Recognising reputation risk is not a tick box exercise – it’s a governance issue

Brand reputations seemed to topple like dominoes in 2018, didn’t they? Several salutary tales show that managing reputation and recognising reputation risk should be a far higher priority for many companies.

What I found interesting about the reputation issues faced by Pret-a-Manger and Facebook were that the damage came at them from directions that many companies simply don’t recognise as reputation risk areas.

When Pret was accused of causing the tragic death of a young woman thanks to a nut allergy, the origin of the damage lay in their operations and supply decisions, as they apparently allowed an ‘artisan baguette’ with known sesame contaminants to remain in stores, without enough care and staff training around the labelling and handling in the local outlet, in this case within an airport. This from a food business which has built its reputation based on product excellence and local food production. Yet it seems the issue arose from its choice of a food product and labelling procedures which ended up non-compliant with regulations.

Then we had Facebook – already in the glare of the world’s press cameras thanks to what seems slightly suspect use of all our data; only to be caught out by an API hack that potentially exposed the accounts and linked applications of up to 50 million users worldwide. For a technology company to have its reputation damaged in such a way seems hugely careless.

In fact, both these stories are worth thinking about.

Yes, organisations encounter risk every day which threaten the strategic and critical asset that is reputation. But these risks came from areas which commonly are not part of reputational planning and thinking.

The reputational risks in question came not from an unfortunate slip on social media, an unguarded moment of bad behaviour by a leader, or being caught out for behaving counter to socially-responsible brand promises. For them, the issues stemmed directly from the nature of their business, their operations and it caught them both entirely unaware.

Recognising reputation risk and relationships

It is essential to understand and recognise the reputation risks you face and put in place a structured approach to that risk so that you build reputational resilience. Because reputation is not something that you create and control. It rests in what others think about you, not what you think or say about yourself. It lies in the hands of direct and indirect stakeholders ranging from those in your immediate world (employees, investors, customers, partners) and further beyond (communities, commentators, industry colleagues and, frankly, anyone else who might impact you or who cares enough to voice an opinion).

In an increasingly complex and connected world, the ecosystem of stakeholders is expanding every day. In a world of relationships, the reputational risk for one party in any business relationships is a potential reputational risk for the other.

Many people missed a second instalment of the Pret reputation story last year, when another court case emerged in the press about the death of a lactose-intolerant customer that may have been caused by non-vegan products in a Pret product.

Pret claimed that the fault lay with its vegan yoghurt supplier CoYo, despite their vehement denials. The sad thing about this is that the damage simply spreads, compounded not only by reportage of the wrangle and competing versions of the truth, but by the observer’s judgements about the behaviour of each.

Such battles create ripples of concern throughout their own business networks, causing relationship damage with numerous stakeholders, not only with their customers and the media.

Reputation can be shattered in moments

Recognising reputation risk

Reputational crises can shatter reputations in an instant, having taken years of effort to build. All the efforts Facebook had made in the previous year to (try to) demonstrate conscientiousness, following the Cambridge Analytica scandal and accusations of data mismanagement, were fast forgotten. The many years of CSR excellence that Pret has shown, from its pioneering distribution of food to the homeless to its leadership of sustainable packaging were, for the time being, effectively obliterated. Instead, in the minds of its consumers was the image of a young girl who died unnecessarily. It was, in the end, Pret’s own operations which betrayed it.

Damage to reputation can make customers pause before purchasing and impact sales.

It can destabilise strategic relationships and partnerships.

Nobody likes to upset and worry their employees either – let alone make badly-needed talent and potential recruits walk away. Investors, both institutional and retail, are influenced to buy, hold, or sell.

The world is full of commentators who are poised to report, repeat and amplify what they say and hear, including analysts, media, bloggers and social users from inside and outside your organisation.

Do you know your flash-points?

Recognising your reputation risk fully and adequately is hard even for those who recognise the importance of reputation itself. There is little doubt now that reputation is a critical business asset – not just an intangible, but a driver of value which may deliver up to 56% of market cap.

Therefore, reputation is a business governance issue – or it should be. Although organisations consider risk as a matter of course, they usually limit their thinking to operational and financial risk – reputation is very rarely a focus.

Many organisations simply fail to consider exactly what risks they are running to their reputation every day, nor establish any proactive plan to manage and protect it. Much more effort should be going into recognising reputation risk – and it needs to be driven from the top.

Are you ready to start recognising reputation risk?

Because someone might declare war at any time. An unintentional and innocent mistake could set off a chain reaction. An innocuous operational factor could create a challenge at any point. Both damage and cost could be significant – yet, you can take steps to reduce your vulnerability. It’s not simply about repairing the issue afterwards – but about making effort to strengthen stakeholder relationships in advance. Businesses that make efforts in recognising reputation risk and CEOs who understand reputation leadership can massively reduce their vulnerability and be in a much better position to limit damage and recover their reputational position faster, in extremis.

If you’re ready to exert better control and strategic oversight of your reputation, let us help.