Academic journal article Journal of Accountancy

Saving Face in the Facebook Age

Academic journal article Journal of Accountancy

Saving Face in the Facebook Age

Article excerpt

Businesses are focusing more on reputational risk today than in the past. But many companies do not vigorously monitor social media and lack processes to calculate the financial impact of not managing reputational risk.

Seventy-six percent of the 1,300-plus CGMA designation holders who took part in a recent survey said businesses in their industry are putting more focus on reputational risk than in the past. Market demands for transparency, reputational failures at other businesses, and the rise of social media were the top reasons cited for the increased global focus on reputational risk.

CGMA holders and their companies appear to be keenly aware of the effects a damaged reputation can have on their companies:

* Twenty-two percent said their organization had experienced a reputational failure.

* Forty-four percent said they or their organizations had rejected a project that made financial sense because the reputational risks were too great.

* Nearly two-thirds (65%) said the financial implications of reputational risk are considered always or often in their organization.

Companies with strong brands that have direct relationships with consumers have been leaders in protecting their reputations. But companies without direct consumer contact, and even small businesses and sole proprietors, also need to focus on reputational risk, explains enterprise reputation and risk expert Jim Traut, CPA, CGMA.

"Think about the great restaurant that you keep going back to, year after year," said Traut, the former vice president of enterprise reputation and risk management and ethics and compliance at global food company H.J. Heinz Co. "Why do you go back? Because they're managing their reputation. Every day, every meal, they're managing their reputation."

Brand reputation is built through all of an enterprise's relationships, Traut said. Survey respondents ranked relationships with customers as most important, followed by relationships with employees, regulators, and investors.

Finance personnel can help protect the brand by driving understanding of the value of these relationships.

"The accountant, who is traditionally thinking about cash and P&Ls and balance sheets, would be well-served to recognize that those relationships . …

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