The Tribune

One of the most significant threats to a company’s long-term viability is reputation risk. This is often referred to as the risk stemming from negative public perceptions. The consequences of a tarnished reputation can be severe and lasting, regardless of how well a company performs in other risk management areas.

Consider the Uber workplace culture that came under fire in 2017 due to allegations of sexual harassment and gender discrimination. Such revelations damaged Uber’s public image. The scandal eventually led to executive resignations and a complete overhaul of the company’s cultural norms and practices. The Uber debacle culminated with a settlement with the Equal Employment Opportunity Commission. In this settlement, a fund of $4.4m was established to compensate current and former employees who were sexually harassed at work.

The misunderstanding of reputational risk is not new. Robert Eccles, Scott Newquistand Roland Schatz wrote in the Harvard Business Review that companies tend to focus their efforts on dealing with existing reputational threats. The trio added: “This is not risk management; it is crisis management—a reactive approach whose purpose is to limit the damage.” This article aims to provide colour around reputational risk management.

Awareness

Your reputation is at risk when stakeholders’ expectations and your actual performance do not match. These stakeholders include clients, employees, partners, investors and regulators. Why do discrepancies occur, and how can they be classified?

1. Operational and Ethical Missteps: Observing your team’s behaviour, from juniors to executives, is crucial. A wrong move by your chief executive or another team member can jeopardise your brand’s image.

2. Compromised Product or Service Quality: A lapse in the quality of what you offer can tarnish your reputation. In manufacturing, a defective item that requires recall can erode stakeholder trust. Similarly, a breach of customer privacy can undermine your brand’s credibility.

3. Resisting Evolution: Reputational risks arise when companies fail to align with stakeholders’ evolving perspectives. Stakeholder expectations change over time and vary by region. Keeping up with these shifts is critical. Moreover, staying abreast of industry norms and regulations keeps your business agile.

An approach to managing reputational risk

1. Assess potential threats: Start your risk management journey by identifying potential threats to your company’s reputation. Investigate the likelihood and impact of these risks materialising.

2. Deep Dive into Stakeholder Insights: Knowing your stakeholders’ expectations is crucial to your strategy. Stakeholders, internally and externally, may perceive you differently. Use tools such as surveys, interviews and polls to gain a comprehensive perspective.

3. Audit Your Business Practices: Identify gaps between stakeholder expectations and your company’s performance. To uncover any soft spots or potential pitfalls in your operation, approach this step objectively.

4. Craft a Proactive Strategy: Develop a plan responsive to your enterprise’s needs, armed with a deeper understanding of the looming risks. Adapt your strategy to address specific challenges based on the insights from your preliminary risk assessment.

5. Implement Protective Measures: Take proactive steps to reduce or eliminate potential risks. A robust training programme, revamped policies and digital tools can strengthen your reputation.

6. Maintain Constant Vigilance: There is constant change in the risk landscape. Maintain an agile approach to responding to the shifting sands of the market by tracking stakeholder sentiments and business activities perpetually.

7. Harness the Power of Technology: Software solutions can simplify and enhance your risk management efforts. Utilise technology to improve business oversight and alert you to emerging risks, streamlining the entire risk management process.

Conclusion

Institutions will need to be prepared to deal with reputational risk.. In order to prevent reputational damage, you should consider following a risk management process like the one outlined above.

• NB: About Derek Smith Jr

Derek Smith Jr. has been a governance, risk and compliance professional for more than 20 years. He has held positions at a TerraLex member law firm, a Wolfsburg Group member bank and a ‘big four’ accounting firm. Mr Smith is a certified anti-money laundering specialist (CAMS), and the compliance officer and money laundering reporting officer (MLRO) for CG Atlantic’s family of companies (member of Coralisle Group) for The Bahamas and Turks & Caicos.