Over the last few years, organisations have begun to realise that their reputation, far from being some intangible, unquantifiable element of their business, is actually one of their biggest assets.
A good reputation ensures the confidence and trust of all the stakeholders in the business such as customers, suppliers, investors, regulators and employees. This confidence ensures ongoing profitability and creates increased opportunities to grow the business.
Reputation is defined by the Merriam Webster dictionary as ‘overall quality or character as seen or judged by people in general’. Reputation can impact on every aspect of your business including:
- whether investors buy or continue to hold shares in your business
- whether customers continue to buy your products or services
- whether suppliers wish to establish or maintain partnerships
- whether new competitors enter your marketplace
- the attitude of regulatory bodies towards your business
- your ability to recruit the right employees
- the morale and motivation of your existing employees.
Maintaining a good reputation relies on a business living up to the expectations of all its stakeholders. The best way to ensure reputation is maintained is to incorporate it into your risk management regime and risk management training for employees.
Risks to the reputation of a business can come from a variety of sources including:
- failure to comply with the obligations of Competition and Consumer, Equal
- Opportunity, OH&S, Privacy, Environmental and other forms of legislation
- failure to deliver minimum standards of quality and service expected by customers
- the threat of unethical internal practices being exposed
- failure to reach expected financial targets
Recent high profile examples of how a business can suffer damage to its reputation include BP’s oil spill in the Gulf of Mexico, in which BP and its contractors were accused of cost-cutting at the expense of environmental safety, Toyota’s product recall of several models due to sticking accelerator problems and the collapse of the Enron Corporation due to accounting fraud.
While BP and Toyota have the ability to ride out such reputational setbacks, the result for Enron, one of the world’s leading energy companies, was fatal.
No matter the size of your business, the ever increasing demands for compliance, the growth in regulatory powers, increasing stakeholder expectations, growing influence of pressure groups and increased media scrutiny all point to greater risks to your business reputation and a growing need to identify and manage those risks.
Steps to reputational risk management should include:
- Identifying what stakeholders expect of your business
- Evaluating and prioritising risk factors
- Developing risk responses
- Creating ongoing monitoring and reporting procedures
- Taking ownership of reputation protection (every employee bears some responsibility).
A reputation can take years for a business to build up and yet, a single bad judgement call or indiscretion can destroy it in a matter of minutes, leading to a loss of confidence by stakeholders and an inevitable drop in profits.
That’s why it is so important to recognise reputation as the critical asset it is and to incorporate it into your compliance training and risk management framework.
