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for their own well-being if they read an article about a child being injured than, for example, a

middle-aged male.

Credibility. When third parties (e.g, journal- ists or scientific experts) play a role in shaping a company’s reputation, companies need to realize that in many cases their own credibil- ity is much lower that that of the experts. In the competition over a company’s reputation, companies are at a disadvantage compared to scientists, doctors, even non-governmental organizations and many government actors. Moreover, which third parties have the high credibility varies from country to country. In Northern Europe, non-governmental organi- zations have some of the highest credibility scores. This is not true in Japan or the United States where some government agencies (e.g, the FDA) have more credibility with custom- ers. Companies need to understand that what works in one market may not work in another. During the introduction of genetically modi- fied food, Monsanto successfully used the FDA to overcome customer concerns about food safety in the U.S. market. A similar strategy in the European market, however, dramatically back-fired because the Ministry’s reputation had previously been damaged after it misman- aged the occurrence of Mad Cow Disease in the United Kingdom.

These few examples point out that reputa- tion management not only can be extremely challenging, but can affect the core assets of a company, especially if maintaining high levels

of trust among customers, regulators, investors, or other stakeholders is necessary for sustained business success. It follows that reputation management should not be relegated to func- tional specialists such as the legal or PR depart- ment. In many cases reputational challenges have their origin in ordinary business decisions such as market entry (Monsanto), marketing (credit cards) or product design (sub-prime lending). Once reputational challenges have

reached the desk of the corporate counsel they frequently have reached crisis proportions. It is therefore much better to integrate reputational considerations into the day-to-day business de- cisions of the managers that run the business.

To successfully manage reputational chal- lenges companies need to develop three core capabilities:

  • A functioning early warning system.

  • Ongoing measurement of the reputation of the company, its markets and products

  • Rapid situational assessment by issue, product, and market.

Early Warning System. In many cases repu- tational challenges have their origin in areas not frequently monitored by companies. For exam- ple, a data privacy issue may first be voiced in an obscure engineering conference and not raised again until it reached main-stream media. In many cases, companies can completely avoid or at least mitigate reputational crises by chang- ing business practices, stakeholder outreach or through detailed communication plans. But developing such responses takes time, the one thing companies do not have once an issue has reached crisis proportions. In retrospect the warning signs could have been identified but they never reached the key decision-makers. Moreover, in many cases issues that turned out to be enterprise-critical were not even identi- fied as potential risks; they never made it onto the radar screen. As “unknown unknowns” they never could be integrated into a proper risk management framework.

This is the value proposition for investing in early warning systems. This may range from in- formal monitoring of various media sources over proactive stakeholder outreach to the develop- ment of an internal issue anticipation group. Of particular promise is the use of information technology in this area. Many of my clients have benefited from using tools from computational

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March 2008 w Risk Management

Reputational Management not only can be extremely challenging, but can affect the core assets of a company …

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