The value of managing corporate reputational risks

For a business entity, or any other entity, it is not enough to be good. It is equally important to give the impression of being good. Stakeholders should be perceiving an entity in positive light, for it to be able to pursue its strategic objectives successfully. It is the responsibility of management to shape positively the perceptions that stakeholders hold of the entity. This takes deliberate action, constituted in a well laid down reputation management plan.

An entity’s reputation management plan is, foremost, spelt out in a reputation management policy which communicates the spirit within which the entity’s good name is safeguarded and promoted. This may touch important aspects of management such as crisis response planning and also state management’s deliberate intentions about the manner in which relationships with key stakeholders such as business regulators, important counterparties, vital customers and other essential parties are handled. The general public also increasingly becomes an important stakeholder for corporate existence as awareness of the far reaching and interconnectedness of social responsibility of different corporations gets to the fore in current times. For example, a bank which lends significant money to a manufacturing company which is involved in extensive environmental degradation activities, ultimately shares in the negative perception developed against the manufacturer. The public would generally wonder why a bank would appraise loans meant to fund activities that involve environmental damaging projects and pass such loans, without due care to protect the public against the manufacturer’s intended activities.
It is thus important to mind the manner in which your key partners and counterparties conduct their business, as their mistakes will always find their way into your own strategy profile and harm your business. The reputation management plan therefore takes care of an entity’s strategy for managing all aspects of protecting their name from internally generated damage as well as those coming from external factors including the activities of close partners in business and related parties. It is for this reason that some international brands sometimes pull out of jurisdictions that are considered high risk, so that their business in better jurisdictions is preserved with greater assurance.

Apart from continually emphasizing the culture of good conduct amongst key entity actors, which is more or less the traditional manner of protecting the good name of entities, a reputation management plan is necessary so that there is a pre-thought and ongoing approach to managing reputation. It also presents a response plan to operationalize, should adverse events manifest. This avoids firefighting approaches to averting trouble, and is often cheaper than correcting damage that flows to the entity somewhat unrestrained.

An attack on the reputation of a business may not be resolved by financial capital in some instances, and can therefore become more challenging than many other corporate problems. The damage is not easily quantifiable, and yet can quickly erode the financial fortune of even long standing companies.

Apart from avoiding the extreme instance of potential total failure, ensuring a good name of your business, in its reality and as perceived, is also important as a key strategic advantage against competition. If the set of perceptions that stakeholders hold of an entity are safeguarded, maintained positive and continually improved, there are strategic dividends in increasing sales and financial growth, for profit oriented entities. For public entities, it can translate into improved stakeholder relations which in turn may help in raising funds to accomplish strategic objectives, and other equally important achievements that are key to the continuity and sustainability of organizations. Building stakeholder confidence is in fact a key ingredient of ensuring continuity of both private and public sector entities.

When negotiating for credit or any other form of funding, a good name, if it exists, goes ahead of the promoters and does not only make it easier to access capital funds but also guarantees higher chances of getting the said funds on concessionary terms. For companies playing in regulated spaces, a good reputation is also a fundamental consideration in achieving and maintaining a license to operate while in all organizations, it is a stimulator of attraction and retention of good talent.

It is therefore important to put in place an ordered arrangement of managing and safeguarding the good name of an entity to ensure that all stakeholders are motivated to render support, either directly or indirectly, to the strategy agenda of an entity. Some companies may have survived over the years without such conscious effort about this matter but now times have changed. Social media makes news about organizations spread too fast, people are more enlightened about consumer rights and public-good expectations and as such, the stakes are higher for suffering bad reputation.

Raymond is a Chartered Risk Analyst and risk management consultant
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