Reputational risk management is a structured process of identifying, evaluating and preventing threats that, when gaining public attention, can compromise an organization's objectives or the image of its leaders in the market.
There is a fundamental difference between reputational risk management and crisis risk management. risk management is a process of control and prevention while the crisis management it is a containment strategy.
Both aim to preserve the value, achievements and trust of the organization's audiences, but they have their own processes and timings, as well as requiring different skills from the professionals who execute them.
Reputational risk management requires method and planning
The reputational risk management methodology consists of a strategic approach that anticipates and responds to events with the potential to generate negative repercussions and undermine stakeholder confidence.
Risk management begins with the correct mapping and classification of risks and those responsible for them within the company, as well as the choice of an approach to deal with each one. It is important to remember that every crisis has already been a ignored risk or poorly managed.
An image that helps to better understand is to think of the risk as a spark and the crisis as a fire that has already taken hold. Fighting the fire will require many more resources than preemptively addressing the threat.
With a well-defined method and planning, qualified professionals and appropriate techniques, it is possible to make assertive and agile decisions to prevent threats from becoming a reputational disaster.
Acting preventively on risk requires defining strategies to neutralize, reduce or prevent the occurrence from evolving into an emergency or crisis situation. Companies that prioritize protecting their reputation ensure a competitive advantage, increase their resilience and invest in their longevity.
For C–level leaders, understanding and managing reputational risks represents much more than making a defensive decision. It is an essential strategy to increase resilience, ensure competitive advantage and promote long-term sustainability and growth.
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Why do companies need to look at reputational risk management?
The relevance of risk management can be evidenced by its role in preserving the company's business, achievements and accomplishments, preventing losses and contributing to the confidence of stakeholders – from shareholders and employees to customers and consumers.
This protection gains a broad and deep dimension within the scope of reputation. It involves identifying facts that are potentially capable of damaging reputation, analyzing scenarios, well-defined strategies and action plans, continuous monitoring and decisions based on real data and information.
Read: Every crisis was once a risk
What does it have to do with reputation management?
In a hyperconnected world, where information reaches the world in seconds, risk management has gone from being peripheral to becoming central to corporate strategy, directly involving C-level members. Today, risks are not limited to operational or financial areas, nor to the corporate level: reputation has become one of the most vulnerable – and valuable – assets of organizations.
While financial risks, for example, deal with tangible losses, reputational risks deal with the breakdown of trust. They affect employee engagement, consumer loyalty, investor interest and relationships with regulators and society.
Therefore, the reputation management of a company requires action multistakeholder, focused on preserving trust and a positive internal and external perception of the company and its leaders on all fronts.
Read: Reputation Management: A Complete Guide for Companies
The reputation of the CEO and the company: how to preserve it?
The reputation of the CEO and the reputation of the company are not the same thing, but they go hand in hand. A slip-up by one affects the other. The image of the CEO, especially in B2C or publicly traded companies, is often the most visible face of the brand. The leader's posture, his values, his behaviors, his positions, the way he expresses himself and even his silences communicate.
When a leader inspires, the brand grows stronger. When a leader makes a mistake, the brand often pays the price. Therefore, reputational risk management is also about protecting and training leadership. Today, C-level executives consider taking care of their own reputation as a mandatory part of their scope.
Read: What you need to know about reputational threats to protect your business
7 positive effects of reputational risk management
- Crisis prevention: Risks identified and mitigated in advance avoid or minimize the impact of a crisis.
- Brand protection: Knowing and dealing with risks contributes to a good reputation, which influences consumer decisions, talent attraction and investor confidence.
- Building trust: Reputational risk management demonstrates commitment to ethics, transparency and accountability.
- Business sustainability: Companies with a solid reputation recover more easily after adverse events.
- Talent attraction and retention: Qualified professionals seek reliable and inspiring environments.
- More access to capital: Investors prefer organizations with good risk management practices.
- Relationship with stakeholders: Acting preventively is a demonstration of commitment, responsibility and respect that strengthens relationships with communities, regulators and other stakeholders.
The 5 steps of reputational risk management: step by step
Reputational risk management is a continuous cycle, with five main steps:
- Risk identification
This is the start of the process: mapping potential threats to reputation. The work is broad, as these threats can have different origins, such as:
- Operational: Product failures, accidents, logistical interruptions.
- Financial: Fraud, low performance, market rumors.
- Ethics and conduct: Cases of harassment, corruption, discrimination.
- ESG: Environmental incidents, human rights violations, failed governance.
- Institutional communication and marketing: Controversial campaigns, reckless public statements, information leaks.
- Technology and information security: Cyber attacks, data leaks, fake news.
- Regulatory and legal: Lawsuits, investigations, regulatory changes.
- Conduct of leaders and employees: reports of harassment, discrimination inside and outside the company, rude behavior when serving customers are among the occurrences with a high potential for damage to reputation.
These risks are often interconnected. An operational problem can generate financial loss and become a reputational crisis. The opposite also happens: reputational damage can trigger investor flight, boycotts or a drop in sales. In other words, it tends to generate financial and operational risks.
- Analysis and evaluation
Once the risks have been identified, the second step is to classify them by severity level, taking into account variables such as the probability of occurrence, cost and impact, among others. Tools such as reputational risk and threat matrix, developed by ANK Reputation, help prioritize the most critical risks.
- Preventive action plan for reputational risks
Taking preventive action against reputational risk requires defining strategies to neutralize, reduce or prevent the occurrence from evolving into an emergency or crisis situation. Actions that can be part of an effective plan include:
- Internal dissemination of policies and procedures: disseminate internally, frequently and redundantly, guidelines, codes, manuals and other content that guide employees' decision-making.
- Employee training: continuous training to align behaviors with ethical standards and the company's culture.
- Continuous monitoring of media and social networks: real-time monitoring to identify signs of crisis before they worsen. In addition, a strategic press office is essential in this process.
- Investment in corporate ethics: promotion of solid values that guide decisions and reinforce institutional integrity.
- Rapid Response Plans and Crisis Communication: structure ready to react with agility and transparency to critical events.
- Implementation and communication
Once the strategies have been defined, it is time to put everything into practice. Executing a reputational risk management strategy requires the involvement of several areas. These include communication, legal, compliance, people, investor relations and government relations. Transparency and agility in response are essential to contain damage and preserve the image.
- Monitoring and review
Risk management is a living, continuous and permanent process. The internal and external environment must be constantly monitored. Prevention strategies need to be reviewed periodically to remain effective. Changes in the political, social or economic context require rapid adaptations.
It is important to remember that, when it comes to reputation, it is necessary to balance discourse and practice. An imbalance between discourse and practice is one of the most frequent sources of reputational crises. When companies fail to reflect their values in their leadership, culture, operations, and relationships with their stakeholders, trust is undermined, and once broken, it takes time and is expensive to rebuild.
The role of organizational culture in reputational risk management
A solid reputation is built from the inside out, which is why an organization's culture is directly related to good risk management. Organizations with solid values and ethical conduct that are understood and practiced on a daily basis at all levels of decision-making are better prepared to prevent risks and face crises. In addition, a strong organizational culture allows for quick and effective reactions in crisis scenarios.
Reputational risk management does not have an expiration date: it is an ongoing process that must be connected to the company's daily operations. Building an initial program can take weeks or months, depending on the organization's level of reputational maturity. Maintenance must be ongoing.
Companies committed to their reputation allocate time and resources to analysis, training, crisis simulations, and periodic reviews. The cost of failing to manage risks can be much higher if a crisis develops, as its reputational impact will affect the company's trust and credibility with its stakeholders.
7 triggers that can compromise an organization's image:
- Failures in service or product quality: Poor quality services or faulty products, or in both cases, products that are seen as a failure to fulfill the promise made by the company to its consumers, are the first sources of damage to public confidence.
- Hacker attacks: Data leaks and fear of financial scams shake stakeholders’ confidence and encourage the search for competitors.
- Leadership behavior: Incoherent attitudes, controversial statements or personal scandals of leaders are increasingly associated with the company's image. This type of situation can be prevented through media training or others training for spokespersons.
- Suppliers and third parties: Lack of knowledge and/or lack of monitoring of production chain practices can lead to public opinion holding the company accountable.
- Labor or social problems: movement of people, layoffs and non-compliance with labor legislation can generate great visibility and negative exposure for the company.
- Bad environmental or tax practices: Activities related to the ESG agenda, as well as governance issues, can compromise the company's image and lead to a reputational crisis.
- Inconsistent or superficial marketing: Campaigns disconnected from the company's reality can generate, for example, accusations of opportunism, greenwashing (when companies, governments or institutions claim to be environmentally responsible to improve their image, without actually adopting sustainable practices).
Who is involved in the reputational risk management process?
Responsibility for effective reputational risk management is collective and transversal, but it is important that there is commitment and a sense of relevance from the company's C-Level. The corporate or institutional communications area generally plays the role of proposing and implementing strategic actions, in partnership with legal, compliance, people management, technology, and sustainability departments.
More important than the identity of the “owner” of the reputation is ensuring that he or she is at the decision-making table. A guardian of reputation without the power to influence is just a spectator of the announced crisis.
They should be more directly involved in the crisis management process:
- Board of Directors
- CEO and senior leadership.
- Directors and managers
- Communication and marketing
- Compliance and legal
- Human resources
- Operations and Finance
New frontiers of reputational risk
In addition to traditional risks, new factors have been gaining prominence in the corporate environment, such as those listed below:
Inconsistencies involving ESG agenda: declaring what they do without evidence or without the public perceiving them as real initiatives involving issues related to the environment, diversity and good business practices are increasingly under constant scrutiny by society.
Digital cancellation: The positions of the company, its leaders and even its employees can end up in the arena of controversy and judgment on social media, leading to the 'cancellation' of the brand in the eyes of its main audiences.
Disinformation and fake news: False information and lies disseminated anonymously today have resources that allow for rapid propagation and, at the same time, make it difficult for the public to identify them, which can involve the company in a reputational crisis.
Associations with controversial agents or causes: Partnerships with influencers can put the brand at the center of controversies that do not concern the brand itself, but rather due to image association.
Mapping these points requires sensitivity to the social and political context, coherence in public causes and a high standard of transparency.
Fake news and deep fakes: 4 prevention measures for companies
Cancellation and negative virality are not just about social media noise. They are real risks that threaten the business from the ground up, undermining trust, reputation, brand, culture and value. Here are 4 measures that companies should take to combat reputational threats from the digital world:
- Transparency in response: Agility and clarity in official communication reduce the impact of lies.
- Reputation Mattress: A history of ethics and responsibility, or reputational cushion, helps to protect the company's image.
- Constant monitoring: Technological tools quickly detect hoaxes and deepfakes.
- Digital education: Internal training on disinformation strengthens collective response.
Read: How to act to protect your company from an image and reputation crisis
