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Reputation and Reputation Risk

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​The need to understand the value of your reputation and to manage the risks to it are topics that are "in the news" constantly.

The prolific Jim DeLoach recently had a piece published that merits attention: 10 Keys For Executives To Manage Reputation Risk.

I plan to cover the topic in two or three different posts, starting with a discussion here of what reputation is in the first place.

Jim says: "Applied to a business, 'reputation' represents an interpretation or perception of an organization's trustworthiness or integrity."

He continues with "We define 'reputation risk' as the current and prospective impact on earnings and enterprise value arising from negative stakeholder opinion. To one author, it is 'the loss of the value of a brand or the ability of an organization to persuade.' Bottom line, reputation is fragile. What takes decades to build can be lost in a matter of days."

I am not sure this is correct.

In the same way that "culture" has many facets or dimensions (risk culture, compliance culture, customer-focus, performance-oriented, and so on), so does reputation.

  • You have a reputation among your customers that affects sales. This is the aspect of reputation that most focus on. Maybe your reputation is for reliability, safety, design, quality, or price competitiveness. So even with your customers you might have several aspects of reputation, some of which are positive while others are not.
  • You also have a reputation with your vendors and suppliers. Perhaps you have a reputation for hard-bargaining, or for loyalty to your partners in the supply chain. Maybe your reputation is for paying late and unreasonably disputing their charges.
  • Another aspect of reputation is how the regulators and/or law enforcement feel about you. Do you have a reputation for skimming close to the compliance edge or not cooperating with regulators and inspectors?
  • Then there's the reputation of managers and leaders with the rest of the employees. Does the organization have a reputation as a safe place to work; a place where efforts and results get rewarded; where speaking up, showing initiative, or challenging your leaders are encouraged — or is such behavior penalized? Do the employees trust their managers and believe in the mission and purpose of the organization?
  • Each of these dimensions can be different in different parts of your world, whether geographically, by business unit, or function.

So how do we measure and value an organization's reputation?

It's not as simple as engaging a third party that specializes in assessing your brand and monitoring movements and trends in it.

If your reputation is not what you want it to be, it can affect your success in many different ways.

Further, efforts to upgrade it in one dimension (e.g., compliance) can affect another (e.g., trust in and empowerment of employees).

This is what I recommend:

  1. Understand and define each of the dimensions or facets of your organization's reputation that are valuable if positive or could hurt you if not.
  2. Define for each how you want your organization to be perceived by that community.
  3. Assess, perhaps through surveys or third-party specialists, whether your actual reputation is what you desire it to be.
  4. Evaluate whether this is acceptable. How much additional value to your organization can and should be created (whether through improved sales, employee morale, reliable supply, or so on)?
  5. If not, consider your options — including how you might change perceptions positively without impairing other facets of your reputation.
  6. Act and monitor results.
  7. Identify, assess, evaluate, and treat risks to each aspect of your reputation — which I will discuss next week.

I welcome your thoughts.

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