EFFECTIVELY MANAGING REPUTATIONAL RISKS
Today, a brand’s reputation is perhaps more important than ever. According to a survey of C-suite executives and board directors by Deloitte and Forbes Insights, brand reputation was considered the highest strategic risk area for a company. It ranked above other high-visibility factors like business model, competition and the impact of economic trends. On average, more than 25 percent of a company’s market value is directly attributable to its reputation, according to a study from the World Economic Forum.
When it comes to the types of potential risks a company can face, the impact of a tarnished reputation should not be underestimated. Costly damage to a company’s reputation can occur any time, in many different ways. Reputational risks often arise because other problems have been amplified. In other words, business risks have the potential to spread into secondary ‘aftershocks’ of reputational risk. Examples include an unhappy customer getting mainstream media coverage, headlines alleging unethical behaviour, an employee using social media inappropriately, or widespread reports of an embarrassing data breach. Such events tend to inflict reputational damage.
In these times of heightened sensitivity and scrutiny, companies must be wary of moral hazards and corporate accountability. A company’s reputation is, at least in part, built upon factors such as ethics and integrity. Third-party relationships are another rapidly emerging risk area, with companies increasingly being held accountable for the actions of their suppliers and vendors. How the public responds to a company’s actions or incidents can be a catalyst for negative impact.
Apr-Jun 2023 Issue
Richard Sumerfield