The capacity of any organisation to manage its reputation hinges around the establishment of relationships of trust with the various stakeholders, whom the organisation depends on for the achievement of its corporate and business development strategies.
Risk, of whatever type, brings unpredictability, uncertainty and the possibility of damage which, if it happens, usually relates to a breach in the levels of trust the business already has in place with its stakeholders.
Tim Kinsella, managing director of MKC Communications has chalked up 25 years in communications and in that time has dealt with a wide range of potential and actual issues for organisations, many of which could have been seen coming and planned for, and others which came out of the blue.
“That ranges from board disputes, through rationalisation programmes, to cyber attacks, fraud, product recalls, food safety scares and sadly, accidents including fatalities.
“The absolute defining factor in how an organisation will deal with a reputational risk or a crisis centres around its own inherent management and operational capabilities at the outset; its commitment to professionally managed communications and having that already in place; and its planning and preparedness for any unfortunate occurrences which inevitably will arise in any company’s lifespan,” he says.
Reputational risk can pose a threat to the survival of even the biggest and best-run companies and has the potential to severely damage market capitalisation and revenue, Cathal O’Neill of Risk Management International says.
“Reputation risk is considered by many to be the most significant risk to a business, the risk that a company will lose business because its character or quality has been called into question. However, in our experience, not all companies prepare well for an impact to reputation,” he says.
One of the leading studies in this area is the Impact of Catastrophes on Shareholder Value by Dr Rory Knight and Dr Deborah Pretty. The report, commissioned 20 years ago by an insurance carrier, Sedgwick, identified the actions of an organisation’s management as the key differentiator between companies that had catastrophic disruptions, and survived, versus those that did not, even where they, the non-survivors, had insurance cover for the catastrophe in question, O’Neill says.
‘See around corners’
Effectively, managing reputational risk requires the ability to “see around corners”, Kinsella says. That means identifying and preventing any current organisational issues or operational deficits becoming a serious problem, or worse still, turning into a crisis.
“Companies operating in mission-critical sectors like food, energy, transport, financial services, and so on, should typically have a risk register in place, where they run the rule over the entire organisation, identify where problems could arise and minimise these operationally insofar as possible. From a communications perspective, I would then prioritise the various risks in terms of their likelihood of happening, the gravity of their impact if they did happen, and the level of communications response that would be required in that event. This involves workshops with internal audit teams and senior management to ensure all risks or issues have been identified. We would then develop strategies appropriate to the issues to ensure that if they do arise, the organisation can respond in a professional and well-structured manner,” he says.
It’s also important to monitor the political and general landscape externally to provide early indicators of potential issues arising that might impact on business objectives, and require an intervention. This requires intelligence-gathering, monitoring political commentary, being aware of online conversations in social media and also monitoring the media in general for topics of interest or concern.
Social media combined with 24/7 news reporting means a company’s reputation can be irrevocably damaged if immediate and effective steps are not taken to control an untrue, misinformed or defamatory story, Mark O’Shaughnessy, corporate litigation partner specialising in reputation management at law firm ByrneWallace says.
Social media presence
Most companies now have an active social media presence. Along with the benefits this brings in relation to client engagement, it also raises certain challenges for companies.
“Negative publicity tends to go viral quicker than positive publicity. As such, it is important that companies actively monitor their social media accounts in order to ascertain whether inaccurate or defamatory content is being published on social media platforms such as Facebook or Twitter.
“If so, it is important that a company then moves quickly to rectify the issue. Options available to a company include making immediate contact with the poster of the inaccurate or defamatory content and requesting that it immediately be taken down. However, a company needs to carefully consider such engagement as there is a significant risk that the take-down request may be published online by the poster, ultimately generating further exposure for this issue.
“If the poster of the inaccurate or defamatory material is using an anonymous account, a company can request the social media platform to remove the content or alternatively seek an order for the court compelling the social media platform to identify the anonymous poster,” O’Shaughnessy says.
With social media, there is less time to prepare responses and organisational responses tend to be slow anyway, which “does not look good”, O’Neill says.
“Hence preparation and practice through training and exercising is critical. We encourage our clients to focus on developing high levels of preparedness, so responders know what to do and time is not lost or wasted during initial response to any emergency or potential crisis,” he adds.
A company’s reputation will either live or die depending on its mission and values, Kinsella concludes.
“I don’t mean that in a ‘hokey’ sense – but it is most definitely the case that if an organisation already has very high standards of operation in place across corporate governance, compliance, stakeholder and consumer engagement and actually lives these values on a constant basis, then these are factors that elicit public trust and these are the very same factors that will help an organisation through difficult times and will help it to redeem itself in the event of a crisis,”? he says.
Cases where companies have reacted positively and negatively in the face of reputational risk:
– Tesco’s reaction to the horsemeat scandal several years ago is an example of a crisis well-handled. It clearly communicated to its customers the nature of the problem and how it was addressing it in decisive manner, including regular updates across multiple channels. It also engaged robustly across its entire supply chain to mitigate insofar as possible against any further risk of non-conformance, and kept consumers updated along the way.
– Samsung’s handling of the product recall for its Galaxy Note. One month after its launch in August 2016, Samsung ordered a global recall of 2.5 million units following reports of handsets overheating and catching fire. Although this recall is estimated to have costs about €5 billion, Samsung was able to successfully navigate through the crisis and actually increased its share value by more than 20 per cent in the next 12 months. This was largely achieved due to its proactive reputation management, which included a clear message from Samsung that it was doing all it could to resolve the issue by announcing a global recall and by being open with the market in relation to the issues it had experienced.
– This is in comparison to United Airlines’ handling of an incident in April 2017. Dr David Dao was forcibly removed from a United Airlines flight in Chicago and his removal resulted in numerous injuries including a broken nose and teeth. A video of the incident went viral. Oscar Munoz, chief executive of United Airlines, subsequently praised staff publicly for following established procedures. This resulted in an online backlash with Munoz forced to publish a subsequent apology, which was much more sympathetic to Dr Dao. United Airlines failure to appropriately manage this issue resulted in a reduction of $1 billion from its share value in 2018.