Reflections on Reputation Risks

Indians think more highly of themselves than they are. I am not making this up, it is a factually correct statement according to the Country report of Reputation Institute. Respondents ranked India 25th with 51.93 RepTrak score. According to its own evaluation, India deserved a score of 75.67 with 11th ranking. It is ranked 5th for having perception differences between internal and external reputation. A 25th rank among 50 countries ranked isn’t anything to talk about.

In the Companies Reputation report, there was no Indian company in the top 100. Yes, my ex-company Intel was ranked 16th, though its ranking has fallen from previous years.  BMW, Sony and Walt Disney are the top three. Though reputation has a huge impact, most companies do not focus on it. Below is a chart from the Reputation Institute report on the impact of good and negative reputation of various factors.

Reputation Institute Company Report 2012

Customers, society, employees and investors – all are influenced by the reputation of the company. While companies may enjoy a good local reputation, as is the case for many Indian companies, maintaining a global reputation is a different ball game altogether. From the above chart it is clear, investing in a good reputation pays off and adds to the profit margin. Question is what all is required to build a good reputation. Another chart from the report highlights the main aspects:

Seven factors – leadership, performance, products/services, innovation, workplace, governance and citizenship are required to build a global reputation. For instance, Intel was among the top ten for – governance, workplace, performance, and products and services.

On the other hand, in respect of reputation damage, risk managers mostly focus on reputation damage due to misstatement of financial statements and governance. That accounts to just 28% of reputation.  The impact on reputation of other aspects are generally ignored. The question is how can these be built into a risk assessment framework? Besides reducing downside risks, this gives a good option to leverage upside risks. Here are a few things that risk managers can look into:

1. Reputation map – Does the company have a reputation map covering these parameters and defining its progress through the years?

2. Integration level – Is reputation aspects integrated into all the functions of the organization, or is it left to the advertising and communications department?

3. External perceptions – Is the organization depending on advertisements to build its reputation or is it undertaking CSR and other activities also?

4. Participation in industry competitions – Does the organization participate and win industry competitions, for instance “great place to work”, “most innovative company” etc. ?

5. Social Media – How is the company using social media to build its reputation and manage the negative feedback?

6. Risk assessment – Is a risk assessment for reputation conducted to highlight the risks in all the seven areas and mitigation plans prepared?

Closing thoughts

Reputation damage is difficult to quantify and often the risks are not categorically listed. In social media environment, it is far easier to lose the reputation and more difficult to build a good one. In the present environment, they old age thinking  – no news is good news – has become redundant. Just because the organization name hasn’t made headlines for the wrong reasons, it doesn’t mean all is well. The negative under currents slowly erode the good name of the organization. Hence, risk managers need to actively address reputation risks on all seven parameters.

References:

Reputation Institute reports

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10 comments on “Reflections on Reputation Risks

  1. Sonia, interesting piece especially as it puts some meat on the bones what reputation is about. This will help risk managers as well as internal auditors to use this in their work.

  2. Spot on again, Sonia !

    One does not find often conscious efforts to assess and mitigate reputation risk. I wonder how strongly and seriously board takes this on the table apart from strategic , operational, financial risks. Or has it to be assessed separately , also could be an argument one may raise. I read somewhere recently that goes to say, “….there is nothing like reputation risk, but anything that a entity does has a bearing on reputation”.

    Few of the inherent features are –

    –It is intangible
    –Quantification can be highly subjective
    –It could be matter of perception. E.g. falsified information spread over the public domain even to miniscule extent might be taken seriously by an organisation, whilst some other may just give a cold shoulder.
    –It takes few seconds to minutes after an untoward incident or event to relay the information on public domain which is the fastest growing media of today and promise of tomorrow. Its certainly a challenge for the board to ensure that the embedded value is protected and enhanced.

    Just my $ 0.02

    • Vik,

      Thanks. And your viewpoints are absolutely accurate. In reputation risks, perceptions can cause a lot of damage. Each person has his/her own version of subjective truth and reputations are dependent on it. Measuring the impact and ensuring it remains good, is a difficult task.

      Sonia

    • Peter,

      You are absolutely right, organizations are more vulnerable to reputation risks than before. My pleasure, and thank you for all the RTs and likes. Really appreciate it.

      Sonia

  3. Pingback: Reflections on Reputation Risks | Sonia Jaspal's RiskBoard | Harvard Trends | Scoop.it

  4. Very nice article Soniaji. Hope, Indian companies would take this survey results seriously and strive to figure out in the next survey.

    However, despite serious efforts by some indian companies to excell in reputation, I feel the media in India is polarized towards their self interest and as a result any company that does not incline to the powerful media influence will be targeted to tarnish their reputation on any one of the parameters by corrupt analyst who sell their profession for petty gains than being hoest & fair.

    One such recent incident was disproportionate & continuous attack on Infosys by Economics Times during their Q1 results.

    • Mohamed,

      You are quite right, Indian media can do much to improve. I think the attack on Infosys was more of an effort in making news. Indian business journalists are not as good as the American or European journalists, so we hardly get the right coverage.

      Sonia

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