When uncertainty is associated with a firm’s good reputation being sullied with the result that it suffers loss of revenues, increased expenses or both because of some event that damages its reputation such as accounting fraud or product recall, it is perceived as reputation risk.
For example, is the management of reputation risk still perceived as critical? If so, at what level should it be managed—corporate, departmental or other.
Reputation risk can also arise from product tampering, bad press, or bad behavior of key employees. In these cases, there is no insurance coverage against reputation risk and the role of top management would be to identify the causes and to immediately take the necessary control measures.
In response, a new business concept was developed—Reputation Management—because reputation is the most strategic of assets.
The value of corporate reputation cannot be measured in monetary terms but it incorporates corporate image, goodwill and brand equity. A survey by Lloyd’s of London revealed that e-commerce crimes and loss of reputation or brand are two of the most significant risks corporations face today.
In the present age, corporations are now operating in a business climate influenced by major societal themes, including increased scrutiny by investigative reporters including accountability to political and special interest groups.
As a matter of fact, a number of global firms has experienced reputation damaging situations that were man-made and could have been preventable had the reputation risks that caused them been identified early enough.
Prevention is the least costly and most efficient means to protect a treasured reputation. Preventing defects that can tarnish or destroy a reputation saves an extraordinary amount of anguish, time, effort and money. It starts with the published policies and procedures that all organization employees are expected to follow and implement. These should be a reflection of the reputation that the firm wants to achieve. If a company wants to be known as a safe and friendly place to work, its policies should assure the employees they will not suffer from discrimination, harassment or safety issues. If a firm wants to be a good community neighbor, its programs should allow employees to contribute and participate in community programs and services as well as promote a clean local environment.
With these policies in place, a firm lays the groundwork for the implementation that all the departments must report all defects, large or small, immediately to senior management. It has been proven that trivial incidents can mushroom into devastating scandals if the so-called “trivial” events were not reported soon enough to senior management for analysis and proper action.
It is therefore necessary to integrate an enterprise wide reporting system. In addition, it is important that crisis management, disaster planning and emergency are already in place. A strong reputation results in a strong competitive edge and the firm will enjoy increased productivity and employee morale, plus the loyalty of customers and a higher level of respect from the press as well as politicians. In the Philippines, San Miguel Corp. and Ayala Corp. are examples of firms with good reputation.
The author is a risk management consultant and Editor of Insurance Philippines magazine.