What is your company’s reputational risk profile? For many companies, reputational risk is one of the leading dangers inherent in the delivery of a company’s strategic objectives. To uphold a reputation, companies need consistent behaviours, policies, and procedures that promote predictability. However, the perceived and intangible nature of reputational risk often results in a lack of executive attention.

This is a mistake given the way in which information is quickly disseminated through media and social channels. Whether you are a legacy company or a start-up, a blue chip or a small company, you don’t control your own reputation, but you can influence it.

Your reputation is how you are perceived by stakeholders, investors, customers, and the media, among others. Reputational risk lies in situations and strategic decisions that influence stakeholder perception, including:

• Changes in business models
• Mergers and acquisitions
• Technology transformation
• Geographical expansion
• New products and services
• Organisational restructuring
• Third party interactions
• Commitment to social responsibility

These decisions are often big enough to change the course of a company and fundamentally alter its reputational risk profile.

For instance, not long after the merger of two major U.S. cell phone companies in August 2005, when the resulting corporation was to become the 3rd largest telecommunications provider, executives and employees left the new company because the two were markedly different in their business cultures. This affected the overall talent pool of employees who would eventually have to manage the next big problem — a high churn rate.

Because the company was losing customers at a rapid pace, the market share dropped, and the newly merged corporation’s reputation suffered. By 2018, with a slew of cost-cutting measures in place, a damaged reputation, and stiff competition, they wrote off $30 billion from the merger.

You decide identity, they decide reputation

A company defines their identity, but stakeholders define reputation. Variations between a company’s identity and its reputational perceptions can have both tangible and intangible impact. Share price decline, recovery costs, and stakeholder scrutiny represent tangible impact while loss of revenue, consumer trust, strategic viability, and increased regulatory scrutiny represent intangible impact.

Reputation is in the hands of the public and their narratives create reputational risk. One of the leading impacts to reputation has come from social media as described in Robert Shiller’s book Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Although we are still working to comprehend the span of “narrative economics” – the spread and dynamics of popular narratives, as in the case of viral videos and posts — they should cause every company to want to effectively manage their reputational risk associated with the use of social media platforms.

A single individual can have multiple views of your company’s reputation but with over 3.5 billion people using social networks and more than 54% of social browsers researching products on social media2, an isolated story about success or failure can go viral and have a major influence.

How you influence stakeholders’ perceptions determines your reputation which is linked to strategic planning and investment. Building a reputation requires consistent behaviours, policies, and procedures that generate predictability and encourage continuous development of expertise and organisational capabilities. The leading principles of building reputation are:

1. Companies can influence reputation, but they do not own their reputation.
2. Reputation has multiple measures from a variety of viewpoints, so reputation can be multiple with competing levels of complexity
3. Intermediaries, including the media, regulators, ratings agencies, and professional advisers, influence reputation in different ways and to differing degrees
4. Reputation’s importance lies in its signalling power; in the absence of full information, it can create enduring – and distorted – perceptions

Reputational risk amid technological transformation

Today, almost every company is subject to reputational risk linked to technological transformation. One multinational technology company took on this issue in January 2018 when two of its biggest investors demanded the technology giant take action to combat addiction to smartphones. Initially, the company stayed silent, but by June, its CEO had stated they would create more robust features to control usage.

In September 2018, it had created tools to track and limit smartphone use; however, offering these new services created unexpected reputational harm from media coverage of complaints by competing apps and increased regulatory scrutiny as the technology giant began removing and limiting app usage trackers that did not meet its new, stricter
requirements.

Third parties associated with your company provide reputational risks of their own. For example, one U.S. online social networking service’s 2018 reputational distress involved a lack of oversight with a now closed British political consulting firm who collected data to develop psychographic profiles without user permission. Increased negative feelings about the company caused users to delete accounts and the service to lose more than $50 billion in market value that year.

As companies develop and maintain their business strategies and plans, we recommend they consider how their business plans could lead to new or changing exposures to reputational risk.