Why reputation risk management must come from the top

When Toyota and Nissan both announced a further round of vehicle recalls, there was renewed corporate focus on the reputational damage which can be caused by a crisis.

An article in the Wall Street Journal concluded that brand value is hard to define and difficult to manage, but companies play fast and loose with their reputations at their peril. “It is easy to identify and measure the impact of the damage wrought to a reputation after a crisis,” WSJ reported. “But it is far more difficult to predict when and – more importantly – how a reputation might be tarnished in the future.”

Journal writer Elizabeth Lux said that for the most part companies focus on maximising reputation and brand for the good times, using them to increase awareness and ultimately sales, but very few spend time thinking about how to insulate the brand for when disaster strikes.

The Journal cited a report from AIRMIC, the UK-based association for insurance and risk managers that 80% of managers claimed reputational risk is their top concern, but only 43% believed they have formal and well-managed plans to tackle it.  Airmic Chief Executive John Hurrell told the Journal it’s hard to assign a value to reputation and hard to manage, so often it’s easier for organizations to “leave well alone”.   But the impact for shareholders can be devastating, as shown by the dramatic examples in the link alongside this article.

“Traditional risk maps often work from the bottom up, whereas a reputation risk map should look at the other end of the telescope, starting with shareholder impact,” Hurrell said.  “You need to analyse the impact of risks for various groups of stakeholders, and that forces you to ask questions you could otherwise ignore.”The article concluded that only a chief executive or chairman of a company will have a broad enough overview to drive an effective risk reputation management strategy. “It can be difficult for more junior members of an organization to recognise the impact of particular operational risks to reputation. Traditional risk management approaches can often filter out these risks before they reach senior level.”

Responding to the WSJ, crisis communicators are unanimous that reputation risk management must be led from the top, not least because it may require the careful management of conflicting expectations.  Peter Anthonissen, of Anthonissen and Associates, says: “It’s essential that someone on the board of directors or within the executive committee is responsible for reputation management.” Similarly, crisis expert Jonathon Bernstein, of Bernstein Crisis Management, says someone at the top has to “act as a cheerleader.”  “Most companies lack the most critical component,” he warned. “Someone in the C-suite, ideally the CEO, who will champion preparedness and ensure that it happens, even when others don’t want to take the time or incur the expense.”

They say it’s hard to sell umbrellas when the sun’s shining. But as Toyota and other embattled companies are learning, effective crisis management begins with taking steps to prevent a crisis happening in the first place, and that has to start from the top. The only question is, how well prepared for a crisis are you?

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About managingoutcomes

Issue and crisis management expert
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