Piyush Sharma - a versatile leader working at the intersection of business, civil society, academia, social and policy impact - is Executive-in-Residence at UCLA and a Stanford SEED Consultant besides being a global CEO coach and a C-Suite + Start-up advisor.
A reputation takes years to build and no time to be ruined. In an age of all-pervasive media and when everyone's a broadcaster, reputation has become more precious than ever.
The Economist termed reputation the 'risk of risks' in 2007. This played out in the years to come: The 2008 economic recession impacting the financial sector; Google’s China exit; Toyota’s product recall in 2010 and BP’s record oil spill, all highlighted this concern. KPMG’s 2017 Global CEO Outlook Survey listed reputational and brand risk as a top concern. World Economic Forum’s Global Risk Report 2020 points to the complexity of various risks, underscoring the importance of understanding the systemic nature of reputation risk.
There is a direct link between media diffusion and reputation impact. While a minor impact could merit only local media coverage, a catastrophic one could lead to global negative coverage, long-term. No wonder it gets Warren Buffet to feel, “If you lose dollars for the firm, I will be understanding. If you lose reputation, I will be ruthless.” SoftBank’s Masayoshi Son couldn’t agree more.
Strong board oversight is essential
Mckinsey’s Global Board Survey 2017 of 1,100 leading global companies, however, reveals that boards devote a relatively small share of their time to risk management. Building reputational resilience is a C-suite responsibility—of the CEO, CMO and in large organisations, a Chief Risk Officer. It starts at the top, and cannot be an afterthought; it needs to be integrated into strategy and business planning.
Reputational risk management is not crisis management
Managing reputational risk needs to incorporate two key perspectives. Acknowledging and being aware of the vulnerability while building resilience is a pre-crisis act. When faced with a crisis, however, resolution to mitigate the crisis and regain trust on a medium to long term basis, become the key imperatives. Crisis management, on the other hand, is more short term.
Organisations need to have a robust early warning system for spotting reputational risks. This requires companies to develop an ‘outside-in’ perspective.
Think about these instances that have eroded market value in recent memory: United Airline's passenger removal incident; Samsung’s Galaxy Note 7 exploding batteries; Johnson & Johnson’s Tylenol case; Facebook’s data breach; H&M’s ‘coolest monkey in the jungle’ campaign; Gillette’s #MeToo campaign, and so on. Closer home, ICICI’s Chanda Kochhar controversy; Maggi noodles' lead content, and the embarrassing Paytm CEO office scandal can be counted. Organisational resiliency is tested in a truly world-class response to a high-profile crisis.
Getting ‘cancelled’ is becoming an important reputation risk. The New York Times talked about teens “cancelling out” celebs using their combined social media influence, while Reason, the online magazine, termed 2019 the year that the cancel culture became all-pervasive.
Cyber risks to reputation
An employee’s personal tweet leading to erosion in NBA’s market value in China is a case in point for growing cyber risk. The risks are multiplied while being exposed to weaknesses not only of one’s own but also those of business partners. With more people working remotely, data breaches are one of the significant security risks.
Monitoring reputational cyber risk can be done through a simple Google alert. Many online reputation monitoring services exist in the market; companies such as Burrelles provide dedicated media-monitoring services. Reputation risk underscores a growing need to manage cyber-risks.
Risk experts and communication teams need to work in close collaboration. Social media is one of the most important weapons in a company’s arsenal. Online reputation management becomes very crucial in the event of a crisis.
Building reputation for greater market value
The State of Corporate Reputation in 2020: Everything Matters Now, published by Weber Shandwick and KRC Research, reported that global executives attribute 63 percent of their company’s market value to the overall reputation. For trillion-dollar tech giants like Microsoft and Apple, the reputation risk can lead to a market cap hit of a whopping $630 billion. Reputation is, therefore, a competitive advantage as businesses with better reputation perform better financially.
It has an appreciable impact on market value. Smart companies realise this and undertake proactive measures to do so. Hyper-focussing on multiple drivers as many factors contribute to reputation, helps. Developing and measuring individual metrics enables quantitative measurement of reputation. Strong marketing and communications to targeted stakeholders is a good strategy. Building visible senior leadership helps. Better reputation means better business.
The individual leadership risk
The vulnerability of reputation is in direct proportion to the level of authority or greatness, as expounded by Jeff Bezos, “I represent folks who are targeted specifically because they are more vulnerable to having reputations ruined”. In an age when personally identifiable information (PII) on any person is available for a few dollars, the risk to leadership can be catastrophic. There have been instances where an executive’s online records correlated with PII have been manipulated to wrongly trap the person into illegal or immoral or unethical acts. Individual leadership reputation is corporate reputation.
In an age of fake news and rising societal norms and public expectations, corporates have a tight rope to walk what with news spreading in nanoseconds.
Reputational risk needs to be understood not only as a 'risk of risks' but as a standalone risk in its own right. Reputation at a certain level is like a social licence to operate. Public trust matters. Reputation is fragile.
The writer is an Executive-in-Residence at the Indian School of Business (ISB) besides being a global CEO coach