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Blog > How to Assess and Manage Reputational Risk

How to Assess and Manage Reputational Risk

VComply Editorial Team
December 7, 2021
3 minutes

After Frances Haugen, a former Facebook employee, has come forward with the accusation that Facebook puts profit before the safety of people, the platform’s reputation has gone down the tubes. In another example, the 2016 account fraud scandal tarnished Wells Fargo’s reputation, and it faced tremendous backlash from shareholders and customers. Wells Fargo was considered one of the most reputed brands in the US till the account fraud scandal came out in 2016. The bank had to pay around $3 billion to settle its probes and fines.

Let’s take a look at what is the reputational risk? Reputational risk is the risk of losing financial capital, social capital, or market share resulting from damage to a firm’s reputation. 

Why should organizations take the reputational risk seriously?

Organizations face different types of risks. However, reputational risk is one of the most catastrophic as it threatens the goodwill or standing of a business or entity. It takes years to build the confidence and the trust of the customers, but it just takes only one rumor to tarnish the goodwill of a company. According to a survey conducted by Dimensional Research along with Zendesk, around 90% of respondents reported that positive reviews influence their buying decisions! In the current days, majority of customers read online reviews before making a purchase decision.

Other than better business opportunities, a good reputation helps companies to:

  • Attract better talent
  • Better investor relations and stock prices
  • Customer loyalty
  • Newmarket opportunities

Having understood the importance of reputational risk, organizations should try and track their reputation and minimize any circumstances or events that adversely affect brand image. As the importance of reputational risk continues to increase, companies need to find ways to assess reputational risk and identify measures to minimize them.

How do you assess reputational risk?

Concerning the assessment of reputational risk, evaluating reputational risks over time, estimating the probability of the occurring of the risk and its impact on the reputation of the business is a complex process. You have to analyze various factors such as who can pose a risk to the organization’s reputation, the location of the organization, and where the event happens, and the nature of the reputational risk determines its impact on organizations.

The four popular ways of assessing reputational risks are as follows:

Track what people are saying about your brand

Organizations can use social media listening techniques to build understanding about what customers or potential customers speak about them and what they think about competition. Social listening and monitoring will allow you to analyze people’s sentiment in your brand and hear the emotional reasons behind their sentiments towards your brand. It also helps track any mentions about the organization or conversations, both positive and negative, or anything relevant. Knowing the change in people’s attitude to your product/services and your brand over some time and their perspective towards your competition help you avoid any crises or missteps before it happens. Use social listening tools like sprinklr to track what people are speaking about you.

Assess the reputational damage for products and services separately

Segregate your products and services and assess the reputational damage for these products and services separately. Identify the products and services that receive negative reviews and then identify the cause behind them. Analyze and find out the root cause for the negative publicity or comments and take appropriate actions to alleviate the negativity. The steps can include:

  • Rectify the cause for negative reputation
  • Find ways to correct the historic negative attention

Assigning risk scores to factors that affect the reputation

This method includes examining all positive and negative scenarios and assigning a value to each. The next would be to compare these values with the organization’s risk appetite and risk tolerance. If it falls within the risk tolerance, then it is not to be worried about. , and if not, then an action plan has to be developed either to prevent it from happening or to reduce its chances of them happening or develop a plan to minimize its damage in case it occurs.

Link reputation to organization’s KPI

This method involves linking reputation to the organization’s KPI. For that, a Key Risk Indicator (KRI) has to be created around a specific KPI, giving thresholds to indicate what is acceptable and what isn’t.

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How do you manage reputational risk?

Bad product quality, product recalls, mistreatment of employees, money laundering, bad financial practices, and external events can all affect the company’s brand image. Companies should take these issues seriously and develop a plan for winning public opinion. 

Enable board and senior management oversight of reputational risk

Organizations should recognize the importance of reputation and make it part of strategy and planning. Board and senior management need to take responsibility for reputational risk strategy, especially for maintaining brand image and reputation: A good reputation can bring success! Hence, look into the weakness and reputational attributes within the organization. Identify the risks and warnings and take proactive steps for each attribute. 

Establish control, processes, and standards to alleviate reputational risks

Establish internal controls to mitigate damage to your brand and avoid reputational risk. Incorporate values into every facet of your organization, communicate the values through internal policies. Encourage your senior management to express the value system through their deeds. Deliver only quality products and services. If there is a misalignment, own the mistakes, and encourage your team to take corrective actions to prevent it from happening again. Treat your employees fairly to avoid scandals. Your employees are your biggest brand ambassadors, make them happy.

Maintain consistent and positive communication

Focus on positive image and communication. You need to keep your clients happy. Conduct surveys to recognize unhappy customers, and proactively solve their issues. Excellent customer service, transparency, good governance, and steady growth are some of the most important messages to convey to the public.

Prepare for and respond to reputational risk

It is worthwhile to have a contingency plan in place in case of an emergency. Have enough resources, define clear guidelines for who should communicate if the company is exposed to reputational risk. Conduct regular reputational risk assessments to identify impending risks.  If the company is exposed to new reputation risk, its executives should decide how to respond. The most immediate way is to change behavior -implement robust internal controls, undertake product recall, comply with government norms and standards. Organizational training, policies, and procedures can ensure that all employees know to respond appropriately in any situation.

How does VComply help in minimizing reputational risk?

 VComply’s user-friendly GRC software makes it easy for any organization to manage its risk and compliance efforts effectively and efficiently. Its risk module helps organizations mitigate risks and monitor threat levels by assessing risks and implementing controls. VComply provides organizations with a 360-degree view of all the risks faced and prospective threats and will help in overcoming the risks easily by taking proper decisions. VComply’s GRC software promotes teamwork and brings in oversight.

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