Companies that manage reputational threats sufficiently prepare as best they can and assess their performance afterward in an effort to improve future performance. Leadership takes seriously the need for preparation and review to manage shocks to their reputation’s system.
Smart businesses take a comprehensive approach to risk management, taking into account various risks including strategic, public policy, operational, financial, and legal. Keeping these functions trapped in silos does no one any good.
Is Your Crisis Behind Door #1 or 2?
Any worthwhile crisis expert will tell you that no one is capable of accurately anticipating the precise predicaments you might face. There are simply too many moving parts. It is akin to playing the stock market; as John Maynard Keynes held, “Successful investing is anticipating the anticipations of others.”
Like airline pilots who don’t know if they’ll encounter clear air turbulence, an engine flame-out, or a flock of birds, they must be prepared to react to something unexpected at that exact moment in time. So it is with any blows your reputation may suffer, worthy of a tweet storm or not. You must be ready to analyze your situation carefully. An incident that has little impact on one corporation could represent a full-blown reputational crisis for another.
And the Winner Is…
Fully 81 percent of companies view reputation as their number one asset according to a July 23, 2013, Reuters account of the report “Reputation at Risk,” issued by the insurer ACE. Executives at these companies also concede that they find reputational risk tricky to manage.
In the survey, 77 percent of companies found it problematic to evaluate the financial impact of reputational risk on their business. Sixty-eight percent found it difficult to locate advice about managing reputational risk.
Still, there is hope that well-run companies are beginning to see a link between risk management and development of business strategy. As one respondent to the Marsh/RIMS study “Organizational Dynamics: A Focus for Effective Risk Management” noted, “There is significantly more interest, buy-in, and enthusiasm from our executives about looking at strategic risk rather than just operational or financial business risk.”
Another participant said, “I wish there were some way we could measure success by thought leadership or by the value we bring to our business partners,” adding in a burst of candor, “But I can’t figure out a metric for that.”
Your Watchdogs Are Paying Attention
State regulators are also weighing in. In a May 2018 skirmish over insurance provided by the National Rifle Association, New York State financial regulators made clear their role “is to supervise regulated entities to mitigate the risks, ‘including reputational risk’“ according to The Wall Street Journal.
I’m no accountant, but in light of this consideration by financial regulators, I can’t help but wonder if reputational risk will one day appear on a firm’s balance sheet.