COMPANIES have no issue spending millions or hundreds of thousands in whatever currency for re-branding exercises, refreshing logos, on new offices, or entertaining clients because these substantial expenses equate in the executive mind as activities directly linked to making money.
BUILDING a brand that can withstand calamity or a massive swing in public option or shifting attitudes driven by environmental, social or political concerns, however, takes more than good PR or a swanky office. It takes a holistic approach and team work, from within and without the organization. It requires a philosophy of looking at risk and reputation management as a key part of creating brand equity, brand value and an innovative way to look at risk.
Risk management is reputation management. Reputation management requires just that–management, investment, consideration, effort and one that is on-going, adaptable, sustainable and one that considers reputation management as a direct contributor to the financial value of the company–the same as one should count earnings and tangible assets.
Reputation is far more of a tangible intangible asset than many account for it being.
“According to the Reputation Institute — which monitors and ranks the reputation of 7,000 major organizations globally — intangible factors account for 81 percent of a public company’s market value, and improvement or deterioration in a company’s reputation has a tangible impact on performance,” says Antony Ireland in his article “Here’s Why Putting a Price on Reputational Damage Is So Hard — But Totally Worth It” (https://riskandinsurance.com/putting-a-price-on-reputational-damage/)
Ireland goes on to quote Dr. Nir Kossovsky, CEO, Steel City Re, which specializes in reputation risk coverage, “reputation can be defined as an expectation of behavior. ‘Its value is measurable, and therefore it is manageable and insurable,’ [Kossovsky] said.”
When the expected happens, what many executives call “the unexpected”, when a crisis erupts or a critical event (a cyber attack, fraud, negative key person disclosure, launch of an online dirty tricks campaign, regulatory penalties, malicious litigation, IP theft, sexual harassment law suits, product liability lawsuits, etc.) it thrusts a company onto its back feet to react or defend itself. It is only in the midst or aftermath of these growing expenses that many begin to realize too late that the cost of NOT investing in preventative measures and building a shock-proof operation was too high a price to pay.
Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular.
Harvard Business Review
ACCORDING to an article in the February 2007 issue of the Harvard Business Review (“Reputation and its Risks” by Robert G. Eccles, Scott C. Newquist and Roland Schatz, https://hbr.org/2007/02/reputation-and-its-risks), the majority of companies under invest in their most critical asset–their reputations. “. . . in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.”
“Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular,” the authors go on to say. “They tend to focus their energies on handling the threats to their reputations that have already surfaced. This is not risk management; it is crisis management—a reactive approach whose purpose is to limit the damage.”
THIRTEEN years later, the same holds true. In the past decade, we’ve seen innovations in self-driving vehicles, pioneering organic agricultural technology, AI and machine learning, digital currencies, pioneering cancer treatments and two more releases from the Toy Story franchise. With blockchain and cryptocurrencies, created since the Harvard Business Review article first appeared, a slew of new tools landed in the hands of criminals and hacktivists and dirty tricksters. While the criminals have invested and got out in front of security and legislation, innovating and being proactive as always, most companies have remain reactive and underinvested in the tools needed to protect the company’s ability to operate.
Sometimes an umbrella is all you need to protect yourself when it rains.
Too Poor to Buy Cheap Shoes
THERE is an expression that one can be too poor to buy cheap shoes–that the cost of replacing or repairing a cheap pair of shoes may end up costing one far more than the original price of a good pair of shoes. This has its parallels to this notion that protecting one’s brand and reputation is not a cost because the cost of trying to fix it when it gets damaged is costlier.
Relegating anti-fraud, cyber security, AML-CTF, KYC, proper employment vetting, HR and workforce happiness initiatives, data protection, supply chain resilience, disaster planning, proper M&A due diligence (of key people, reputation, known associates, criminal links, etc.), reputation audits of key people (including social media exposure & activity) and a slew of other critical reputation and brand-protecting activities to the cost pile, to a tick-the-box exercise, to an unpleasant to-do list one avoids ever doing, has proven time and time again to either cost companies multiple times more as a response expense than it would have cost as a regularly running programme to build and maintain a robust, shock-resistant brand fortress.
The price exacted for a negative reputation incident comes in the form of lost sales, declining sales, declining share price, loss of sponsors, costly law suits, inability to hire quality people, loss or disruption to supply chains, etc.
Reputation Immunology
Sincerely caring about one’s team (and that is what employees are no matter how many thousands may be employed around the world), treating people respectfully and supportively no matter how hard driven the company may be, exercising proper duty of care, caring who one does business with (considering the consequences or effect that relationship may have on one’s reputation), caring about one’s customers (considering them a stakeholder), respecting the impact social media and technology have on brands and reputations, caring about one’s business partners, caring about one’s community, being honest and transparent, being tough but reasonable goes a long way to building an immune system within your organization capable of withstanding viral attacks or malignant activities that would otherwise cripple or kill the company.
Consider risk and reputation management (not risk response) as an investment, an ounce of preventative medicine worth more than a pound of cure. Consider reputation immunology as comparing the cost and effort of taking vitamins and exercising to the cost of hospitalization or long-term disability. As good health measures keep one feeling better, looking better and being more productive, so does keeping your organization healthy and prepared to respond fast enough and effectively enough when the first signs of illness do present themselves.
Additional Reading
https://hbr.org/2007/02/reputation-and-its-risks
https://riskandinsurance.com/putting-a-price-on-reputational-damage/
https://blog.reputationx.com/corporate-reputation
Author
STEPHEN GROSSMAN is a crisis and critical event response consultant, specialising in reputation management and tackling cases involving extortion, blackmail, fraud, intractable disputes, malicious litigation, and threats to life. He has over 25 years’ experience managing business intelligence and investigations. Grossman is a subject matter expert in investigative interviewing, behavioural profiling and deception detection. He is frequently asked to carry out complex alternative dispute resolutions and high stakes negotiations for both private and public sector clients
Cover photo by: Dan Meyers
Umbrella photo by: Ricardo Resende