A practical approach to reputation risk

Every organization has some desirable public image. Does it want to be perceived as environmentally sound? Family friendly? Political activist? A ‘high roller’? Cutting edge? Traditional? Or, perhaps it simply wants anonymity in the public eye.  Reputation risk results from strategies or actions that conflict with the desired public image.

Rather than wait for reputation risk issues to arise, it is important to be proactive. Let’s take a step back. Organizations are constantly developing strategies at all levels. Whenever someone is assigned a new task or objective, a strategy needs to be developed to accomplish it. The process of selecting or creating a new strategy can include the evaluation of whether that strategy is consistent with the organization’s public image.

In risk management, I use the term “risk attitude” to describe which strategies management would, or would not, feel comfortable with. A “low risk” attitude indicates that management expects assurance that the proper results will be achieved. A “high risk” attitude indicates that management is willing to take its chances and would be comfortable with a strategy that might deliver results ranging anywhere from wild success to total failure. Neither is necessarily good or bad and can vary not only from one objective to the next, but also with different components of a single objective. It’s possible, for instance, to develop a desirable strategy that is high risk in some areas (e.g. financial returns) while low risk in others (e.g. worker safety). But nearly every organization wants very low risk when it comes to protecting its public image. If that’s the case, then it’s reasonable to have a specific question that needs to be answered as part of every new strategy — is it consistent with our public image?

Of course, this assumes one very critical component. The organization needs to define and be able to describe its preferred public image. If that’s not the case, then reputation risk is increased simply because it may be unclear what to embrace or avoid during strategy development. If employees don’t know that the organization is cultivating a worker-friendly image, then a cost reduction initiative may include a strategy that includes massive worker layoffs.

That’s the first part — making sure that the organization understands how to develop appropriate strategies that will, at least initially, be consistent with your public image.

There is another part. An organization needs to be generally perceived as trustworthy and competent. For example, while an organization may not be explicitly cultivating a public reputation for good customer service, excessively poor customer service will still create a public image problem. The same would be true for any normal business activity if it is executed poorly to the level where the public perceives the organization as being incompetent. Even something as mundane as an inability to pay its bills accurately could grow to the extent that it creates a public perception of incompetence.

To avoid this, an organization also needs a general performance and risk management environment where expected performance levels are defined. Performance levels that don’t meet reasonable expectations need to be elevated to management long before such “incompetence” becomes a subject of public discussion.

Please share some stories about how your organization is addressing reputation risk.