The public are more engaged than ever on social media and are constantly updated on every action taken by any corporate. Good reputations take a long time to earn and can be lost after a single tweet.
Corporate reputation can’t be measured in profits or share values, so it can go undiscussed in the boardroom. Although given its capability to upset your profits and share value when it is damaged, it should, in fact, be treated as a top priority for every organisation.
Understanding the value of corporate reputation
Acting in an unethical manner can result in lawsuits or fines, but also a damaged reputation. Corporate reputation is based on how the general public feel about it, and caring for that reputation is one of the most intangible aspects of company management.
An organisation’s reputation can be essential to its ability to succeed. More than a quarter of the value of small and mid-sized companies is related to their reputation, according to new research by the Quoted Companies Alliance and BDO. Good reputation helps entice good employees and attract loyal customers. Reputation is also one of the key conditions for stakeholder support and it’s an important factor in the value of the company on a financial market.
Without good reputation it is very difficult for a company to thrive, or even survive, which we have seen has been the case for many organisations in recent years. The well-known ‘dieselgate’ scandal by VW wiped nearly £15 billion off the value of the organisation in just the weeks following the revelations. The scandal still trends on social media almost 6 months later.
In the UK, Quindell has become one of the highest profile examples of a company’s demise due to the fall of their reputation.
When an independent report was published by Gotham City Research questioning Quindell’s finances, their share price tumbled. In February 2014, before the scandal, Quindell was valued at just over £2bn. The company, which had to go through a rebrand, is now only worth £137m.
This ever growing public distrust of corporations and the demand for transparency, has increased the need for companies to invest in corporate reputation management.
Treating reputation as a corporate risk
Reputational risk is now an issue boards must actively monitor and oversee as part of their overall responsibility for corporate governance. In many industries risk management is no longer optional as regulators demand companies to have clear policies in place to handle their risk. Regardless of policies, boardrooms should now ensure that sufficient focus in given to the proper analysis of risk and risk management as more than just a box ticking exercise.
Risks must be recognised before they can be managed therefore the most important stage of reputation risk management should be identifying the factors that could have a negative impact on the organisations reputation. Regulatory non-compliance, loss of customer data, unethical employee behaviour are all risks that could be managed and prevented before a reputation damaging scandal
Protecting your reputation and brand image is a challenge, but it is manageable. By encouraging your boardroom to incorporate reputation risk into your boardroom discussions and invest in the right tools you can have a better path for growth and success.
Using board portal software, like BoardPacks is a useful way to bring risk management into the meeting agenda making it easy to review risk regularly. Having an overview of all your risks in one place is a valuable tool for boardroom to utilise.
Not only does it make risk management easier, but it increases transparency and clearly shows evidence to shareholders that you are acting responsibly.
Watching over your entities
Not only can bad news spread more quickly than ever before, causing a company’s reputation to be destroyed in a blink of an eye, but you can also be held accountable for the actions of any of your entities. It doesn’t matter how far down the chain or where in the world they now are – in the digital world we are all connected.
Organisations must now also consider not only the risks under their direct control, but also those affecting each of their entities. Could the ethics, business practises or activities of those entities expose the wider business to reputation risk just by association?
Entity reputational risk management is now another issue that the boardroom must actively monitor and oversee as part of their overall responsibility for corporate governance.
Use the tools at hand to tackle the reputation risk
Reputational risk will continue to be more critical in the years to come in line with the continued use of social media to spread news, which means companies must continue improving their ability to manage their corporate reputation. Many leading companies already treat reputation risk with respect, likely due the growing awareness of the issue, and have seen the benefits contributed to that.
Most boards already have a full plate of responsibilities and will not greet the news of having to manage extra risks lightly. The good news though is that an increased focus on reputation should not require extra work. Savvy companies already keep a close eye on their risks using software tools that not only help manage their risk, but improve their governance in a more holistic approach. The emergence of board portal software, such as BoardPacks, provides an easier method for boards to manage new risks like reputation along with the other risk management activities already on the agenda.