REPUTATION AND RISK MANAGEMENT

Kasper Ulf Nielsen,Executive Partner at Reputation Institute

Reputation is fast becoming accepted as a board level priority and a business’s licence to operate. It is inextricably linked to a business’s performance, and the companies with the best reputations consistently outperform the stock market by leveraging stakeholder support to operate more efficiently.

Our research shows that whilst only 14% of the UK general public would buy products from a company with an average reputation, 75% would if a company’s reputation was excellent.This is particularly pertinent to the financial services sector, having experienced serious reputation damage during the financial crash.

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Managing your reputation is critical to achieve business success. To reach their business goals companies need support from a number of stakeholders. They need customers to buy and recommend their products, regulators to give them a license to operate, the financial markets to invest in them, the media to give them fair coverage, and employees to deliver on their strategy. For all these people to do this, they are asking for one thing. That they can trust the company. That the company lives up to its promises. That is has a good reputation.

In today’s complex and connected world, stakeholders have access to more information about the businesses whose products and services they use than ever before, and they have the ability to impact reputation with as little as a single click. And increasingly, they care as much, if not more, about how companies operate over and above what they’re selling.

PROACTIVELY COMMUNICATING CULTURE

Consumers (and regulators for that matter), are increasingly demanding that their banks and other financial institutions act openly and transparently, and those who have responded and communicated accordingly have seen significant improvements to their reputations.

Our research shows that Nationwide has had the best reputation of all retail banks operating in the UK for the past four years, differentiating itself from others through its mutual status and by leveraging the work it does with the community, and its corporate governance principles, to communicate a positive company culture to the general public.

Ensuring consumers hear about and remember positive stories is absolutely crucial;60% – 72% of the UK general public claim they are either “neutral or uncertain” about what retail banks are doing to address their reputations in fundamental aspects such as the products & services they offer, and their approach to corporate governance and citizenship. This absence of knowledge presents the sector with a continued reputation risk. Unless banks communicate their corporate story more clearly and compellingly, they will remain open to reputation damage.

MEASURING REPUTATION

Reputation is the perception others have of you. It’s a feeling, which makes it intangible. And managing something which is hard to define is difficult. To understand reputation you need to make the intangible tangible. You need to break down your reputation into specific components that you can measure and manage.

Consider your company’s performance and communications surrounding your products and services, your approach to innovation, the workplace environment, governance, citizenship, leadership and financial performance, and identify where you can improve in each of these areas to create an overall positive reputation.

You can then also identify the specific impact of a crisis or an issue on each of these dimensions of your business, and on your overall reputation, and manage it.

REPUTATION RISK MANAGEMENT

Defending reputation is best achieved from a position of strength. Recent global research of 150 senior-most corporate communicators, public affairs professionals and board members responsible for the reputation strategy of their international businesses, conducted by Reputation Institute, shows that the communications leaders in companies with the strongest reputations not only have a greater focus on reputation measurement, they also proactively identify, anticipate and manage reputation risk to a greater extent than those with average reputations.

 The financial crisis decimated the reputations of many banks and other financial institutions. In Reputation Institute’s ranking of the reputations of retail banks, RBS and Lloyds Banking Group have been consistently behind the pack since 2008, with RBS in particular struggling to rebuild its image, suggesting the financial crisis has had a lasting impact on those hit hardest in terms of both reputation and the businesses’ bottom lines.

This demonstrates how- once destroyed- reputation is an asset that’s incredibly hard to rebuild, and it is a long journey to winning back consumer trust.

Having a process in place is essential in order for businesses to move fast to mitigate reputational risk:

  1. IMPACT: Determining the severity of the event on the reputation of your organisation. It is important to understand the different types of reputation risk and their ‘multiplier’ effect. This stage requires an assessment of the impact on the key internal stakeholders, especially when it comes to identifying risks and assessing the likelihood of these crystallising.
  1. READINESS: Establishing the appropriate controls and procedures to respond to the event. This factor defines how mature a company is in its reputation risk management processes, i.e. its ability to manage a negative event if and when it happens. Interviews with key internal stakeholders need to be conducted to understand alignment and capabilities.
  1. MONITORING: Understanding the effect on reputation over the long term. The organisation should adopt a process that tracks progress towards managing and mitigating reputation risk over time.

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