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Reputation: Risk of risks

How to manage a crisis

What should a company do when faced with bad news that could hurt its reputa- tion?

If a crisis has already broken, there is not much room for manoeuvre. First, according to Ms Larkin of Regester Larkin, the company needs to “fix the problem” that caused the reputational issue. At the same time, it needs to “communicate very quickly”. This communication must have three elements, or three “C”s:

1. Concern—the company has to acknowledge that something has gone wrong and express regret and concern.

2. Commitment—it must express a

commitment to fix the problem, and lay out in detail what it will do.

3. Control—if the company is at the centre of a major crisis, the leading figures in the company need to show that they are in control of the situation and are working with any relevant authorities to ensure it won’t happen again.

Companies “have limited time” to start this communication, otherwise other organisations will assert their own agendas. If they can communicate quickly, those running the business may get stakeholders to give them the benefit of the doubt and have time to do something about the problem.

“If the reality is bad, it’s essentially a matter of making people important to the company understand the issue, and to demonstrate that the company is listening”, says Jonathan Clare of

Citigate Dewe Rogerson. “Then you have to convince customers and investors that you have a solution to the problem.”

Mr Jackson of Fordham University summarises it thus: “Be humble, disclose, apologise, resolve to change things, be systematic.” He advises above all against treating the problem as a cosmetic issue, which people will immediately see through. He warns that “[superficial change] makes people even more angry”.

Ragnar Lofstedt, professor of risk management at Kings College London, takes a more strategic approach. “The response depends on the nature of the threat,” he says. “You need to judge how much trust the public has in you and in your attacker.” If you are trusted more, he suggests, fight back. He believes that levels of trust are the key, rather than the details of the case.

organisation is perceived with stakeholders, we lobby, we establish relationships with the media, and we advertise our philanthropic efforts,” reports Steven Kay, the company’s process and crisis manager.

The company’s diversity and size give it an important role in major disasters such as the hurricanes that hit the US Gulf coast and the Asian tsunami. The diversified group can supply a range of vital supplies and services, such as fresh water, power and medical equipment. These are opportunities for the company to be seen in the best light, but these operations must be undertaken carefully, since they could be construed as exploiting misfortune to gain business advantage—having the opposite reputational effect to that desired.

This focus on perception is where many companies fall down, according to Ms Larkin. “Perception is the

biggest threat to reputation today,” she says. She says that you can be doing everything right, but if people don’t think you are you still have a problem. Ms Larkin is “surprised that some [business] sectors still don’t acknowledge the impact of public perception”, and therefore pay insufficient attention to reputational risk management.

However, it is difficult to satisfy the demands of every group of stakeholders. As Kevin Jackson, professor of business ethics at New York’s Fordham University, puts it: “You are never going to be able to please everybody.” Mr Jackson, author of a book, Building Reputational Capital, points to the example of HB Fuller, a large US- based manufacturer of adhesives and other chemicals. The company worked hard to build a reputation for corporate responsibility, but nevertheless took a big hit a decade ago for not seeming to do enough about glue

© The Economist Intelligence Unit 2005

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