Why smart boards address corporate reputation risk as a governance imperative – not a tick-box exercise

Embattled brands show why carving out a position of strategic strength and reputational resilience relies on a structured and enterprise-wide approach to reputational risk

Pret-a-Manger and Facebook are just the latest in a long line of embattled brands, at war to rescue their reputation. Pret stands accused of causing the tragic and unnecessary death of a young girl, thanks to an 'artisan baguette' it appears to have known contained sesame but had failed to label correctly. Facebook, meanwhile, has admitted to an API hack which has potentially exposed the accounts, and linked applications, of 50 million users worldwide.

Organisations like yours run risks every day. It is critical to take action to protect and manage the strategic critical asset that is your reputation.

Reputational risks in business

Stories about brand reputation damage are far from rare. Reputational risk is part of being in business and it rests in what others think about you, not what you think or say about yourself. It lies in the hands of direct and indirect stakeholders ranging from those in your immediate world (employees, investors, customers, partners) and further beyond (communities, commentators, industry colleagues and, frankly, anyone else who might impact you or who cares enough to voice an opinion). In an increasingly complex and connected world, the ecosystem of stakeholders is expanding every day.

It is worth noting that this latest two reputation stories have something important in common. The reputational risks in question came not from an unfortunate slip on social media, an unguarded moment of bad behaviour by a leader, or being caught out for behaving counter to socially-responsible brand promises. For Pret and Facebook, the issues stem directly from the nature of their business, their operations, and a lack of recognition of just how vital it is to prepare on every front.

Pret is a food business. This makes it ironic that the issue arose from its choice of a food product and labelling procedures – consumers would assume a food company to be regulations-compliant. In similar vein, Facebook is a technology business, whom one would assume is particularly careful about its technology security. Yet, these are the flash-points for their most recent reputational battles which create ripples of concern throughout their own business networks, causing relationship damage with numerous stakeholders, not only with their customers and the media.

Reputation as a critical asset

Reputation is the single most critical asset for any company. It is not just an intangible asset, but a significant driver of corporate value that is estimated to contribute as much as 56% of total market capitalisation in the top 10 UK organisations (source)

Damage to reputation can impede sales as customers pause before purchasing, or strategic partners pull away. It can disconcert and disillusion employees, and repel recruits. Investors, both institutional and retail, are influenced to buy, hold, or sell. There is a world full of commentators:  analysts, media, bloggers and social users poised to highlight and amplify what they see or hear.

With all this, I find it surprising that many organisations simply fail to consider exactly what risks they are running every day and establish steps to mitigate them.

Even leaders who recognise the importance of reputation can fail to take comprehensive enough action to assert the greater control over an area of significant risk that good governance dictates.

Understanding reputation risk

There are several methodologies for understanding reputational risk, and other business models which can be effectively applied for the purpose.

A recent article by Harvard Business Review discussed a 6-part tool for ranking and assessing risks which originated during World War II. The CARVER model is gaining new followers in business, because it is a powerful yet simple way to consider how to protect your most critical assets. Applied to reputation, it can help executive leaders and management teams to conduct what HBR calls 'a SWOT on steroids' and start to really understand the risks they are running.

CARVER is an acronym that, applied to reputation, stands for

• Criticality - how essential is your reputation to your organisation?
• Accessibility - how hard would it be for an adversary to attack that reputation?
• Recoverability - how fast could you recover if your reputation was damaged?
• Vulnerability - how well (or not) could your reputation withstand attack?
• Effect - what impact would damage to your reputation have across your organisation and its relationships?
• Recognisability - how likely is it that someone would see your reputation as a target?

Organisations might effectively apply CARVER to reputation. This approach has considerable synergy with the most respected reputation management models.

It is widely accepted that, before deciding strategies to shore up reputation management, leaders must first truly comprehend the risks, and the probability of those risks, that apply to their own specific organisational and brand reputation.

Reducing reputation vulnerability

CARVER is but one of a number of tools which helps leadership teams work together to recognise the organisation’s vulnerabilities, its readiness to address reputational risks, establish processes to monitor, manage and measure reputation, and create a proactive plan to address reputational crises.

When deciding which tool is best for your organisation, I urge you to consider two questions:

FIRST: is this tool designed for an organisation like mine in terms of sector, size, culture, reach?

SECOND: is this tool flexible enough for my organisation to extract the best out of my leadership team?

The only way to ensure the best possible approach is to work with a specialist that is able to tailor tools to deliver the best result. It is for this reason that we have in our armoury a choice of tools, exercises, and processes to help clients, each of whom is unique in the way it engages, works and plans. Our experience in working with clients across a range of size and culture enables us to do this.

After all, reputation is too important to manage through a template and tick-box exercise.

Reputation can be shattered in an instant

Reputational crises can shatter reputations in an instant, having taken years of effort to build.

All the efforts Facebook has made in the past year to demonstrate care and conscientiousness, following the Cambridge Analytica scandal and accusations of data mismanagement, are now forgotten. The many years of CSR excellence that Pret has shown, from its pioneering distribution of food to the homeless to its leadership of sustainable packaging are, for now, effectively obliterated. Instead, in the minds of its consumers is the image of a young girl who died so unnecessarily. It was, in the end, Pret's own operations which betrayed it.

Are you really ready?

The reality is that a detractor might choose to declare war on your reputation at any time. An intrinsic business or operational factor could throw up a problem at any moment. If you are wholly unprepared, the costs could be huge and the damage irreparable.

Regarding reputation as something you can leave wholly in the hands of the marketing and communications team is a dangerous assumption. Boards must recognise how vital it is to consider reputation as a governance issue. 

If organisations step up and make strategic and sincere effort to strengthen stakeholder relationships as well as recognise risks, they can significantly reduce their vulnerability and be in in a far stronger position to mitigate reputation damage and accelerate the speed of reputation recovery, should the worst happen.

If the above has made you pause for thought, then take action. Get in touch and ask about our reputation consulting services today.

CLICK HERE to visit our Reputation Governance page.