What are reputational risks?
Common risks to a business’s reputation include providing bad service or offering a poor quality product.
Most business owners are already aware that these actions risk their reputation and know how to manage or avoid the situation, such as ensuring they hire competent workers or only purchasing quality materials.
There are risks that are not so obvious, however, and some that may emerge over time.
Employee misconduct or error
Even good employees make mistakes, but serious errors can be costly to a business’s reputation.
For example, damage can be easily caused by an employee inadvertently opening an email attachment that enables hackers to access the business’s computer system, and therefore gaining private and sensitive information about its customers.
Or, an employee may behave inappropriately, either in the workplace or in public, such as losing their temper during a disagreement with someone or deliberately disregarding a company policy.
The behaviour of one employee can affect the reputation of other employees, as well as the business as a whole.
Outside influences
There are some things that risk a business’s reputation that may not directly relate to its day-to-day operations.
For example, environmental and social issues are increasingly becoming important to consumers, and businesses that fail to keep up may be risking their reputation, even if their business has operated successfully under certain conditions for quite some time.
This could be that a business continues to dispose of its waste by dumping it in a landfill instead of finding ways to recycle or reuse it, or purchases products from an overseas supplier that are later found to have used enslaved workers.
While a business may not be able to change its past actions, how it responds to changing attitudes over time also affects its reputation.
How to avoid reputational risk
Business leaders may already conduct risk assessments for many other aspects of business operations, such as identifying risks to work health and safety or analysing the risks of investing in new products or services.
Reputational risk can also be the subject of a risk assessment plan. Take the time to identify potential risks and devise and implement methods to avoid them.
For example, providing staff with digital training may help them become aware of cyber-attack methods and how to spot suspicious and malicious emails.
Or, leaders can try the reverse approach in their risk analysis by determining the desired business reputation first. They can then devise ways to ensure this reputation remains true, or what could occur to risk it.
For example, a restaurant that wants to be known as serving delicious food promptly may want to analyse the efficiency of cooking and customer delivery to ensure it is meeting their standards, and set up policies and protocols for staff to follow to ensure this occurs.
Business leaders can also devise methods to make up for mistakes or problems if they do occur – for example, the restaurant may automatically offer a free drink to a customer if waiting times become unacceptably long for their standards.
While having solutions ready to implement may not prevent the problem from occurring, the goodwill offered can prevent a reputation from being damaged.
Consider and revise a reputational risk assessment plan as often as any other company policy or procedure to ensure it is up-to-date.
Being abreast of current affairs and taking note of what big business is doing can be a good starting point for identifying risks and tackling them in the plan. For example, when problems at other companies make news headlines, do not assume that smaller businesses are immune or do not need to tackle similar issues.
How to manage reputational risk
Some risks are unavoidable. Therefore, it’s important that leaders know how to manage them so that they cause as little damage as possible.
Address the problem
Being upfront and honest about a situation goes a long way to ensuring a good reputation remains intact, particularly if this occurs as soon as is practicable after the problem has occurred.
Most customers and clients will understand that mistakes happen, and while they still may be angry, they will appreciate that the business has come forward to admit to a problem, or accepts that it has occurred and is willing to take responsibility for it.
By not addressing the problem publicly or acting as if it is not an issue, customers and clients may perceive that the business has something to hide or is acting deliberately, which risks its reputation further.
A business may need to pay compensation or make changes to its operations and policies that may cost the business financially in the short term but have positive ramifications for its reputation in the long run.
Other measures, such as apologising, may not cost the business financially, but the admission of guilt may still risk the reputation. However, the damage will not be as bad as if the apology is not made.
Hire a marketing and/or public relations employee
Being publicly proactive and reactive to situations can help mitigate the damage when it occurs, work on improving the business’s reputation over time, or keep the reputation strong to withstand any damage if it does occur.
A marketing officer will proactively help the business’s reputation by ensuring good messaging is regularly distributed to the community, such as through advertisements or goodwill activities and events. For example, a marketing officer may co-ordinate sponsorship activities for local sporting teams and the business can become known as one that supports the wellbeing and activities of the community. If a problem risks its reputation in that community in future, the track record that the business has built through this sponsorship over time may offset any negativity.
A public relations employee can help proactively, but also reactively if a reputational risk occurs. For example, if the business inadvertently pollutes the environment, the public relations person can co-ordinate official statements to ensure the community is aware of how the pollution occurred, how the business is addressing the immediate situation and ensuring it does not happen again in future. Providing coherent and timely information can help the community understand it was a rare mistake that should not have long-lasting effects on its reputation.
Alternatively, businesses can contract marketing and public relations organisations to complete this work for them as required and at a lower cost than a permanent employee’s salary.
How to discover your reputation
Being ignorant of the reputation of the business is a sure-fire way to be open to risks, as leaders do not know what it is they should be avoiding or managing.
A poor reputation may not necessarily be obvious by assessing profit margins or the number of customers using the business.
For example, the business may have a reputation for providing cheap goods and its customers are overlooking quality in order to purchase products at a lower price. Business owners may, in fact, be striving to provide fast service and that fact is not being recognised in its reputation.
Reading online reviews is the easiest and quickest way to get feedback to determine the current reputation of the business. Conducting customer surveys can also help, as can requesting recommendations from clients.
It is hard work to build a good business reputation, and it can be easily shattered by one of the many reputational risks that exist.
Having a good plan in place or knowing where to start to address damage if it occurs will pay off in the long run.
