Reputation PDF Print E-mail


How Valuable is Your Reputation?


When you set about managing your business, it is likely that you will consider and plan for immediate aspects of risk that you feel could compromise your commercial aspirations – those that are immediately measurable and tangible, ie financial risks, risks of physical hazard, regulatory risks – but how closely do you analyse a risk that is just as closely related to your success or failure, namely reputational risk?

It is relatively easy to provide examples of large or international companies where a loss of reputation has resulted in quite dire consequences for the business (Arthur Anderson, Barings Bank), but the hazards are there for businesses of any size.

The inherent difficulty is exactly how reputational risk should be defined. A number of attempts have been made to do this, but essentially there are two main problems:

  • What actually comprises an organisations risk in the first place

  • The market (both geographical and commercial) within which the organisation is operating

However, the consequences of a loss of reputation are perhaps easier to describe:

· Loss of revenue

· Litigation

· Poor publicity

· Loss of clients

· Loss of key employees/morale of employees


Any of the above can easily result in a negative impact on a business, either immediately or over a period of time, yet whilst issues such as HR, Finance, Health & Safety and Marketing will be actively discussed and managed, “Reputation”does not generally register. As such, should a reputational problem occur, most organisations are likely to adopt a reactive and defensive mode. This can easily result in at best a muddled response, and at worst, seriously impair the company’s future prospects.

With this in mind, how can an organisation prepare itself to be in the best possible position to manage and mitigate this potential threat? Basic risk identification techniques and methodology will assist in key areas, namely:

· Likelihood

· Potential severity

· Effective response

The first two categories are unique to each individual organisation, and can be identified and ranked following discussions and interaction with the management and key decision makers within the organisation. However, both should take into account the increasing demand of stakeholders for “total transparency” within the commercial environment, together with the “bad news travels fast” factor. Given the ease of modern day communication technologies, this will happen just as easily within a local market as it will in the international trading arena.


The impact on an organisation’s ability to function effectively has already been alluded to – customers and stakeholders could easily adopt an “I don’t want to deal with them” attitude, together with the existing or potential workforce adopting an “I don’t want to work for them” approach. Within both the local and international market, a loss of reputation can totally isolate an organisation, leaving it with very few options.

This is not purely an individual exposure – loss of reputation and adverse exposure could easily affect all organisations within either a commercial segment, or a geographical area – both regulatory and legislative authorities could become increasingly involved, potentially resulting in substantially more difficult trading conditions for all participants.

The message for all organisations is relatively simple – evaluate your potential risk:

· Consider utilising the services and knowledge of a third party who will be able to provide an independent overview

· Ensure that you have a detailed and planned response – ensure that this is tested and updated on a regular basis

In addition, identify exactly who your stakeholders are – these are likely to comprise:

· Clients

· Staff

· Suppliers

· Regulators

· Legislative Bodies

Should a problem occur, the initial reaction is often to either do nothing, or want to take a period of time to evaluate the “why’s and wherefores” of the circumstances. However, stakeholders may not be willing to extend to you either of these options. As it is likely that inactivity will only exacerbate the initial problem, the most appropriate action plan would be to communicate as quickly as possible using the following parameters:

· What we are doing

· Who is doing it

· Objectives and timescales

It should be seriously considered that inactivity in respect of reputational issues will only result in exacerbating the initial problem.


H & H Consulting

Cronk Beg

Ballagawne Road


Isle of Man



Tel: 07624 493844


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