Identifying the reputational risk profile to your organisation

June 2004 Security Services & Risk Management

Inherent in any business are elements of risk. Each of these risks is also reputational in nature. If a company manages to kill or injure some of its workers because of faulty health and safety practices it not only faces life safety risks, but also the added dimension that various stakeholders may change their opinion of the organisation.

And as we know today, companies want to do business with winners and not losers. Employees want to work for winners not losers.

Let us take a look at what happens if a company does not manage reputational crises adequately:

* Its reputation can be damaged significantly resulting in share volatility. The Global Finance magazine once reported that in major corporate crises, companies lost 5 to 15% of their market value or at least $1 billion each in market capitalisation in the first week.

* There can be damage to the credibility, trust and confidence in the company, resulting in the breakdown of longstanding relationships - such as in the Ford/Bridgestone tyre withdrawal case.

* Employee loyalty can be affected.

* Lower sales and therefore reduced profits as customers take their business elsewhere.

* Costs incurred in trying to rectify the crises can escalate. Thomas Cook once reported that the Lydenburg Bus Disaster in South Africa cost more than £750 000 (Imagine the cost had they not been prepared).

* Management's time and focus is affected. The damage of a reputational crisis can be direct and indirect. These costs could include penalties incurred because of a lack of legal compliance, litigation, media conferences and advertising costs, hiring of crises communication and risk management consultants. But what about the indirect costs, the effects on various stakeholders? The customers that do not return? The prospective customers that read and base their future actions on today's impressions?

Reputational risk

The Exxon Valdez oil spill cost more than US$ two billion in the first two months. But last year Exxon issued a statement to say that the spill cost them more than US$10 billion in just trying to restore the environment. Added to that tally was the news that the company was fined US$5 billion for the incident by the USA government.

And why did the incident occur? Root cause analysis showed that it happened as a direct result of a faulty HR policy - understaffing and poor working conditions.

Many organisations plan for possible business risks but few have in place systems to minimise damage to its most valuable asset - its reputation.

You may disagree with me, but ask yourself just this one question, "What are the perceptions of various stakeholders regarding your organisation, large or small?"

If you have not conducted stakeholder profiling and research about this question in the past six months you are running your business on assumptions. If you have not conducted a full scale risk audit using a variety of techniques in the past six months, are you not assuming? We all know what the word assume represents. Assumptions = Reputational Risk.

For more information contact Deon Binneman, Repucomm, [email protected]

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