t learn its lesson and continued to exploit workers. As the company celebrated 30 years of its “Just Do It” slogan, people protested that it was still underpaying its workers. This outcry saw the brand’s reputation drop. And some people even burned Nike products to show dissatisfaction. 

#2. United Airlines

In April 2017, United Airlines suffered reputation risk because a video showed three Chicago Department of Aviation security officers harassing an elderly man. The video showed the officers dragging a 69-year-old Asian American passenger from his seat onboard a United Express flight at O’Hare International Airport in Chicago.

The passenger suffered a concussion, a broken nose, and lost two front teeth. The incident became a global news story. Within days, United’s stock price dropped by about $1 billion. The CEO resigned within a month due to public pressure. United Airlines is still working to repair its image on its services and passenger treatment.

#3. Facebook

In March 2018, around 87 million Facebook users found their data had been improperly shared with a UK political consulting firm during the 2016 US presidential election. This was a massive breach of trust.

Facebook stock plunged by over $40 billion. Many companies and political leaders also called for greater accountability from the platform on data use and misinformation controls. 

Rebuilding user trust around data privacy and platform integrity remains a challenge to this day. This is perhaps one of the biggest reputational risk examples that a company has ever faced.

Reputational risk puts every aspect of a business at risk, from customer service to sales. With reputation management software , you can monitor, analyze, and improve your online reputation. You can stay ahead of potential issues and solidify a positive brand image.

Let’s explore how to measure reputational risk in different sectors. After all, it’s not all doom and gloom. Online reputation management can turn sticky situations into success stories. 

Preventing Reputational Risks: Best Practices & Strategies

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What is reputational risk in customer service?

Poor customer experiences will tank your brand’s reputation. This could be slow response times, rude or unhelpful behavior, or product/service failures. 

Dissatisfied customers frequently take to online review sites and social media. There, they trumpet their frustrations and influence potential buyers.

• Online reputation management software monitors customer feedback across numerous online channels to spot complaints early.
• It alerts customer service to priority issues. They can then quickly address problems and put the brakes on further negative online reviews. 

What is reputational risk in business development and finances?

You need to know how to mitigate reputational risk if you work with investors. Partnerships and investment deals can fall if stakeholders question a company’s financial stability or delivery ability. 

Any signs of cash flow difficulties, lawsuits, leadership turmoil, and operational issues raise red flags in financial services’ online reputation management . 

Online reputation management software:

• Scans for these risk factors across public records and open web sources. 
• Draws all findings into risk reports that identify vulnerabilities before damage is done. 

With this intelligence, management banks can take swift corrective actions or update important relationships to maintain confidence.

What is reputational risk in marketing?

Social media has amplified how quickly brand messages can spread. An insensitive ad or poorly tested promotion can trigger public outrage within hours. Reputation management software monitors all branded conversations to keep track of controversies at inception. 

The software also provides engagement insights that analyze sentiment toward reputation marketing and campaigns. With these warnings, companies can fine-tune campaigns early to avoid reputational damage.

What is reputational risk in sales?

Sales teams depend on your company’s good standing to create trust and close deals. Overpromising, supply issues, or questionable sales tactics scare customers away. 

Retail reputation management software audits external sales profiles and tracks discussions between buyers and sellers.

It detects early signs of trouble that could jeopardize future sales across industries, such as real estate . To eliminate reputational risk, sales managers reinforce best practices and address potential problems.

Now that we’ve identified the factors contributing to reputational risk let’s explore how to measure it effectively.

1. Media monitoring

Regularly monitor news outlets and social media for mentions of your company. Pay attention to sentiment analysis to gauge public perception.

2. Stakeholder survey 

Conduct surveys with key stakeholders, including customers, employees, and investors, to gauge their perceptions of your brand.

3. Risk assessment frameworks

Utilize established risk assessment frameworks to quantify and assess reputational risk. These frameworks often consider various risk factors and their potential impact.

4. Social media analytics 

Leverage social media analytics tools to track mentions, engagement rates, and sentiment trends surrounding your brand.

Once you’ve measured reputational risk, it’s essential to implement strategies for effective management.

Yes, AI can play a significant role in helping to reverse a damaged online reputation and build a more positive one. 

Birdeye, armed with AI capabilities, can seamlessly help you elevate your online reputation by using Birdeye Review generation, management, and marketing prowess and: 

• Ask for reviews before your customers leave.
• Send them straight to your favorite review site with a custom QR code.
• Personalize your review replies at scale with help from AI
• Generate tailored, error-free responses with a single click.
• Monitor reviews on 200+ sites.
• Translate reviews and replies. 
• Turn reviews into ready-made social content. 

Apart from these, you can integrate with over 3,000 software systems to automatically get new reviews, be found online, improve operations, and increase revenue.

Managing reputational risk is crucial for any business, as a damaged reputation can have far-reaching consequences. Here are steps to effectively manage reputational risk, along with real-life examples from a few well-known brands:

1. Establish a clear code of ethics

Step: Develop and communicate a robust code of ethics within your organization.

Example: Johnson & Johnson is renowned for its Credo, a document outlining its commitment to ethical behavior and customer safety.

2. Regularly monitor social media and news

Step: Use monitoring tools to stay aware of online conversations and news articles related to your brand.

Example: Starbucks actively monitors social media to address customer concerns and prevent potential PR issues.

3. Engage transparently and responsively

Step: In case of negative events, respond to reviews transparently and promptly to address issues and regain trust.

Example: Domino’s Pizza recovered from a reputation crisis by openly acknowledging and addressing customer complaints in a YouTube video.

4. Implement a crisis communication plan:

Step: Develop a comprehensive crisis communication plan in advance to effectively manage and mitigate crises.

Example: Toyota’s response to a major recall in 2009 showcased a well-prepared crisis management plan.

5. Quality control and product safety

Step: Ensure rigorous quality control processes to reduce the risk of product recalls.

Example: Apple maintains stringent quality control standards to prevent product defects and recalls.

6. Train and empower employees

Step: Train employees to be brand ambassadors and empower them to make ethical decisions.

Example: The Ritz-Carlton is known for empowering its staff to go above and beyond to ensure customer satisfaction, enhancing its reputation for exceptional service.

7. Regularly review and update policies

Step: Continuously review and update policies and procedures to adapt to changing risks and stakeholder expectations.

Example: Amazon consistently revises its policies to address emerging reputational risks, such as counterfeit product concerns.

You can break reputation risk down into four key steps. These are the identification, assessment, mitigation, and monitoring of risks.

It all comes down to integrity and ethics. Build trust through transparency, responsible business practices, and strong customer service standards. This proactive approach helps craft a strong, resilient reputation.

Keep a close eye on customer feedback, online reviews, and comments on social media and review sites. Also, keep track of any negative social media coverage, product issues, or compliance breaches.

Reputational risk management is identifying, assessing, and applying strategies to respond to potential threats to a company’s reputation.

Your business’s reputation is undoubtedly the cornerstone of your success. And since you can’t get by without an online presence, you can ensure public sentiment towards your company remains favorable by managing reputational risks.

Birdeyes’s reputation management software can help you monitor customer feedback, manage online reviews, and respond to comments. 

We help you strengthen customer relationships and solidify your brand as trustworthy and reputable. Click on the banner below to learn more.

About the Author

Shruti dugar.

Content Marketing Writer

Originally published Oct 16, 2023

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4 Best Practices for Effective Reputational Risk Management

Regardless of size and industry, it is imperative for organizations to manage their reputation carefully. Just as a strong reputation can help attract new business, a poor reputation can drive potential customers away, leading to financial loss. This is why many organizations are beginning to invest in reputational risk management programs.

With a system in place to  manage enterprise risk , companies are able to set quantifiable performance metrics and facilitate reputational alignment across departments. This streamlines a businesses’ ability to identify and respond to reputational threats by enabling risk prioritization. Below we outline four best practices you can follow to effectively manage reputational risk at your organization.

What is reputational risk?

Reputational risk is the damage that can come to a business if they fail to reach the expectations of investors or business owners, and is therefore perceived in a negative light. Consequently, this harms the business’s reputation.

Why is reputational risk management important?

Reputational risk management is important because it directly impacts your business’s success, relationships, and growth; and oftentimes, a reputational risk event is more damaging as it can take years to rebuild a tarnished corporate image. In some cases, these events can even result in a company going out of business if it is unable to regain trust with its customer base. Conversely, organizations that have a strong reputation are better able to attract new customers and employees, have a healthy market value, and receive the benefit of the doubt when an incident occurs.

As more businesses begin to digitize, reputational strength has become more important than ever before. Organizations are facing increased levels of cybersecurity, financial, and  compliance risk , which, if mismanaged, can lead to significant reputational losses. This is why it is vital that organizations build reputational risk management systems that  monitor enterprise-wide cybersecurity .

Challenges of reputational risk management

The key challenge many businesses face in managing reputational risk is identifying potential risk events. The lack of widely accepted standards for how to categorize and rank reputational risk makes it difficult for businesses to accurately assess and manage threats. In addition, reputational risks can be extremely complex and span across multiple departments, meaning it can take a long time to identify new threats and vulnerabilities. Reputational risk management requires building frameworks that unify threat identification. The challenge is that this process is resource-intensive and requires open communication between  the board of directors  and the security teams responsible for managing the risk.

Four best practices for effective reputational risk management

Reputational risk management increasingly relies on both protecting information and being transparent about how you manage customer data. In order to balance the two, organizations must create systems that accurately monitor risk indicators while also providing insights that can be easily understood by employees throughout the organization. Below are four best practices for effective reputational risk management:

1. Establish board oversight

Effective risk management requires ongoing board oversight. When creating a reputational risk management program be sure to coordinate with board members with regard to all strategy and policy decisions. The goal is to create a system that allows for constant communication between risk management teams and the board so that stakeholders are always aware of security efforts. The board can also provide valuable insight into which risks to prioritize based on their knowledge of organizational goals and procedures.

2. Integrate your reputational risk strategy into business planning

Integrating your reputational risk management strategy with core business processes ensures that it is factored into business planning. In order to get the most out of these risk management strategies, it is important that directors and executives understand the different aspects of your plan of action, so that they can devote the necessary resources to risk management teams. Doing so will also help you set informed performance metrics as they relate to your organization’s goals and available budget.

3. Create incident response plans

While risk management programs help limit reputational risk exposure, no strategy is ever one hundred percent effective. In the event that you do encounter an event that poses risk to your organization’s reputation, it is essential that you have an  incident response  plan in place. An  incident response plan is a predetermined set of actions that an organization follows in order to mitigate the overall impact of events that could have adverse effects on reputation. When creating an incident response plan, first create internal teams who will be responsible for guiding your organization’s actions in the case of an event. From there, you should define individual employee roles so that everyone at your organization knows what to do if and when an incident occurs. In order to streamline risk response, be sure to also create a checklist of action items that should be prioritized.

4. Ensure third-party risk management

If your organization works with third-party vendors, then it is critical that you manage their risk as you would your own. Vendors have access to critical systems and customer data, which must be carefully monitored as to avoid any potential risk events. Taking a risk-based approach to vendor management can not only help limit potential reputational risk events associated with third-parties but can also help you identify areas of improvement within your organization. Some key  vendor risks  that should be monitored daily include:

• Cybersecurity risk:  Cybersecurity risk is concerned with any potential losses resulting from a cyber attack or breach of your organization’s systems.
• Compliance risk:   Compliance  risk arises from violations of the laws, regulations, and internal processes your organization follows to conduct business.
• Financial risk:  Third-party financial risk occurs when vendors do not meet the fiscal performance requirements put in place by your organization.
• Strategic risk:  Strategic risk occurs when a vendor’s actions or business decisions do not align with your organization’s strategic goals.

How SecurityScorecard streamlines reputational risk management

In order to effectively monitor reputational risk, organizations need consistent visibility into potential threats. With SecurityScorecard’s suite of  enterprise risk management  solutions, organizations gain unprecedented visibility into critical risks with their business ecosystem.  Security Ratings  offer easy-to-read A-F ratings across ten groups of risk factors, helping you drill down and prioritize cyber threat remediation.

To help limit vendor risk, SecurityScorecard offers  third-party risk management tools  that actively detect potential gaps in security while also ensuring that vendors are always in compliance with relevant regulations. This allows you to actively manage vendor relationships and address third-party reputational risk in real-time.

With business environments becoming increasingly distributed and cyber threats growing in complexity, continuously monitoring reputational risk is imperative to organizational success. With SecurityScorecard, organizations are able to take a proactive approach to reputational risk management and ensure business objectives are met.

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How to mitigate reputation risk: A comprehensive guide for marketing agencies

By Lawrence Dy | Sep 19, 2023 | Marketing | 10 min read

Key Takeaways

• If you want to limit the impact of your client’s reputational risk, you have to start by understanding the risks they face.
• A thoughtful 360-degree reputational risk management plan can be the difference between a brand thriving or being destroyed by a negative incident.
• The keys to reputational risk management include prioritizing transparency and honesty in customer communications, maintaining an active and positive social media presence, and responding to negative events as swiftly as possible.

Want to avoid reputational damage to your small and medium-sized (SMB) business clients? To do that, you need to know what risks SMBS face when it comes to their reputations, what the potential repercussions are, and how you can best prevent or manage reputational risks if they occur.

Download “Why reputation management matters: A churn study” for data-based strategies on retaining clients longer using online reputation management.

Just as our personal reputations impact our outcomes in life, your SMB clients’ business reputations can meaningfully impact their opportunities—and their bottom line. Whether they experience negative publicity, a loss of business, or a decrease in trust in their offering, reputation risk can be devastating for SMBs. That’s why we’ve created this guide: so marketing agencies like yours can prevent, monitor, and mitigate reputational risk for clients, and keep that proverbial halo on top of their brand name.

Table of Contents

How to mitigate reputational risk proactively.

• Identify all key stakeholders
• Conduct a thorough risk assessment
• Monitor Social Media
• Plan for the best, but prepare for the worst
• Keep a constant eye on reputational signals

Internally publish the results of their risk assessment

Establish clear crisis management responsibilities, prioritize transparency and accountability, make reputation monitoring a regular practice, implement effective onboarding and training, build a positive corporate culture, beyond the initial setup: monitoring and updating your client’s risk management plan, understanding reputational risk.

Let’s start by clarifying what we actually mean when we talk about how to mitigate reputation risk.  Here are some of the most common sources of adverse impacts to the reputations of SMBs:

• Ethical lapses or misconduct by employees, business owners, and others associated with the business
• Product recalls or recurring quality issues, especially when these are widely discussed online or in product reviews
• Data breaches or cyberattacks that put customer data at risk
• Environmental or social controversies
• Negative media coverage or social media backlash in response to company activities
• Legal or regulatory violations that hamper the perceived trustworthiness of the business

There’s a large element of subjectivity when gauging reputational damage, but one of the most irrefutable gauges of how much damage was done is often your client’s sales numbers. As customers lose trust and confidence, the bottom line typically takes a hit.

Responding to a crisis after the fact can result in rushed, poorly thought-out reactions. Taking the time to put a risk management plan in place proactively means that in the unfortunate event of a negative incident, your agency and clients can confidently jump into action. Here’s what you should consider when determining how to reduce reputational risk:

• Identify and assess all potential sources of reputational risk that your SMB clients face in the regular course of operating their business
• Develop a plan to address and mitigate each of the possible risks you come up with
• Decide how you’re going to monitor and measure the effectiveness of your risk management strategies to ensure they’re limiting the impact of risk as effectively as possible

When working with local SMBs, you’ll likely find that most of them don’t think about how to mitigate reputation risks too much, because they perceive this to a problem for the big players. But the truth is that risks can impact businesses of all sizes, and a rock-solid plan for mitigating reputational risk can protect their organization when it’s most vulnerable.

Get ahead of the problem: Identifying potential reputational risks

When you start working with a new reputation management client, a good place to start is by going through a standard risk assessment exercise. We’ve got you covered with a step-by-step walkthrough that you can repurpose when working with SMBs:

1. Identify all key stakeholders

Identify all of the key stakeholders, who are connected to your client’s business. These include:

• Existing and prospective customers
• Employees and others who work with the business, such as contractors or freelancers
• Suppliers and vendors
• Regulators and professional organizations to which they belong

Larger businesses will also have shareholders on their list as prominent stakeholders, but for any type of marketing agency that work with SMBs, you’re unlikely to encounter this scenario.

Alright, so you’ve got your list of stakeholders. Now what?

Determine what the members of each group on your list expect from your client, and how the organization’s actions could impact their perception of your brand. What do they value most about the business? Why do they associate with it over other competitors? Getting familiar with stakeholder expectations makes it easier to jump into the next step, risk assessment.

2. Conduct a thorough risk assessment

Now that you’ve identified who matters when it comes to managing reputational risk, you can dig into the risks that could jeopardize how your client is perceived.

This should include an analysis of both internal and external factors that could impact your SMB client’s reputation. Let’s take a look at some examples of both before getting into how to reduce reputational risk.

3. Monitor Social Media

Social media is more than a tool for getting a brand’s message out to its audience: it’s also an indispensable listening tool that can help SMBs identify risks, gauge changes in consumer opinion, and ultimately mitigate their reputational risk.

The best way to make use of social channels for the purpose of managing reputational risk is to use a social listening tool, like Vendasta’s Reputation Management . This way, you—and your clients—can see relevant conversations that are happening across the internet all in a single dashboard.

SMBs can also be proactive about Google review management and managing other social platforms. For example, they can link to their Google reviews in follow-up emails to encourage positive feedback . They can also dispute fraudulent reviews that may be hampering their reputation.

4. Plan for the best, but prepare for the worst

A crisis management plan is a bit like insurance in that it doesn’t seem very important until it’s needed. Suddenly, it can become exceedingly important.

Your crisis management plan should be based on the risks you and your client identified in the step above, with clear procedures for how potential problems will be dealt with and how stakeholders will be communicated with.

5. Keep a constant eye on reputational signals

By monitoring your client’s reputation and measuring relative metrics, it’s easier to spot risks and problems before they snowball into serious crises.

Consider keeping an eye on metrics like brand awareness, customer satisfaction, employee satisfaction and engagement, and social listening trends. Are all of these holding steady or improving? If not, dig into what potential risk might be impacting them.

Since you can’t turn off Google reviews , a better strategy is to keep an eye on them and respond to all reviews professionally— even the negative ones .

Reputational risk mitigation: Proven strategies

We’ve covered the basics of identifying the reputational risks that your clients face. Next, let’s take a look at some actionable tips that you can share with SMBs who want to be one step ahead of any potential PR crisis.

You might have worked on a risk assessment directly with the owner of an SMB or their lead marker. But if multiple people are involved in the business, it’s a good idea to keep them in the loop too. When everyone has the same potential risks flagged in their minds, it’s much easier to avoid them (or to rapidly identify them if they do occur).

When everyone is panicking, it’s much harder to get organized, delegate tasks, and effectively work together. SMBs can avoid this by clearly defining not just their crisis plan but also who will be responsible for what in a negative event.

Clearly outline the steps that should be taken by everyone in the organization so that if the plan ever needs to be put into action, everyone knows exactly what their next steps are.

A crisis isn’t a good time to pass the buck, as tempting as it may be. Stakeholders, from customers to social media followers to vendors, want to know that they’re associating with a responsible business that can admit when they did something wrong and take the appropriate action to fix it.

Instruct clients to be upfront, clear, and own the situation. Doing so may even strengthen the sense of trustworthiness that stakeholders have about their brand.

If reputation management and monitoring are scheduled regularly, it’s much less likely to be overlooked and forgotten when things get busy. Be sure to instruct your SMB clients on how to mitigate reputation risk and use any reputation management solutions you provide, and walk them through how to take a few minutes at an interval that makes sense for their business to check on how things are going.

Employees are often the face of your SMB client’s organization, so they play a huge role in reputation management.

New employee onboarding should include an in-depth session on the business’s values, policies, procedures, and reputational risk mitigation strategies. This should also be worked into periodic training sessions to keep the information fresh in everyone’s mind.

By promoting ethical, responsible business practices and prioritizing the well-being of employees and other stakeholders, businesses can create an environment that fosters reputational risk mitigation. When people know the business has the best intentions, it’s much easier to understand and move past crises.

Like just about every other aspect of running a business, effectively managing reputational risk isn’t a one-and-done kind of thing. Once your client has a plan in place, it should be mentored regularly and updated as needed.

One way to do this is to set up Google alerts for their brand name so they can quickly respond to any negative articles or comments that come up. A third-party tool, like Reputation Management from Vendasta, makes this even easier by putting review management and social listening for all platforms under one roof.

It’s also a good idea to review the crisis management plan periodically to see if anything needs to be updated. Are there new employees? Have others left? Have the potential risks changed? Are Google reviews not showing up for some reason? All of these can impact the plan.

Finally, don't forget to communicate any updates or changes to your risk management plan to all relevant stakeholders. This ensures that everyone is on the same page and is ready to jump into action if it’s ever needed.

About the Author

Lawrence Dy

Lawrence Dy is the SEO Strategy Manager at Vendasta. His career spans from starting as a Jr. Copywriter in the automotive industry to becoming a Senior Editorial Content Manager in various digital marketing niches. Outside of work, Lawrence moonlights as a music producer/beatmaker and spends time with friends and family.

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Reputation and Its Risks

• Robert G. Eccles,
• Scott C. Newquist,
• Roland Schatz

Identify, quantify, and manage the risks to your company’s reputation long before a problem or crisis strikes.

Reprint: R0702F

Regulators, industry groups, consultants, and individual companies have developed elaborate guidelines over the years for assessing and managing risks in a wide range of areas, from commodity prices to natural disasters. Yet they have all but ignored reputational risk, mostly because they aren’t sure how to define or measure it.

That’s a big problem, say the authors. Because so much market value comes from hard-to-assess intangible assets like brand equity and intellectual capital, organizations are especially vulnerable to anything that damages their reputations. Moreover, companies with strong positive reputations attract better talent and are perceived as providing more value in their products and services, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Since the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital.

Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. That is not risk management; it is crisis management—a reactive approach aimed at limiting the damage. The authors provide a framework for actively managing reputational risk. They introduce three factors (the reputation-reality gap, changing beliefs and expectations, and weak internal coordination) that affect the level of such risks and then explore several ways to sufficiently quantify and control those factors. The process outlined in this article will help managers do a better job of assessing existing and potential threats to their companies’ reputations and deciding whether to accept a particular risk or take actions to avoid or mitigate it.

Executives know the importance of their companies’ reputations. Firms with strong positive reputations attract better people. They are perceived as providing more value, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Because the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital. Moreover, in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.

• Robert G. Eccles is a visiting professor of management practice at Saïd Business School, Oxford University, and the founding chairman of the Sustainability Accounting Standards Board.
• SN Scott C. Newquist ( [email protected] ) are founders and managing directors of Perception Partners, a firm based in West Palm Beach, Florida, that advises companies on corporate governance, corporate reporting, and reputational risk.
• RS Roland Schatz ( [email protected] ) is the founder and CEO of the Media Tenor Institute for Media Analysis, a firm based in Lugano, Switzerland, that helps organizations manage their reputations through strategic media intelligence.

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6 ways to manage reputational risk.

In today’s connected world, where information travels at the speed of light, managing reputational risk has become a critical priority for businesses. A single negative incident or scandal can quickly go viral, damaging a company’s image and eroding customer trust. With the rise of social media and online review platforms, businesses can no longer afford to ignore their reputation.

In this article, we will explore why reputational risk management is important and provide six practical strategies to help businesses effectively manage this risk.

Why is Reputational Risk Management important?

Reputational risk management is vital for businesses because it directly impacts their bottom line. A tarnished reputation can lead to a loss of customers, decreased sales, and even legal consequences. According to a survey conducted by Deloitte, 87% of executives believe that reputational risk is more important than other strategic risks their companies face. Furthermore, research from Edelman Trust Barometer reveals that 81% of consumers say that trust in a brand plays a crucial role in their purchase decisions. These numbers highlight the importance of proactively managing reputational risk. Study also shows that along with reputational risk management, online reputation management can increase customer loyalty significantly.

6 Ways to Manage Reputational Risk

1. make reputational risk part of strategy and planning.

Successful reputational risk management starts at the top with senior leadership involvement. It should be integrated into an organization’s overall strategy and planning processes. By identifying potential risks and developing proactive strategies to mitigate them, companies can minimize the impact of negative events on their reputation.

For example, let’s consider a multinational corporation planning to expand its operations into a new market known for its strict environmental regulations. The company’s leadership should incorporate reputational risk considerations into their market entry strategy by addressing potential environmental concerns upfront rather than waiting for negative publicity or legal action.

2. Control processes

Effective control processes are essential for managing reputational risk. Organizations should establish robust internal controls to prevent misconduct or unethical behavior that could damage their reputation. Regularly monitoring and auditing these controls can help identify any weaknesses or areas for improvement.

For instance, a financial institution could implement strict compliance protocols to prevent fraudulent activities. By continuously monitoring transactions and conducting regular audits, the organization can detect and address any potential reputational risks related to fraud or unethical behavior.

3. Understand all actions can affect public perception

Every action, big or small, has the potential to impact public perception. It’s crucial for businesses to understand this and be mindful of how their actions align with their desired brand image. All employees should be aware that their behavior both inside and outside the workplace can reflect on the company as a whole.

Consider a scenario where an employee of a prominent technology company engages in offensive behavior on social media. Even if it’s unrelated to their work, such actions can have serious repercussions for the company’s reputation. Therefore, organizations must promote a culture that emphasizes responsible behavior and aligns with their values.

4. Understand stakeholder expectations

Stakeholders have certain expectations from businesses, including transparency, ethical practices, and social responsibility. Failing to meet these expectations can lead to reputational damage. Organizations should proactively engage with their stakeholders to understand their concerns and address them appropriately. Many FMCG companies optimize customer experience management processes to achieve better results.

For example, a consumer goods company may face criticism for its packaging materials’ environmental impact. By actively seeking feedback from customers and working towards sustainable alternatives, the company can demonstrate its commitment to meeting stakeholder expectations and safeguarding its reputation.

5. Focus on a positive image and communication

Maintaining a positive image in the eyes of the public is crucial for effective reputational risk management. Businesses should invest in building strong relationships with stakeholders through transparent communication channels. Proactive engagement with customers, employees, investors, and other relevant parties can help shape a positive narrative around the organization.

One way companies can achieve this is by leveraging social media platforms strategically. By actively engaging with customers through social media channels, addressing concerns, and sharing positive stories, businesses can build a loyal community that can serve as brand advocates.

6. Create response and contingency plans

No matter how strong a company’s reputation management efforts are, crises can still happen. It’s essential to prepare for potential risks by creating response and contingency plans. These plans should outline clear steps to be taken in the event of a crisis, including communication strategies, designated spokespersons, and crisis management protocols.

For instance, an airline company should have a well-defined crisis response plan in place in case of accidents or incidents that could affect passenger safety. By having a structured approach to handle such situations promptly and effectively, the company can mitigate reputational damage.

What are the tools for reputational risk?

To effectively manage reputational risk, businesses can leverage various tools:

1. Social Listening

Using social listening tools allows companies to monitor online conversations and mentions about their brand in real-time. This enables them to identify potential reputation risks early on and respond proactively.

2. Community Engagement

Actively engaging with customers through community platforms helps build relationships and foster loyalty. By being responsive to customer feedback and addressing concerns promptly, companies can demonstrate their commitment to customer satisfaction.

3. Social CRM

Customer relationship management (CRM) systems equipped with social listening capabilities help businesses track customer interactions across multiple channels. This data provides valuable insights into customer sentiment which helps in Sentiment analysis by addressing any issues that may impact reputation.

4. Social Analytics

Analyzing social media data provides valuable information on consumer behavior, trends, and sentiment towards a brand or industry. By leveraging social analytics tools , organizations can gain actionable insights that inform their reputation management strategies.

5. Publishing

Creating high-quality content through blogs, whitepapers, case studies, or thought leadership pieces positions businesses as trusted industry experts. Consistently publishing relevant content helps shape public perception and enhances brand reputation.

Conducting regular surveys allows businesses to gather feedback directly from their customers. This information can help identify areas for improvement and address any issues before they escalate and impact reputation.

7. Business Intelligence (BI) Tools

BI tools help organizations analyze internal data to identify potential reputational risks. By integrating data from different sources, businesses can gain a holistic view of their operations and make informed decisions.

Managing reputational risk is an integral part of running a successful business in today’s digital age. By incorporating reputational risk management into strategy and planning, establishing robust control processes, understanding the impact of actions on public perception, meeting stakeholder expectations, focusing on a positive image and communication, and creating response and contingency plans, companies can effectively safeguard their reputation. Leveraging tools such as social listening, community engagement , social CRM, social analytics, publishing, surveys, and business intelligence can further enhance reputation management efforts. Ultimately, a proactive approach to managing reputational risk is essential for building trust with customers and maintaining a strong brand image in the marketplace.

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Reputation Intelligence

Expectations: What Are You Doing to Manage Your Reputation Risk

Guidance from the harvard business review and reputation intelligence.

It’s a problematic fact that not all organizations or individuals clearly and fully understand the severe risks to their reputations that exist — and consistently take the necessary, measured steps to ethically protect careers, missions and the organization.

This “brief” shares knowledge and insights from the Harvard Business Review that Reputation Intelligence adds to, for the purpose of providing a detailed guide.

Let’s begin. Did you know, for instance…

“Most companies… tend to focus their energies on handling the threats to their reputations that have already surfaced . This is not risk management ; it is crisis management—a reactive approach whose purpose is to limit the damage,” write Robert G. E ccles, Scott C. N ewquist and Roland S chatz at the HBR.

“… even sophisticated companies,” they add, “ have only a fuzzy idea of how to manage reputational risk .”

Smart, successful leader and companies focusing reactively instead of proactively.

The assertion here is that it’s much wiser and more responsible — and less stressful and costly — to focus on the front end with prevention instead of getting caught off-guard and having to engage in immediate “issues management” or crisis management.

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Reputational Risk: Definition, Dangers, Causes, and Example

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

What Is Reputational Risk?

Reputational risk is a threat or danger to the good name or standing of a business or entity. Reputational risk can occur in the following ways:

• Directly, as the result of the actions of the company
• Indirectly, due to the actions of an employee or employees
• Tangentially, through other peripheral parties, such as joint venture partners or suppliers

In addition to having good governance practices and transparency, companies need to be socially responsible and environmentally conscious to avoid or minimize reputational risk.

Key Takeaways

• Reputational risk is a hidden threat or danger to the good name or standing of a business or entity and can occur through a variety of ways.
• The biggest problem with reputational risk is that it can erupt out of nowhere and without warning.
• Reputational risk can pose a threat to the survival of the biggest and best-run companies and has the potential to wipe out millions or billions of dollars in market capitalization or potential revenues.

Understanding Reputational Risk

Reputational risk is a hidden danger that can pose a threat to the survival of the biggest and best-run companies. Often the risk results in outcomes not easily measured; however, it can adversely affect a company's profitability and valuation. It can wipe out millions or billions of dollars in market capitalization or potential revenues and can occasionally result in a change at the uppermost levels of management.

Reputational risk can also arise from the actions of errant employees, such as egregious fraud or massive trading losses disclosed by some of the world's biggest financial institutions. In an increasingly globalized environment, reputational risk can arise even in a peripheral region far away from home base.

In some instances, reputational risk can be mitigated through prompt damage control measures, which is essential in this age of instant communication and social media networks. In other instances, this risk can be more insidious and last for years. For example, gas and oil companies have been increasingly targeted by activists because of the perceived damage to the environment caused by their extraction activities.

It can be a time-intensive process to monitor for online activity such as negative reviews that can jeopardize a company's reputation. Online reputation management (ORM) software can help companies track what consumers say about a brand on review sites, social media, and search engines. Many of these solutions allow you to use one dashboard to look at and respond to reviews.

Example of Reputational Risk

Reputational risk exploded into full view in 2016 when the scandal involving the opening of millions of unauthorized accounts by retail bankers (and encouraged or coerced by certain supervisors) was exposed at Wells Fargo.

The CEO , John Stumpf, and others were forced out or fired. Regulators subjected the bank to fines and penalties, and a number of large customers reduced, suspended, or discontinued altogether doing business with the bank. Wells Fargo's reputation was tarnished, and the company has had to rebuild its reputation and its brand.

Consumer Financial Protection Bureau. " Wells Fargo Bank, N.A ." Accessed Oct 10, 2021.

U.S. Securities and Exchange Commission. " Wells Fargo & Company ." Accessed Oct. 10, 2021.

Wells Fargo. " Making Things Right for Customers—Customer Redress Review Program ." Accessed Oct. 10, 2021.

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What Can You Do To Manage Your Business’ Reputational Risk?

It’s no secret that consumers want to spend their money with businesses they can trust. For that reason, your company’s reputation can be a huge factor in its success. In fact, a study published by O’Dwyer PR shows that 63% of a company’s market value is based on reputation.

When things are going well, your business’ reputation can lead to:

• Greater opportunities
• Increased profits
• Interest from stronger, more qualified job candidates

However, small businesses face a number of reputational risks every day that can negatively impact day-to-day operations. That’s where your commercial insurance policies come in. Reputation insurance is a small but important part of your commercial insurance coverage. It can help protect your business from serious, long-term losses in the event of a crisis.

Reputational Risk Insurance

Business reputation insurance is a set of additional coverages that can be added on to your Business Owners Policy to boost your coverage and protect your business. These coverages include:

Business Owners Liability Insurance

Liability insurance is a basic coverage included in any commercial insurance policy. In most cases, liability insurance protects your business from bodily injury, personal injury, and property damage claims. But it also protects against reputational risks like lawsuits brought against your company for libel, slander, and advertising injury .

Cyber Insurance Coverage

In this day and age, cyber insurance is vital coverage for any business. In the event of a data breach or other cybersecurity threat, your cyber policy offers helpful resources to:

• Minimize reputational fallout
• Protect your customers’ sensitive data
• Defend you in the event of a lawsuit

Crisis Management Insurance

Crisis insurance covers public relations services for businesses after a reputation crisis, such as a data breach or scandal. Once on board, the PR team can work to get ahead of the crisis, reducing its impact and protecting your business’ reputation.

Reputation Insurance

In some cases, businesses will even purchase specific coverage called reputation insurance. These policies protect against things like lost revenue in the aftermath of an incident. Insurance companies often reserve reputation insurance policies for large companies because they are difficult to underwrite and very expensive.

Common Business Reputation Risks

Most often, reputational harm comes from four types of risk:

Company Actions

These reputational risks are the direct result of your business’ actions and decisions, including:

• Refusing to comply with state, local, and federal regulations
• Bad business practices that result in security breaches or threats to your employee and customer data
• Lawsuits, layoffs, bad working conditions, and other public scandals
• Consistently providing poor quality products and customer service

Representative Actions

Your company representatives are those people who are directly connected to your business, like employees. These risks are often caused by engaging in bad or unethical business practices, like:

• Employing leaders who have negative reputations or engage in unethical behavior
• Employee misconduct scandals
• Employees who represent your brand negatively or post negatively about your business online

Partner Actions

Your partners are those businesses that provide support and supplies to your company. It may not seem like the company responsible for your office supplies could risk your own business. But partners can create a number of reputational issues including:

• Engaging in misconduct that causes a public scandal
• Representing your business negatively to potential partners and customers
• Experiencing interruptions that negatively affect your business, like software outages

External Actions

External actors are most often customers and former employees. This risk category can be especially tricky given their close proximity to your business and the potential for negative experiences. The risks brought by external actions include:

• Negative online reviews or social media posts
• Negative press coverage of your business
• Cyberattacks and data breach

Assessing Your Reputational Risk

Reputational risk insurance is an important coverage for any small business to have. But we understand that it is an optional protection not every business owner will choose. When deciding if reputation insurance is right for your business, there are a few things to consider. For example:

• Do you handle significant sensitive information for your employees or customers?
• What is your company’s cyber risk and have you ever had a data breach before? For this, keep in mind that cyber threats aren’t just for large corporations. An increasing number of data breaches affect small businesses every year.
• How many risks does your company face in its day-to-day operation? For example: customers, employees, social presence, media scrutiny, etc.

Risk Management

The good news is you can easily reduce your business’ reputational risk by being proactive. Here are a few ways you can protect your company reputation:

Frequently assess your risk — as your business grows and things change, take time to review your reputational risk and make any necessary changes to your operations.

Train your staff — ensure every member of your team knows how to operate ethically, protect your customers’ data, and provide high quality service every time.

Protect yourself and your company — invest in the right insurance coverages to protect your business, yourself, and your staff from the unexpected risks that come with doing business.

Talk to an independent agent today to evaluate your business’ reputational risk.

5 Key Components of Reputation Risk Assessments

• Posted by Jane Devron

Most companies today appreciate the importance of having a crisis communications plan in place. However, the quality and effectiveness of these plans varies widely, with many organizations relying on overly generic, “off-the-shelf” plans that fail to recognize their unique vulnerabilities. As a result, Reputation Partners recommends that the crisis planning process begin with thorough reputation risk assessments. These assessments, which look at all forms of reputation risk across a company, serve as an essential foundation for building crisis plans that are relevant, usable and effective in addressing real-world issues and crises.

At a high level, reputation risk assessments look at the range of reputation issues facing an organization and its readiness (or lack thereof) to address them. More specifically, they help to understand:

• What issues present reputation risk – and which of these risks are most likely to occur or should otherwise be prioritized in crisis planning
• Who is likely to be critical of the company
• What business practices are adding to potential reputation risk (or might help mitigate certain risks)
• What protocols exist to monitor for and mitigate reputation risks before they escalate

Here are five key components every reputation risk assessment should include:

Consider Internal vs. Third-party Risk Assessment

It’s important to weigh the benefits of tapping an internal team vs. a third-party consultant to conduct a reputation risk assessment. Internal assessments benefit from being run by the people who know the organization best.  However, they might not be able to probe as deeply to uncover certain risks.  Third-party experts not only bring insights from working with other organizations, but also can look more objectively at a company’s vulnerabilities and strengths.

Conduct Landscape Analysis

Looking outside your organization is a key component of effective risk assessments. Much can be learned by examining issues facing your industry (or related industries), as well as your competitors. This includes examining current or potential critics (e.g., activist groups, labor unions, legislators, regulators, advocacy organizations) that may be active on issues relating to your business.  Internal and/or external research can also be helpful in assessing risk.  An “outside-in” view is critical to identifying the full range of an organization’s reputation risks.

Interview Leadership and Beyond

One-on-one interviews with senior-most leadership (including the CEO and board members) and PR/marketing leaders around “what keeps them up at night” are a basic component of risk assessments. However, one of the most essential aspects of risk assessment is to go deeper by interviewing a diverse cross section of people at varying levels (such as corporate-level, branch or local level, etc.) and functions (such as legal, HR, customer relations, regulatory affairs, operations). Unfortunately, many companies fall short on identifying the full range of risks by exclusively relying on the C-suite and/or the communications and marketing teams for insight.

Evaluate Current Risk Monitoring and Management Protocol

One common finding of risk assessments is a lack of clarity within an organization around how issues are monitored and who plays what roles in responding to issues before and when they escalate. Clients (often incorrectly) presume that warning signs are being heeded by someone, somewhere within the company, and that issues are escalated to the right people when needed. For this reason, risk assessments should take an honest look at existing guidelines and protocols for monitoring reputation risks – at the corporate, branch, plant or local levels – and elevate or address them before they snowball.

Ensure Crisis Communications Plan Complements Enterprise Risk Plan

It’s important to remember that a reputation risk assessment and crisis communications plan are not the same as an Enterprise Risk Plan (ERP). An ERP examines how an organization will function during a crisis.  A reputation risk assessment and crisis communications plan can help the organization communicate and weather such crises.  Though these two types of assessments/plans are complementary and should be aligned, they are not interchangeable. To be effectively prepared for a reputation crisis, organizations should have a distinct plan that addresses reputation risks, which tend not to be examined fully in ERPs.

Reputation risk assessments are an essential part of the crisis planning mix. At a time when issues can so quickly escalate into costly, full-blown reputation crises, it is more important than ever that crisis communications plans be customized, specific and targeted toward an organization’s unique structure and range of vulnerabilities.

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How to Mitigate Reputational Risk: Advanced Strategies

Advanced strategies for mitigating reputational risk in the digital realm.

“The reputation of a company is its most important asset but the most difficult asset to recover once it is lost,” cautions the Journal of Reputational Risk . 

The digital landscape is booming – rapid technological advancements have revolutionized industries and transformed daily life. With AI, blockchain, 5G, and growing social media platforms, the digital space is expanding at the speed of light. In this environment, brands must place an increased focus on these threats and their impact on financial losses, customer erosion, and brand damage.

What is reputational risk ? Reputational risk represents the potential harm a business or organization can suffer as a consequence of negative perceptions, public opinion, or the loss of trust and credibility within its stakeholder community.

In a survey by WTW , 75.5% of risk managers felt that their C-suite was either somewhat or very committed or invested in managing reputational risk. While this support from senior management is crucial, reputational risk cannot be effectively managed without the right advanced strategies. This blog will take a deep dive into how to mitigate reputational risk, with strategies developed in today’s digital world. 

The Evolving Landscape of Reputational Risk in Social Media

It’s more important than ever for brands to quickly adapt to evolving technological trends and consumer behaviors to ensure long-term success. With 4.9 billion social media users globally ( DemandSage ), 60.49% of the world’s population uses social media. These platforms have an expanding role in making or breaking a brand’s reputation online. 

Social media reputation risk and consequences

In recent years, social media has also become a method to disseminate misinformation, allowing the dangers of fake news to rapidly gain traction and reach a massive online audience. Information on platforms like X, Facebook, TikTok, and Instagram spreads at an incredible speed and scale, allowing bad actors to exploit a brand’s vulnerabilities with ease. This viral, unchecked spread of false narratives coupled with the challenges of dispelling misinformation underscores the importance for brands to actively monitor and manage social media and reputational risk to plan for potential harm. 

Today’s modern challenges require having advanced mitigation strategies at the center of strategic business plans . Social media reputation management has become an essential tool at the center of these strategies. It allows businesses to engage with their audience, address concerns, and promote positive brand messaging. 

Advanced Techniques in Reputational Risk Management

Information travels at unprecedented speed across digital platforms and channels in today’s business landscape. With this, reputational risk management has become essential to a brand’s success and its ability to safeguard its reputation. A positive brand reputation is a powerful asset, one that fosters customer loyalty and trust, and attracts new opportunities. 

At the same time, a brand with a strong reputation can weather challenges and threats more effectively. Consumers are more likely to forgive and support a well-regarded brand. In a study conducted by TrustPilot , consumers ranked a positive internet reputation as the #1 most important factor to consider when determining which businesses to frequent. This ranked above the quality of products and services. 

Implementing reputational risk management best practices allows a brand to not only navigate potential threats with confidence and resilience, it also ties strategies and responses back to a brand’s strategic vision, preventing future crises down the road.

Wondering how to reduce reputational risk? Learn more below.

Establish clear social media guidelines

Well-defined social media guidelines are a must for businesses operating in the digital space. When it comes to social media, various employees across departments take part in the planning, designing, and implementation of digital campaigns. Brand guidelines ensure that all stakeholders across the business are aligned with consistent messaging, avoiding potential missteps.

Effective social media guidelines include:

• Brand voice and messaging: Unique and consistent tone and style to be used across communications, reflecting a company’s values while resonating with its target audiences.
• Content toolkits: Resources developed with guidelines to ensure consistency and quality for content, including design assets, templates, and strategic direction.
• Directions for engaging with followers : Recommendations on how individuals can interact and connect with their audience on a brand’s behalf, offering communication styles and response times for meaningful and positive interactions.
• Crisis management protocols: Predetermined procedures and strategies to respond to and manage the impact of unexpected and potentially damaging events, detailing the roles and responsibilities of key stakeholders.

Monitor online conversations

Brands can better understand their target audiences, along with drivers of negative and positive sentiment for their company, product, or brand by continuously monitoring online conversation across social media, in posts, comments, and threads. 

It’s important for companies to not only monitor these brand mentions to address potential reputational issues promptly before they escalate, but also to identify relevant industry discussions and emerging trends. These emerging topics allow brands to refine their strategy with genuine, specific feedback and better connect with key audiences.

Respond effectively to negative feedback

A brand’s ability to respond to negative feedback in a timely, professional, and empathetic manner signals accountability to consumers, showcasing their dedication to continuous improvement. It reflects a company’s commitment to customer satisfaction and a willingness to acknowledge concerns. In taking steps to address these issues, brands should use a calm, respectful tone and avoid defensiveness or arguments. 

Foster transparency and authenticity:

Promoting a culture of transparency and authenticity is an essential step to building trust and credibility with stakeholders. Effective communication approaches include:

• Showcasing the brand’s ability to be genuine and relatable in communications, allowing the human behind company messaging to connect with audiences on a personal level.
• Lead with proactive communication about any potential issues or challenges faced by the company, demonstrating openness and accountability.
• Encouraging employees to be open and honest with stakeholders , giving the brand to gain a full understanding of problems at hand to address issues head-on, rather than resorting to secrecy or deception.

Utilize social media intelligence techniques: 

The rapidly shifting social and digital media landscape is continuously shaping the narratives that impact your brand, operations and people, increasing the challenge of managing the many faces of brand reputational risk. At the same time, business leaders have access to extensive brand and product feedback through social media.

How can they come to understand these insights while avoiding reputation damage? When partnering with Storyful Intelligence, our expert analysts decipher vast amounts of social media data for our clients. The team identifies, monitors, and manages narratives across platforms and fringe networks, spotlighting key patterns and trends, some of which may not be apparent through manual monitoring. These data-driven insights can then be incorporated into strategy, planning, and messaging.

Reputational Risk Management Best Practices

Reputational risk management is an ongoing process that requires a proactive approach and continuous vigilance. To be effectively monitored and assessed, brands must integrate these best practices into their day-to-day operations:

• Lead with social responsibility initiatives that align with the brand’s values and mission. This community engagement enhances a brand’s reputation over time while building resilience.  
• Build an agile framework that changes in time with market conditions and consumer expectations. Assess and redefine approaches to stay up-to-date.
• Monitor channels proactively to identify potential threats early on, while remaining up-to-date with social media, news, and customer feedback to anticipate emerging issues.
• Establish a dedicated crisis management team with clear roles and responsibilities to effectively handle reputational incidents.
• Provide regular training and education for employees to equip them with the skills and knowledge to prevent and respond to reputational risks.

Real-World Applications of Advanced Reputational Risk Management Strategies

Exploring real-life reputational risk examples brings both the complex challenges facing today’s businesses and effective response strategies to life. 

Reputational risk examples

Tyson Foods

During the COVID-19 pandemic, meat-packing giant Tyson Foods faced public backlash for failing to protect its workers amid a global health crisis. Their inadequate working conditions placed employees at risk. Low-wage workers who complete in-person labor, standing elbow-to-elbow while preparing and packaging products, fell ill in large numbers and 151 Tyson employees died of the virus.

In 2021, Tyson became a leader on corporate mandates during the vaccination roll-out, announcing that all 120,000 of its workers would need to receive the COVID-19 vaccination to avoid being terminated. Tyson’s CEO Donnie King shared, “We made the decision to do the mandate, fully understanding that we were putting our business at risk.”

The implementation of rigorous safety measures to protect employees led to a $810 million spend on Covid safety and new on-site medical services including plant-wide testing and the hiring of the company’s first chief medical officer. Through this work, Tyson improved its business reputation by doing what was best for the employees and for the company to continue on.

Global Anti-Terrorism Organization 

The Boogaloo Movement, characterized as a form of extremism, terrorism, and bigotry, underwent a significant evolution during the COVID-19 lockdowns and Black Lives Matter protests. Storyful’s analysis post-January 6 shed light on the movement’s online visual language. In response to digitally conspired attacks, Storyful Intelligence partnered with a global anti-terrorism organization to understand the movement’s motives and methods. Through an extensive social media investigation, utilizing proprietary tools, Storyful’s expert analysts identified coded symbols, emojis, and audio content used by extremists to evade platform moderation. The research provided insights into extremist group tactics, with recommendations of ways platforms can enhance their effectiveness in countering coordinated communication practices.

Storyful provides bespoke solutions for reputational risk management, supporting our clients with insights and strategies that handle complex reputational risks and inform strategic intelligence and planning .

Storyful’s Unique Approach to Digital Reputation Management

The digital landscape is booming – rapid technological advancements have revolutionized industries and transformed daily life. With AI, blockchain, 5G, and growing social media platforms, the digital space is expanding at the speed of light. As the complex information environment evolves, so must a business’s approach to navigating it – starting with Storyful’s advanced reputational risk management framework.

How to manage reputational risk?

Storyful Intelligence’s unique methodologies in social media reputational risk management help the world’s leading brands assess reputational risks and opportunities . Utilizing cross-platform monitoring, we identify influential voices who have the power to shape public opinion about your brand. Our experts in risk mitigation combat misinformation by anticipating and planning for coordinated information tasks. Tapping into proprietary tools, Storyful analysts decode social media data to cut through digital noise.

Safeguarding Your Brand’s Future

The evolving digital landscape and constant growth in social media have intensified the challenges businesses face in managing reputational risks. To navigate these threats, brands must adopt advanced reputational risk strategies, complete with well-defined social media guidelines, proactive and continuous monitoring, and transparent communication plans in place.

Brands wondering how to successfully mitigate reputational risk can partner with Storyful to gain the insights and strategies needed to avoid a crisis. Get in touch with our team today to find out more. 

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10 Keys for Executives to Manage Reputation Risk

When a good reputation is difficult to build and easy as pie to destroy, it’s a business imperative to manage the company’s reputation carefully. Jim DeLoach outlines five critical areas leadership must pay close attention to, and 10 factors total that can be critical in managing reputation risk.

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.” 1 Bottom line, reputation is fragile. What takes decades to build can be lost in a matter of days.

Below, we explore 10 essential keys for senior executives and directors to consider in managing reputation risk. We classify them in five critical areas – strategic alignment, cultural alignment, quality commitment, operational focus and organizational resiliency.

Strategic Alignment

#1: Effective board oversight: Reputation risk management starts at the top. Strong board oversight on matters of strategy, policy, execution and transparent reporting is vital to effective corporate governance, a powerful contributor to sustaining reputation and the ultimate checkpoint on CEO performance. For example, the board’s oversight of risk is important because effective identification and management of risk can identify major threats to reputation and ensure they are reduced to an acceptable level.

#2: Integration of risk into strategy setting and business planning: The board and executive management must ensure that risk is not an afterthought to strategy setting and business planning. Integrating risk with these core management processes makes it a relevant factor at the decision-making table, facilitates a strategic view to undertaking risk, and intersects risk management with performance management. In an effort to make the strategy more robust, directors and executives should understand the critical assumptions underlying the strategy, ask appropriate questions to challenge assumptions constructively and consider reasonable scenarios that could render one or more of the assumptions invalid. It is important for management to define the inherent soft spots, incongruities and opportunity and loss drivers that could impact execution of the business plan and dramatically affect performance. Also, the budgeting and forecasting processes supporting the business plan must be effective in managing liquidity risks that can threaten the organization’s viability during the planning period.

#3: Effective communications, image and brand building: Building brand recognition unique to a business is vital to market success and, when all else is working well, augments reputation. A good story is easy to tell, but every savvy board and CEO know that some companies are better at telling their story than others. Therefore, directors and executives need to understand the image and brand-building game plan. Typically, the best companies are customer-focused; understand their value proposition; develop powerful and distinctive messaging; listen well and act to improve their processes, products and customer experience continuously; establish accountability for results with metrics, measures and monitoring; work social media effectively; and passionately live up to their brand promise every day. The messages the press, analysts and others communicate about the company through print and electronic media and word of mouth are influenced by good marks on the other nine keys to managing reputation risk.

Cultural Alignment

#4: Strong corporate values, supported by appropriate performance incentives: The trickle-down notion that, if tone at the top is good, the organization’s culture must be good, doesn’t always hold. Lower-level employees often pay more attention to the messaging and behavior of their supervisory middle managers than the messaging and values communicated by the organization’s leaders. Boards need to ensure that executive management implements a strong tone at the top, a variety of effective escalatory processes, and periodic assessments of the tone in the middle and tone at the bottom. To that end, the executive team needs to ensure alignment of performance incentives with corporate values to shape and influence the corporate culture end to end:

• Up, down and across the organization
• Upstream with strategic suppliers
• Downstream with channel partners

Also, executives and directors need to pay attention to the warning signs posted by the independent risk management function and in audit reports evidencing the possibility of dysfunctional behavior.

#5: Positive culture regarding compliance with laws, regulations and internal policies: Few incidents undermine reputation more than serious compliance violations with the attendant headline effect of the brand being dragged through the mud by the media. Senior executives, with board oversight, should ascertain that effective internal controls over compliance matters are implemented. Executive management must “walk the talk” with respect to compliance, meaning executives should:

• Maintain strong compliance administration and oversight across the organization;
• Periodically conduct a comprehensive risk assessment;
• Refresh the compliance program for changes arising from new regulatory developments;
• Understand the players and third-party agents in countries in which the organization does business and monitor their dealings closely;
• Implement robust compliance training and certification;
• Ensure that adequate documentation of compliance-related communications to and training of employees is maintained; and
• Implement escalatory processes for reporting wrongdoing and suspected violations along with effective follow-up upon receipt of allegations meriting investigation.

In addition, effective auditing and monitoring capabilities to evaluate compliance effectiveness should be in place to ensure the above capabilities are functioning as intended.

Quality Commitment

#6: Priority focus on positive interactions with stakeholders: The executive team and board of directors should ensure that there is a passionate focus on improving stakeholder experiences. These are the accumulation of day-to-day interactions that customers, employees, suppliers, regulators, shareholders, lenders and other stakeholders have with a company as a result of its business operations, branding and marketing. If internalized and acted upon, they are a powerful driving force for improving and sustaining reputation. To illustrate, organizations that take the time to really know their customers, align company goals with customer needs and act to ensure a distinctively different experience for customers are going to be noticed in the marketplace.

#7: Quality public reporting: When public companies restate previously issued financial statements for egregious errors in the application of accounting principles or omission or misuse of facts, investors notice. For companies contemplating an initial public offering, a well-designed financial close process, effectively functioning internal financial reporting controls and an understanding of what not to say when talking with the press and the investor community are important. For established companies, vigilance in maintaining internal control over financial reporting and in deploying effective disclosure controls and procedures is important to ensure reliable public reports. The markets take quality public reporting at face value. Once a company loses the public’s confidence in its reporting, it’s tough to earn it back.

These points suggest that a strong audit committee is an imperative.

Operational Focus

#8: Strong control environment: A critical component of internal control, the control environment lays the foundation for a strong culture around achieving the organization’s operational, compliance and reporting objectives. In addition to management’s commitment to integrity and ethical values and the oversight provided by the board of directors in carrying out its governance responsibilities, as discussed earlier, the control environment consists of the organizational structure and assignment of authority and responsibility; the processes for attracting, developing and retaining competent people; and the rigor around setting the appropriate performance measures, incentives and rewards that drive accountability for desired results. Because embarrassing control breakdowns can tarnish reputation, every board should expect and demand a strong control environment.

#9: Company performance relative to competitors: Even if a company does everything else right, its reputation will suffer if its business model is not competitive. Market recognition of success is a huge validation of a company and its management team. Recognition of differentiating strategies, distinctive products and brands, proprietary systems and innovative processes are intrinsic sources of value that can translate into superior quality, time, cost, innovation, talent management and customer-fulfillment performance relative to the company’s competitors. On the other hand, significant performance gaps vis-à-vis competitors can diminish reputation if they are not addressed in a timely manner. These factors should weigh heavily on a board’s evaluation of company performance over time.

Organizational Resiliency

#10: World-class response to a high-profile crisis: Sooner or later, every company is tested. As a crisis event is a severe manifestation of risk, crisis management preparation is a natural follow-on to risk assessment, particularly for high-impact risk events with high-velocity, high-persistence and low-response readiness.

Executive management, under the board’s oversight, should ensure that the risk assessment process is designed to identify areas where preparedness is lacking and, therefore, response planning is needed. If a crisis management team doesn’t exist or isn’t prepared to address a specific sudden crisis scenario, a rapid response will be virtually impossible. Fires cannot be fought with a committee. Response teams should be supported with robust communications plans emphasizing the importance of transparency, straight talk and effective use of social media. The response team should update and test the rapid response plan periodically.

While a one-size-fits-all approach to reputation risk management does not exist, attention to how a company addresses these 10 keys will help shape its reputation over time. Reputation risk management is inextricably linked to the company’s risk management and crisis management disciplines, as well as to the alignment of strategy and culture with the enterprise’s commitment to quality and operational excellence.

From the standpoint of executive management and the board’s oversight, the 10 keys offer a framework for focusing on what’s really important when managing reputation risk.

Questions for Executive Management and Boards

The following are some suggested questions that senior executives and boards of directors may consider, based on the risks inherent in the entity’s operations:

• Is executive management focused on the appropriate fundamentals for enhancing and preserving the enterprise’s reputation?
• Does the risk assessment process source significant threats to the company’s reputation and identify areas requiring consideration of response plans to improve preparedness and rapid response? Is there a rapid response plan for the high-impact, high-velocity and high-persistence scenarios identified in the risk assessment process?
• Is there adequate focus on the critical enterprise risks that could impair the enterprise’s reputation if not managed effectively? Does management apprise the board timely of significant changes in the enterprise’s risk profile? Is there a process for identifying emerging risks on a timely basis?

1   Governance Reimagined: Organizational Design, Risk and Value Creation , David R. Koenig, John Wiley & Sons, Inc., page 160.

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Privacy Overview

Rebuilding corporate reputations

As governments respond to the financial crisis and its reverberations in the real economy, a company’s reputation has begun to matter more now than it has in decades. Companies and industries with reputation problems are more likely to incur the wrath of legislators, regulators, and the public. What’s more, the credibility of the private sector will influence its ability to weigh in on contentious issues, such as protectionism, that have serious implications for the global economy’s future.

Senior executives are acutely aware of how serious today’s reputational challenge is. Most recognize the perception that some companies in certain sectors (particularly financial services) have violated their social contract with consumers, shareholders, regulators, and taxpayers. They also know that this perception seems to have spilled over to business more broadly. In a March 2009 McKinsey Quarterly survey of senior executives around the world, 85 and 72 percent of them, respectively, said that public trust in business and commitment to free markets had deteriorated. 1 1. See “ Economic Conditions Snapshot, March 2009: McKinsey Global Survey Results ,” mckinseyquarterly.com, March 2009. According to the 2009 Edelman Trust Barometer, those executives are reading the public mind correctly: 62 percent of respondents, across 20 countries, say that they “trust corporations less now than they did a year ago.”

The breadth and depth of today’s reputational challenge is a consequence not just of the speed, severity, and unexpectedness of recent economic events but also of underlying shifts in the reputation environment that have been under way for some time. Those changes include the growing importance of Web-based participatory media, the increasing significance of nongovernmental organizations (NGOs) and other third parties, and declining trust in advertising. Together, these forces are promoting wider, faster scrutiny of companies and rendering traditional public-relations tools less effective in addressing reputational challenges.

Now more than ever, it will be action—not spin—that builds strong reputations. Organizations need to enhance their listening skills so that they are sufficiently aware of emerging issues; to reinvigorate their understanding of, and relationships with, critical stakeholders; and to go beyond traditional PR by activating a network of supporters who can influence key constituencies. Doing so effectively means stepping up both the sophistication and the internal coordination of reputation efforts. Some companies, for example, not only use cutting-edge attitudinal-segmentation techniques to better understand the concerns of stakeholders but also mobilize cross-functional teams to gather intelligence and respond quickly to far-flung reputational threats.

One key to cutting through organizational barriers that might impede such efforts is committed senior leadership, including leadership from CEOs, who have an opportunity in today’s charged environment to differentiate their companies by demonstrating real statesmanship. The stakes demand it; an energized public will expect nothing else. At a moment when capitalism seems flat on its back, CEOs have an obligation to bolster the reputations of their companies and of free markets.

A rapidly evolving reputation environment

The financial crisis has underscored just how ill-equipped companies can be to deal with two important changes in the reputation environment. First, the influence of indirect stakeholders—such as NGOs, community activists, and online networks—has grown enormously. The number of NGOs accredited by the United Nations, for instance, has grown to more than 4,000, from less than 1,000 in the early 1980s. These proliferating indirect stakeholders have tasked business with a broader set of expectations, such as making globalization more humane and combating climate change, obesity, human-rights abuses, or HIV.

Second, the proliferation of media technologies and outlets, along with the emergence of new Web-based platforms, has given individuals and organizations new tools they use to subject companies to greater and faster scrutiny. This communications revolution also means that certain issues (such as poor labor conditions) that might be acceptable in one region can be picked up by “citizen journalists” or bloggers and generate outrage in another.

As a result, what formerly were operational risks resulting from failed or inadequate processes, people, or systems now often manifest themselves as reputational risks whose costs far exceed those of the original missteps. In banking, for example, data privacy has become a reputational issue. In pharmaceutical clinical trials, Merck’s experience with Vioxx showed that anything less than full transparency can lead to disaster. And as risk-management problems in the financial sector have generated astronomical losses that taxpayers are helping bear, it’s little wonder that the reputational fallout has been enormous.

An outmoded approach to reputation management

In this dispersed and multifaceted environment, companies must collect information about reputational threats across the organization, analyze that information in sophisticated ways, and address problems by taking action to mitigate them. That can involve developing alliances with new kinds of partners and coordinating responses from a number of parties, including governments, civil-society groups, and consumers. All this requires significant coordination and an ability to act quickly.

Many companies, though, rely primarily on small, central corporate-affairs departments that can’t monitor or examine diverse reputational threats with sufficient sophistication. Moreover, traditional PR spin can’t deal with many NGO concerns, which must often be addressed by changing business operations and conducting two-way conversations. Managers of business units have a better position for spotting potential challenges but often fail to recognize their reputational significance. Internal communication about them may be inhibited by the absence of consistent methodologies for tracking and quantifying reputational risk. Accountability for managing problems is often blurred.

As a result, responses to reputational issues can be short term, ad hoc, and defensive—a poor combination today given the intensity of public concern. And therein lies a problem that companies must solve quickly: even as reputational challenges boost the importance of good PR, companies will struggle if they rely on PR alone, with little insight into the root causes of or the facts behind their reputational problems.

A better, more integrated response

A logical starting point for companies seeking to raise their game is to put in place an effective early-warning system to make executives aware of reputational problems quickly. In our experience, most companies are quite good at tracking press mentions, and many are beginning to monitor the multitude of Web-based voices and NGOs, whose power is beginning to rival the mainstream media’s. However, doing these things effectively, while an important prerequisite for stepping up engagement with stakeholders, isn’t the toughest task facing organizations.

Far more of a challenge is preparing to meet serious reputational threats, whose potential frequency and cost have risen dramatically given the greater likelihood that stakeholders—including regulators and legislators—will lash out in an atmosphere that’s become less hospitable to business. These threats might take a variety of forms: issues related to a company’s business performance, like those that financial companies have recently experienced (see sidebar, “Assuming responsibility”); unexpected shocks along the lines of Johnson & Johnson’s Tylenol scare, more than two decades ago; opposition to business moves, such as expanding operations; or long-standing, sector-specific issues, for instance climate change (industrials and oil and gas), obesity (the food and beverage industry), hidden fees (telecom providers), “e-waste” (high tech), and worker safety (mining).

Assuming responsibility

Stanley Greenberg and Howard Paster are political consultants and public-relations experts with a long history of advising companies and individuals, including former US president Bill Clinton. Paster also formerly served as chairman and CEO of Hill & Knowlton, a PR firm owned by the WPP Group. The conversation that follows, in which the two reputation gurus reflect on the challenges facing business leaders and the steps they should take to rebuild trust, is a compilation of interviews that McKinsey’s Sheila Bonini and Allen Webb conducted separately with Greenberg and Paster in March 2009.

The Quarterly : The reputation of big business has waxed and waned over the years. Do you see anything exceptional in attitudes toward business today?

Stanley Greenberg: What’s special now is that corporate behavior is seen as being central to the most severe economic crisis since the Depression. This is being identified as a crisis produced by bad decisions and irresponsible behavior. That makes reputation issues more dramatic than in any prior period.

Howard Paster: We’ve also got a larger set of reputation issues here: trust, confidence, wondering whether unfettered capitalism is a problem.

The Quarterly : How can companies dig out?

Stanley Greenberg: Responsibility is critical. I don’t mean assigning responsibility, but people in positions of responsibility assuming responsibility. There is probably nothing more important to get right than conveying that the leaders of companies recognize this is a special moment.

I also think this is uniquely a time when the answer to the reputation problem lies less in what you are doing externally and more in what kind of company you run—the way you deal with your employees and consumers, the behavior and compensation of leaders. I don’t think you address this problem by doing more work in food banks or in neighborhoods; I think this is really about business practices. If you’re a bank, people think you have walked away from your essential functions. So you have to highlight how you are resuming business and expanding lending, if you are.

Howard Paster: The first thing you have to do if you’re in financial services is explain to people that you weren’t part of the problem, assuming you weren’t. You need to come up with specific ways to put distance between you and the bad guys. For example, the public face of a company is a big deal. Companies in trouble are wise to change their chief executives.

You’ve also got to announce, all the time, how you’re doing things differently. You have to devise ways of reiterating this again and again—preaching and living integrity internally, having codes of conduct, having the right kinds of staff briefings, making integrity a basic premise of your operation, building it into your business. At a time when you have less money for philanthropy, for environmental initiatives, or for your employees, you’d better run a place with a lot of integrity.

The Quarterly : How important are symbolic actions, such as Goldman Sachs’s recent announcement that employees will stay at a lower-cost hotel when they go to New York?

Stanley Greenberg: I think it is a big deal. It may look like symbolism, but it is an important new tone. Executives have seemed tone deaf.

The Quarterly : What else can help?

Howard Paster: When a company gets into trouble, we always say, “Who is there that you can bring in, whose reputation is such that he or she, by virtue of being your independent auditor or your independent investigator, can become part of the cleansing process—identify problems, be believed by the media, authenticate changed behavior?” People like to use former attorneys general or someone like former senator Warren Rudman, a man of great probity: strong willed, but God he’s honest and he’ll tell you what he thinks. That’s worth a lot.

The Quarterly : One reason reputation is important is that it will influence regulations and policies. How should companies approach this debate?

Stanley Greenberg: We are going to move to re-regulating a whole range of markets as a result of all this. I think companies, understanding that the public views them as having produced a global crisis of unheard-of proportions, need to be thinking about how they reenter the debate. The perception I see among many companies is that government is overreaching. But I do not think pushing back is the best way to reenter the public discussion about the proper balance of regulation. Right now, I assume CEOs are not a very legitimate voice on how to regulate properly. One of the greater challenges will be how business gets the right voice for a momentous debate. I think responsibility is the critical piece. People are looking for responsibility to be a much stronger value on an individual, corporate, and political level. The companies that get this, that seem to be part of this, are in a much better position to have a voice in re-regulation.

To prepare for and respond to these threats, our experience suggests that companies should emphasize three priorities. First, they need to assemble enough facts—most important, perhaps, a rich understanding of key stakeholders, including consumers—and not only the product preferences but also the political attitudes of consumer groups. Second, companies should focus on the actions that matter most to stakeholders, something that may call for an exaggerated degree of transparency about corporate priorities or operations. Third, they must try to influence stakeholders through techniques that go beyond traditional PR approaches, with an emphasis on two-way dialogue. Underlying these priorities is a willingness to participate in the public debate more actively than many companies have in the past. Instead of allowing single-issue interest groups to control the conversation, companies should insist on a more complete dialogue that raises awareness of the difficult trade-offs they face.

Understanding stakeholders and their concerns

Companies should first develop a deeper understanding of the reputational issues that matter to their stakeholders and of the degree to which their products, services, operations, supply chains, and other activities affect those issues. A company trying to improve its environmental reputation, for example, needs to document, catalog, and assess its sustainability efforts and then to benchmark them against those of its competitors and industry standards. The facts should be presented objectively and, if possible, quantitatively—for example, the amount of carbon emitted or water used. Quantitative measurements promote effective comparisons and help companies avoid ignoring potential issues or performance gaps.

Such an analysis may lead a company to conclude that it has a good story that should be told more vigorously—or that it should refrain from doing so until it takes real action. The analysis also is the starting point for an objective quantification of reputational risks. The company can prioritize them and the measures needed to keep them at bay by assessing the probability and financial cost of potential reputational events, such as consumer boycotts or the forced closure of operations.

Reputations are built on perceptions, however, so issue analysis isn’t enough. Companies must also know if they are meeting the expectations of key stakeholders—those in the best position to influence sales and growth. To identify these centers of influence, companies should cast a wide net, scrutinizing not just traditional stakeholders (consumers, employees, shareholders, and regulators) but also indirect ones, such as NGOs and the media, that help shape attitudes. Even for companies that don’t deal directly with consumers, it’s important to understand public opinion. People have unprecedented access to information now and may therefore concern themselves with a surprisingly wide array of issues, potentially providing the impetus for regulatory or legislative action.

Each kind of stakeholder has unique perceptions and concerns. Shareholders might ask if reputational issues will affect a company’s long-term growth prospects. Regulators could worry that the public thinks they should curb the company. The media might wonder if it could be an example of how business exploits society. There are different ways of identifying the perceptions of each kind of stakeholder and their root causes (Exhibit 1). A detailed press analysis can help companies to understand the positions of columnists and editors on key issues. Interviews with regulators can clarify their concerns. Focus groups and market research are important for understanding consumers and the wider public.

Understanding the stakeholders

If consumer research is required, companies must understand that an analysis of how different consumers feel about them differs from typical segmentations: one for reputation management resembles a dissection of voters in a political campaign rather than a parsing of customers who prefer different types of products or services. There might, for example, be a group of consumers who care deeply about social issues and will weigh in aggressively on regulatory ones affecting a company’s operations. Others, such as swing voters, might be undecided about whether, or how, to become involved. Some could be uninterested and unlikely to take action. Still others may be so anti- or probusiness that their positions are set in stone. One consumer company facing regulatory challenges used this type of “social attitudinal” segmentation to analyze consumers (Exhibit 2). After identifying people who were both influential and open-minded, the company focused on addressing their needs, and the public’s attitudes toward it improved.

Whom to target

Transparency and action

Reputations are built on a foundation not only of communications but also of deeds: stakeholders can see through PR that isn’t supported by real and consistent business activity. Consumers, our research indicates, feel that companies rely too much on lobbying and PR unsupported by action. They also fault companies for not sharing enough information about critical business issues—for manufacturers, say, the content of their products, their manufacturing processes, and their treatment of production employees. Transparency in such matters is crucial. Sometimes it highlights a mismatch between consumer expectations and a company’s performance and therefore calls for action. In other cases, transparency can convince key stakeholders that the company is headed in the right direction.

After the director of the US Food and Drug Administration voiced reservations about the side effects of the high-cholesterol treatment Crestor, for example, AstraZeneca not only placed ads in the national press to present its case but also took the unusual step of providing raw clinical-trial data on its Web site, allowing completely independent researchers to draw their own conclusions. This was a high-risk strategy, since it’s always possible to draw different statistical inferences from the same data. But the strategy reestablished public trust and stabilized Crestor’s market share.

Consider also the efforts of the US plastics industry to overcome a consumer and regulatory backlash, in the late 1980s, over plastic packaging’s environmental impact. The CEOs of leading companies joined forces to reframe the public debate not just through an award-winning ad campaign illustrating positive applications of plastics (in child safety, for example) but also by committing the industry to recycling and thus to solving environmental problems. The industry could do so credibly because it undertook real actions, such as spending $1.2 billion on recycling research and developing a standardized plastics-coding system.

Such actions need not take place only in response to reputational concerns; at other times, they help build goodwill that may provide some degree of cover against future bad news. A willingness to tackle climate change has helped companies like Toyota Motor and GE, for example, build strong reputations that are holding up better than those of many other major automotive and financial-services players. Sometimes, reputation-oriented actions may even have a direct impact on sales. In 2008, for instance, Best Buy began inviting customers to bring their old electronics into its stores for recycling. The program has not only generated positive press and helped position the company as an environmental leader but is also increasing foot traffic in stores.

Engaging a broad group of influencers

Formal marketing and PR do play an important role in managing the reputation of a company, but when it responds to serious threats it must use many other means of spreading positive messages about its activities quickly (Exhibit 3). In general, credible third parties speaking for the company can boost its reputation more effectively than its own PR or marketing department. Leveraging existing grassroots support—through blogs, bumper stickers, and interactive Web sites, for example—is one method. Another is to have people with high standing reinforce key strategic messages. Partnerships between the company and NGOs can be important not only because of their credibility but also because they can alert it to performance gaps early in the game. A network of positive relationships with credible third parties (such as journalists and NGOs) can also help the company get out its side of the story when crises do hit.

One company worried about what it saw as the dangerous inaccuracy of its portrayal in the press targeted opinion leaders with concise facts to dispel misunderstandings and gave regulators a scientific paper outlining the possible negative consequences of proposed regulations. A broader communication program describing recent and forthcoming changes in the company’s business practices was released to the general public. This approach was effective, but even more nuanced forms of impact are possible: influencing specific bloggers, using company blogs to start conversations with consumers (a tactic Cisco, HP, and Intel, among others, use), and reaching scientists through research discussion boards.

Increasingly, two-way dialogue is critical. Consider, for example, Chevron’s “Will you join us?” campaign, which addresses many of the oil industry’s most difficult questions, such as the developing world’s energy needs, the role of renewables, environmental protection, and the problems that will get worse if we go on using oil as we do now. The campaign not only embodies a new level of openness about the industry’s challenges but also asks the public to join the conversation on a Web site with a moderated discussion board and interactive tools providing information about conserving energy.

Tactics for influencing reputations

In this more complex world of influence strategy, no single kind of approach is likely to be sufficient to deal with fast-moving situations. Companies must instead initiate a multidisciplinary, cross-functional effort that can quickly identify reputational issues and plant responses in broader strategy, operations, and communications. The groups involved might include regulatory affairs, the general counsel, PR or corporate communications, marketing, corporate social responsibility, and investor relations.

To achieve the necessary coordination, a senior executive should be accountable for such efforts. A strong understanding of customers and marketing might make the CMO appropriate to play this role. 2 2. See David Court, “ The evolving role of the CMO ,” mckinseyquarterly.com, August 2007. But it’s the CEO who must lead a company’s overall reputation strategy, ideally with the support of a board committee focused on it. This may seem like a lot of firepower, but in today’s climate, with reputational issues threatening both shareholders and a company’s ability to achieve broader goals, that degree of high-level attention and integration is essential.

Sheila Bonini is a consultant in McKinsey’s Silicon Valley office, David Court is a director in the Dallas office, and Alberto Marchi is a principal in the Milan office.

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