Reputational risk is not a new concept. Most businesses recognize that both their value and future success are dependent on maintaining the so-called “permissions” that underpin their license to operate. There are frameworks and compliance mechanisms that ensure companies operate according to generally accepted principles and adhere to rigorous standards. Indeed, the most serious reputational crises of recent times have occurred when there has been a real or perceived breach of these tenets.
Accountancy firm Arthur Anderson, for example, found that a reputational issue concerning its client Enron quickly became an existential crisis, while a number of major supermarkets were put in the spotlight last year following the horsemeat scandal. These examples serve as a good reminder that reputational risk is potentially the biggest risk of all, because it is based on a very human dimension: trust. This commodity is hard to measure and assess because it is driven by emotion. But as any trader will tell you, the emotional usually wins over the rational, and in our interconnected, data-rich society, sometimes the way we feel is far more important than any other measure.
We expect a product to be what it says on the package, so when beef turns out to be horsemeat, we are not happy. Likewise, we want low prices, but if this means farmers cannot make a reasonable living, we care. Sustainability, in its various forms, is critical. In a corporate environment where cost management is paramount, this presents interesting challenges, but also clear opportunities for the agile business. Amid a cynical consumer environment, the companies that stand out from a reputational point of view are those that take responsibility for their full supply chain, looking to ensure best practices throughout.
Supply chain integrity is important to consider as it relates to reputational risk. When trust is breached, the spotlight doesn’t just fall on the supplier, but also on other brands in the chain. For example, when Greenpeace became concerned that a palm oil manufacturer threatened the habitat of orangutans in Indonesia, it decided not to go after the manufacturer, but instead to attack Nestlé, a much larger company that used palm oil in its products. To set themselves apart from competitors, all companies need to take the same systemic approach to reputational risk management that they apply to catastrophe or cyber risk management.
When something does go wrong, companies need to think about how they respond to avoid creating a reputational crisis. While there is no cookie-cutter answer, there are some basic steps that separate the companies that recover from those that do not. It is vital to put a methodology and process in place. A strong methodology will help evaluate situations and spot issues before they becomes crises, and a process will guide the response.
One way companies can do this is by evaluating key stakeholders and listening to what they are saying. By monitoring social media channels, companies can quickly spot whether customers have concerns and deal with these before a crisis develops. Likewise, tools that track activist sentiment, such as Sigwatch, can help companies reach out to anyone who may have a problem. An integrated communications, employee engagement and public affairs program can help companies not only listen to their key audiences, but also engage in dialogue and, where appropriate, respond to suggestions and become active in broader initiatives.
In a crisis, proactive and regular communication can help reassure customers that you are dealing with the situation and that you care about what is happening. There is nothing more likely to frustrate consumers, journalists and other interested parties than total silence. Companies that perform best and recover well from a crisis tend to be those that provide regular updates offering relevant information in a timely and transparent manner.
Trying to pass the buck and avoid responsibility rarely wins a business any points. When food producer Findus tried to blame the horsemeat crisis on a supplier, it only angered the public further. The brand is a promise, and reputation is all about keeping that promise. This is what customers expect. The complex, strategic arrangements to outsource key business processes or implement field-marketing solutions do not matter when integrity is questioned. Indeed, one of the key tenets in responding well to a reputational crisis is to not shift blame, particularly when it comes to sourcing or supply chain.
In general, it helps to be prepared. Crisis management planning and training can help companies stay ahead of the curve, and ensure they are ready to deal with issues. However, it is not enough to just have a crisis management plan, it also must be regularly updated and reviewed. Too many companies have crisis plans that were put together years ago and do not reflect current issues. Likewise, many companies have plans, but have not shared these with all the relevant employees, explained what their roles and responsibilities would be in a crisis situation or tested the plan.
As sustainability and corporate responsibility move up the consumer agenda, businesses that want to protect their reputations must make sure that rigorous reputational management practices are in place, both internally and in their supplier network. Only then can a company convince skeptical consumers that they are truly deserving of a good reputation.