The Reputation Risk Handbook

Surviving and Thriving in the Age of Hyper-Transparency

Andrea Bonime-Blanc

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351274388
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book will show you how to build a sustainable reputation risk management framework and how to handle your next reputation risk crisis. It will help you identify ways in which reputation risk can impact bottom line, and then show you how to set up a framework for turning that risk into an opportunity for good, sustainable business.

Reputation risk is a strategic risk and a potentially material risk, all the more so in the "age of hyper-transparency". This needs to be clearly understood by both management and boards of directors so that the people tasked with reputation risk have the support they need to align their reputation risk management with business strategy and planning. The Reputation Risk Handbook provides a clear framework to identify, manage and resolve reputation risk, including: a clear description of what reputation risk is and how it fits within the pantheon of corporate and institutional risk and strategic management; a practical process for creating early warning systems and on-going management and monitoring of reputation risks; techniques for aligning reputation risk management with business strategy and business planning; several case studies, including examples of when reputation risk management has gone wrong; examples of how to manage specific reputation risks successfully or deal with a reputation risk crisis.

The Reputation Risk Handbook is not just for practitioners – those who manage risk and reputation directly – but for those who have oversight of risk management – namely boards, their committees and the c-suite. In addition to a framework for practitioners, the book provides specific suggestions for boards, including questions to ask management and what to look for within their organizations.

Part I
Understanding Reputation Risk

Chapter 1
Reputation Risk in the Age of Hyper-transparency

I lost my reputation but, then again, I didn’t need it.

MAE WEST, AMERICAN FILM ACTRESS, 1930S

Mae West and the age of hyper-transparency

MAE WEST, the lusty and irrepressible American movie actress of the early twentieth century was responsible for the above quote and this one: ‘When I’m good I’m very good, but when I’m bad I’m even better.’ For her, being bad was good for business. That was her reputation – to be bad. Losing her reputation wasn’t the problem – but losing her reputation for ‘being bad’ was her greatest reputation risk and would have been a blow to her livelihood.

Can we apply this approach to today’s business and organizational context?

Most organizations want to build and retain a ‘good reputation’ for whatever it is that they do or offer. It isn’t necessarily about being good or bad but about consistently and predictably doing what you do best: creating products, providing services, creating some form of value.

However, behaving ‘badly’ in the new age of hyper-transparency can be hazardous to an organization’s health. The damage can be instant, very public and, in some cases, irreversible. It’s no longer just about making products, delivering services or creating value anymore; it’s about doing these things under the extreme spotlight of a hyper-transparent world.

Extrapolating to organizational life, Mae West got it right, but only half right. Maintaining and improving your reputation – for whatever that might be – is different from being ‘good’ or ‘bad’. While these words are simplistic, charged and relative, the point is this: in today’s hyper-transparent world, organizations need to do both things – build and defend their reputations and be (or be perceived to be) ‘good’ in the eyes of most stakeholders. The recent annals of reputations lost and never recovered are littered with examples of companies that did neither: Enron, Lehman Brothers, Barings and WorldCom come to mind.

There’s a reason why we have seen so many more of these cases since the turn of the century – the age of hyper-transparency has changed the very nature of ‘reputation’ from something somewhat amorphous and superficial to something more material and impactful. Indeed it may very well be that the age of hyper-transparency is the handmaiden of the relatively new and still misunderstood concept of ‘reputation risk’.

‘Reputation’ across the ages

It’s not that reputational matters are new – indeed reputation is an age-old concept. We can go back to the fourth century BC to find Socrates’ wisdom on the subject:

Regard your good name as the richest jewel you can possibly be possessed of – for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again. The way to a good reputation is to endeavor to be what you desire to appear.

A little later, in the first century BC, Publilius Syrus said:

A good reputation is more valuable than money.

In the nineteenth century Abraham Lincoln stated:

Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing.

And, then of course, everyone knows the famous words of present-day business titan, Warren Buffet:

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.

Buffet is also quoted as saying:

We can afford to lose money – even a lot of money. We cannot afford to lose reputation – even a shred of reputation.¹

Many wise sayings and much time traversed and yet the essence of the meaning of ‘reputation’ remains pretty much the same: ‘Reputation’ is about the perception by others (stakeholders) of the state of something (an entity, product or service) or someone (a leader or other person) and the danger (of loss) or opportunity (of gain) that such perception provides to such entity, thing or person.

Twenty-first-century reputation risk hit parade

Reputation hits can affect the largest entities in the world – including the most powerful governments and global corporations. America’s reputation, for example, has suffered a variety of blows over the past decade and a half. First, unpopular wars – Iraq and Afghanistan – and then National Security Agency (NSA) high-tech spying revelations on US citizens and friendly governments. Specific reputational damage has resulted not only to the US government but also, by association, to its citizens and even its technology sector which may now be less trusted by non-US stakeholders (customers) than before.²

The BP Deepwater Horizon oil spill disaster of 2010 was the biggest of its kind ever in terms of sheer magnitude and resulting attention, fines, settlements, civil and criminal investigations, and reputational damage. BP’s then CEO, Tony Hayward, made things worse when he publicly complained about not having enough time off, seemingly putting his personal comfort ahead of a terrible crisis that had just caused 11 deaths and unprecedented environmental and financial damage.

Reputation hits can affect entire sectors, globally. The reputational hit parade of the past decade in the global financial sector has been non-stop and unparalleled, involving almost every big bank name – JP Morgan, RBS, HSBC, Standard Chartered, Goldman, Citibank, Barclays, UBS, Deutsche Bank, BNP Paribas, Credit Suisse and more. The banking industry seems to think of reputation risk, ethics and compliance, amorphously at best or as a ‘cost of doing business’. It’s not surprising that this sector places last consistently over time in industry sector trust surveys, like the Edelman Trust Barometer which has been gauging stakeholder trust in industry and government for over a decade. However, the tide may be turning as recent mega-fines, regulatory overdrive and stock under-performance may be starting to put a dent in what previously seemed to be a sector that didn’t seem to notice the importance of reputational risk.³

And then there is the slow-motion, long-term, reputational unraveling. After surviving a major existential threat, going bankrupt and being saved by a massive government bailout, GM seems to have done it again. In January 2014, an investigation revealed that thirteen GM car accident deaths (and many more injuries) occurring over the past decade appeared to be the result of a defective ignition switch that could have been fixed for $1 per car. Apparently for cost-saving reasons (traced back to deep-seated cultural dysfunction), the correction was never made, the problem wasn’t disclosed and a cover-up ensued. The full magnitude of this reputational hit is yet to unfold but is unlikely to be modest or short-lived.⁴

Reputational hits and consequences

Does a reputational hit today mean long-term reputational damage? Or are these mostly momentary blips that affect certain stakeholders (investors, customers) temporarily but, depending on the response of the organization, won’t lead to long-term negative consequences?

Measuring reputational risk is a challenging and as yet unconquered art or science but attempts are being made. For example, the impact of a specific event on a company’s publicly traded stock can be a useful metric though obviously useless for privately held businesses and other organizational forms like NGOs or government agencies.

It is helpful, however, to look at stock metrics, as there are lessons to be learned. Wal-Mart stock declined by almost 5% (or US$10 billion) the trading day after the New York Times published its in-depth investigative report on Wal-Mart’s alleged corruption and bribery of Mexican officials on 20 April 2012.⁵ Similarly, observers charted a decline of US$7 billion over four days of trading in NewsCorp stock when allegations of widespread phone-h...

Table of contents

• Cover
• Title
• Copyright
• Abstract
• About the Author
• Acknowledgments
• Contents
• Introduction
• I UNDERSTANDING REPUTATION RISK
• II TRIANGULATING REPUTATION RISK
• III DEPLOYING REPUTATION RISK
• Conclusion: The Way Forward
• Notes