Why Reputational Risk Matters

Today we examine the significance of reputational risk to a business in a continuing series of excerpts from the position paper “Beyond the Bottom Line: 20 Ways to Reduce Reputational Risk.” You can download the entire paper right now, including the 20 reputational risk scenarios designed to help you cope with various situations.

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You must know how to communicate when a crisis arises. The focus here is on dealing with communication skills. Why? How you respond initially will make all the difference when you are seeking financial and legal advice to overcome or avert the crisis.

While there is no single consensus decision on what the term “reputational risk” means, most attempts point in the same direction. Marsh LLC and Oliver Wyman define it as follows: “Everything an organization does or says creates an indelible impression in the minds of its key stakeholders—senior management, employees, customers, local communities, investors, and so on. The sum total of all these interactions represents your reputation.” (Reputation Risk: A Rising C-Suite Imperative, 2014, Oliver Wyman).

“It takes 20 years to build a reputation, and five minutes to ruin it.”
— Warren Buffet

Here’s how the Federal Reserve System’s Commercial Bank Examination Manual defines it: “The potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation or revenue reductions.”

When your organization’s reputation gets dinged, you need to know how to respond. This paper will empower you with step-by-step procedures and resources to help you counter a variety of risk scenarios.

Firefighters, hospital workers, pilots, and police officers all train rigorously for potential crises. Corporate executives musts, too. Workers from the C-level suites to the tiniest cubicles need to be vested in your company’s reputation. Your top brass, communications staff, lawyers, and issue experts have a responsibility—financial and ethical—to communicate effectively when catastrophe strikes. The situation may be foreseen or unforeseen, natural or human-made, relatively mild or thoroughly earth-shattering.

One thing to bear in mind: Your voyage to a sparkling reputation can be a Christopher Columbus-like expedition, demanding years of yeoman’s work and much uncertainty along the way. Like our moms told us, patience is a virtue.

What have your experiences taught you about the need to prepare for the inevitable dings to your hard-earned reputation?

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