How prepared is your organisation to cope with reputational risk, defined by the Canada Revenue Agency as any event that could damage stakeholders’ trust in and respect towards an organisation?
Damage to corporate brand or reputation may not be high on your organisation’s risk perspective. But itis fifth among the top ten risk factors identified by organisations in 16 industry clusters in 60 countries which participated in Aon’s 2021 Global Risk Management Survey.
Participants in North America ranked damage to reputation or brand in third place. This ranking, the survey notes, comes against the background of “corporate reputational crises from financial fraud and neglect of employee health to racially offensive messages in advertising and inappropriate executive tweets” which frequently dominate headlines in the North American media. Businesses surveyed in the Asia Pacific region ranked damage to reputation at number four of their top ten perceived risk factors. This ranking comes against a “spate of high-profile corporate scandals”, Aon’s survey stated.
Number One Risk
The survey notes that among public sector participants reputational damage is the number one risk “probably due to governments’ poor handling of the COVID-19 crisis, a series of high-profile political scandals and extreme partisan politics in many countries, all of which undermined the public’s trust in government institutions.”
What’s the financial cost or loss due to reputational damage? A joint Aon-Pentland Analytics study reveals the following:
- Shareholders lose an average of 26 percent of value at some point during the year following a major reputational crisis.
- In 36 of 300 global reputation crises that occurred over the preceding 40 years, more than 50 percent of share value is destroyed
- Reputation crises destroyed $1.2 trillion in shareholder value during the 40-year study period
Social Media Amplifies Risk
Reputational risk is escalated and amplified by the role of the media -more so social media. Denials, half-truths and ‘no-comment’ responses by corporate executives only serve to exacerbate incidents of reputational damage. While the C-Suite could have gotten away with these reactions in the past, the advent of a plethora of social media platforms, influencers, bloggers, and citizen journalists makes that unlikely today.
The speed at which information -often with inaccuracies- travels across digital platforms requires corporate communication and public relations teams be alert and agile, having a system in place to send timely and effective messages through social media and to its influencers. The communication and public relations responses are critical to the successful outcome of cases of reputational damage.
Social Media Advantages
Social media is not all that bad. Amid the challenges, there are advantages. There is an abundance of software applications that can be used to monitor social media platforms and produce analytics that provide useful information about customers as well as public perceptions and reactions to crises being experienced by organisations. So, there is the opportunity for companies to influence, frame and adjust messaging based on the feedback on social media. The key point is that organisations must put in place an effective crisis communication plan including the critical component of social media monitoring, and the coaching of corporate executives to master this new medium.
GET READY FOR MY UPCOMING MASTERCLASS ON CRISIS COMMUNICATION PLANNING
Managing reputational risk (which is a consequence of other risk factors) is the joint responsibility of the risk manager and the corporate communication/public relations manager. The former identifies the risks and mitigation measures, while the latter helps to implement these measures by having in place a workable and confidence-building communication plan, especially to relate to external stakeholders.
According to a Bank of Canada white paper, the “reputational impact of risk events are best managed through a comprehensive and well-understood ERM (enterprise risk management) framework, bolstered by clear and responsive communications. The reputational impacts of misperceptions and information asymmetries are best reduced through embedded, and effective, communications.”
Leave a Reply
You must be logged in to post a comment.