Magazine article Risk Management

Protecting Your Reputation

Magazine article Risk Management

Protecting Your Reputation

Article excerpt

One of the most valuable assets that any company has is its reputation. In many competitive industries, the differences between the products or services that companies provide can be difficult to distinguish for the average consumer. With all things seemingly equal to a consumer that is unaware of the subtleties of a given operation, choices are often made based on arbitrary criteria that may have less to do with performance or quality and more to do with general perceptions. This is where reputation can be the all-important deciding factor as to whether or not a company gets and retains business.

A good reputation can convince the undecided to choose a certain product or service and dissuade existing customers from moving to a competitor. But a damaged reputation can be irreparable and, in extreme cases, lead to a company's downfall. One need look no further than the demise of Arthur Andersen in the aftermath of the Enron scandal to see an example of the perils of a damaged reputation. While Enron was merely one client, the auditor's sins were deemed so unforgivable that they were unable to sustain a client base and continue operations. In the financial services industry, with many other organizations offering similar services, potential clients saw no need to tolerate a disgraced company and the potential wrongdoing its recent history suggested.

But while corporate scandals have led to an increased focus on reputational risk management, this is not the only area where reputation is threatened. "No organization is immune to reputational risk," says Catherine Bennett, president of Cost Control Concepts, Inc. Companies that promote trust and cater to the safety and well-being of their customers and their families may be especially vulnerable when an incident violates that trust and tarnishes their reputation, but any organization is susceptible.

The transportation company with a reckless driver and the amusement park with a malfunctioning ride will face, along with other liabilities, reputational damage should injuries occur. A manufacturer of children's products whose spokesperson is arrested on child molestation charges needs to be concerned about their image just as a drug company facing a tampering scandal and a restaurant dealing with a disease outbreak also need to factor the effect on reputation into their management of these events.

The Legal and Ethical Balance

According to Janice Ochenkowski, senior vice president at Jones Lang LaSalle, senior management's sense of fiduciary responsibility to protect the interests of their shareholders and employees is at the heart of managing their reputation. Fiduciary responsibility means that in its quest to be profitable, an organization must consider the balance between the duty of obedience and the duty of care, or put more simply, the balance between legal obligations and ethical practices. Sometimes what may be legal may not be ethical, putting the reputation of the organization at risk.

For the amusement park, safety regulations may dictate a minimum level of protective equipment for a certain ride, but an ethical organization might choose to provide greater assurances to protect their customers even if it means incurring an additional cost. The park's reputation as a safe place will likely be much more valuable than saving a few dollars on safety equipment. "Companies need to weigh the letter of the law versus the spirit of the law," says Ochenkowski. In other words, effectively managing reputation risk may require imposing higher standards than simple legal compliance.

Implementing a Plan

With the right corporate culture in place, it is important to know what to do to manage events should an incident occur. Reputation should become another part of an organization's crisis management plan. "What risk managers should really be thinking about is where they are most vulnerable to reputational risk," says Bennett. …

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