Reputation risk: The question is not whether you might be held liable, but whether you are being responsible

The Weinstein Company has filed for bankruptcy and Facebook lost 35 billion dollars in market value following reports that Cambridge Analytica, a data firm that worked with US President Donald Trump in the 2016 elections, had unauthorised access to an estimated more than 80 million Facebook user accounts in one of its largest breaches yet.

Why is this of interest to business leaders?

Because business leaders are the top risk managers of their organisations. Reputation risk is a risk that is hard to quantify, as is a good reputation. It is one of the more difficult risks to respond to, if you are unprepared, yet not managing your reputation and the subsequent consequent damages can be devastating. You, your management team and your organisation can gain an advantage by focusing on building and maintaining a good reputation.

You might ask: Is it not sufficient to comply with the law?

Your organisation’s business practices are in compliance with the law and hence, is it not sufficient to then be perceived as a good corporate citizen? Then, if we add a sprinkle of CSR, corporate social responsibility, then are we not home and dry?

Well, not quite.

A major threat to your reputation lies in inconsistencies between corporate conduct and public perception of said conduct. This is seen as lack of corporate integrity and therefore swiftly punished by customers and investors. As such, it can be very costly or even threaten your corporate existence, as seen in the examples above. The old adage that perception is reality still applies.

However, there are two other major aspects that should be taken into consideration in managing reputation risk for your organisation: firstly, the speed of communication, and secondly, the sense of fairness. Regarding speed of communication, no good spin doctor can control social media and the speed with which news is spread. Once an organisation’s reputation has been badly damaged or lost, it is very difficult to fully recover.

As Nobel prize winner Daniel Kahneman’s research has shown, understanding what is perceived as fair is key to understanding behaviour. While you might not be able to predict what incidents will get you into trouble, as an excellent business leader you will understand that one of the best ways to protect your organisation’s reputation is to focus on corporate integrity, ensuring responsible conduct and consistently acting fairly.

Lani Bannach leads Essenta – delivering organisational change: neuroscientifically based tools combined with business acumen and experience.

www.essenta.dk

TEXT AND PHOTO: LANI BANNACH