Reputational risks. Image and reputation of the company

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Every company doing business has such a valuable tool as reputation. As in the world of simple human relations, in business this category has a dual nature: on the one hand, it can be an excellent opportunity to establish some new relationships, attract new counterparties, and derive some benefit; on the other hand, with a bad reputation, the company may simply not be able to start business cooperation with anyone.

Due to the fact that reputation is not a permanent phenomenon, and in the course of the activities of any business entity, it can change both for better and for worse, the company must constantly take care of it.

On the one hand, such “care” can be called measures for its continuous improvement, for the development of a positive attitude of other companies and the public towards this business entity. On the other hand, it can be the management of risks that exist for each particular company.

In this article, we will look at how it should ideally be, how you can protect your company from losing reputation, and how other market players generally deal with it.

Determining reputation

Let's start with the generaldefinitions of such a category as “reputation”. After all, as noted above, we know from real life that this term means the attitude of other people towards one particular person who owns this reputation. In fact, this is the set of qualities that endow the one whose reputation is in question.

In the world of business relationships, everything happens in a pretty similar way. If one business structure wants to start a relationship with another, first of all, what it will focus on is the image of the company (that is, how other market participants see it, in particular, those who already have experience of cooperation with it).

And, of course, depending on what reputation a company has, its business will develop or, on the contrary, decline. This is precisely what is so important when it comes to attitudes towards a business entity.

Reputational risks

Threats that represent the possibility of damaging the image of the company, the attitude of other business entities towards it, are called, respectively, “reputational risks”. If you correctly approach their definition and identify in a timely manner where they may be hiding and what specific threat they pose to companies, you can prevent a lot of negative consequences for the business as a whole.

This is the task of risk managers working in this business area. They are engaged in risk management, keeping the company's image from any threats. In turn, the right approach in this matter allows you to conduct business,develop it and improve the company's financial performance in every possible way.

Types of risks

Again, since in our understanding the image of a company is something abstract, it is not always possible to understand what the risks mentioned above manifest themselves in. How can they be measured, assessed, what needs to be done in order to understand where they appear and, of course, how to protect yourself from them?

In turn, we understand what financial risks look like. This is, in essence, an opportunity to suffer monetary losses in one form or another. Where a business can lose its investment, there are clear financial risks. To protect yourself from them means not to make such investments, to refrain from them, sensibly assessing the ratio of your chances of gaining and losing everything.

Reputational risks work on a similar principle. The company may receive negative attitudes from those with whom it maintains business relations, as well as from the public - people who are direct consumers of its products or services. Only in order to understand more specifically what reputational risks can manifest themselves in, we can conditionally divide them into three categories. Read more about them in the following sections.

Corporate risks

The most common group of threats that target a company's reputation are corporate risks. They relate to the activities of a particular business entity and at the same time can be expressed in completely different moments in its work. The scope of production, sales, company management and manyothers, all of which may be subject to corporate reputational risks. For this reason, every risk manager must ensure that each of these categories is protected. How is this expressed in practice? Very simple: each of us has seen examples of such measures against corporate risks in everyday life.

For example, protecting the reputation of a particular company will be expressed in the fact that the latter conducts environmentally friendly production, conducts socially significant activities, initiates various activities related to charity, and so on. That is, the image of such a company is built on the fact that it has a positive impact on certain areas of life, properly organizing its internal processes.

Global risks

Another category of factors that form the company's reputational risks is more global. In particular, these are the factors that pose a threat to the whole sphere of production. For example, they take place in the case when the public is reprehensible, for example, to a number of enterprises for the reason that, on the contrary, they negatively affect some areas of human life. Just for there to be “risks”, it is necessary that the factors that negatively affect the image of the entire industry suddenly come to light. This would mean that such reputational risks were justified and businesses that did not take care of them suffered serious damage.

Local risks

Finally, the third type of factors that can negatively affecton the assessment of the company by other business entities or consumers of services and goods, these are risks that relate to some part of the company. The clearest example of such a phenomenon can be, for example, the qualities of the top managers of the company or its management, which were seen in some negative (from the point of view of the public) stories. Or such risks may manifest themselves if the company's managers began to carry out the wrong (and, perhaps, even reprehensible) from the point of view of other people, massive layoffs of employees, salary cuts, and so on.

That is why every leader tries to work on creating a favorable attitude towards employees for himself (and, consequently, for the company), introducing various incentives, increasing wages and taking other similar steps. Not only does this motivate employees, but such actions also prevent reputational risks that could harm the business.

Risk prioritization

In fact, every risk manager who adequately assesses the situation on the market can (and should) clearly determine which risks are priority. Let's take a simple example. On the one hand, the company is engaged in the production of products that have additives harmful to he alth; on the other hand, it is going to carry out mass layoffs. From the point of view of the consumer, of course, the quality of the product and its effect on the human body is more important. After all, if information about the harmfulness is made publicproducts, sales may drop significantly. On the other hand, the risk manager understands that the probability of revealing the fact that products are “harmful” is minimal, while layoffs will be known immediately.

In this case, in the short term, the company should think about how to cope with the risk of losing its image as a result of layoffs, and in the long term - to “whitewash” in the eyes of the buyer and convince him that the presence of products that carry harm to he alth - it's not so scary. A vivid example, by the way, of successful “cases” in this direction are the largest mega-corporations McDonald’s and Coca-Cola. We all know that Mac food, like Cola, is seriously harmful. However, we continue to buy both.

Properly prioritizing risks determines how successfully a company will cope with them and thus maintain its image. This is what is called “reputational risk management” and their competent avoidance.

Reputation in the eyes of counterparties

It is also important to understand that the reputation of the company in the understanding of other business structures and in the eyes of the client is far from the same thing. After all, it reflects this company from different points of view. It is very easy to understand how the reputation of a company changes if you look at it “through the eyes of the business” and “through the eyes of the client”. In the first case, the key is the honesty of the company, its attitude towards partners, the distribution of roles in business, the fulfillment of its obligations, its timeliness.

Reputation in the eyes of the customer

As for how a business entity looks in the eyes of a client, the best evidence of this is the success of the company in the area in which it operates. So, if it is a large enterprise or a well-known brand, it is obvious that its services / products are in demand and are in great demand in the market. If the subject has a tarnished reputation, accordingly, he may have problems with the sale of products. In this case, there is a flaw on the part of risk managers of specialists working on the company's PR.

Image of enterprises

Another important point that I would like to emphasize in this article is the specifics of the company or enterprise. Obviously, there is a big difference between how the tarnished reputation of some industrial giant affects its work and, say, the image of a local grocery store. In the first case, the company is unlikely to be threatened by anything, since it is engaged in the production of goods for one purpose. There are many such examples: large plants and factories often have a not too enviable image in the eyes of the public.

Another thing is the business reputation of a legal entity providing direct services. Here the role of the opinion of other people increases significantly, and the latter begins to influence the entire business even more strongly. If the local newspaper says that a small store sells stale dairy products, it will be much more difficult to sell them here.

Banking reputation

A completely different matter is the bank's reputational risks. Since financialorganizations have their own, special market structure, it requires special trust of people (in particular, if we are talking about investors). A person must be ready to provide his money as a deposit, therefore, in this case, the image of the bank must be above all. As soon as there is information about problems with payments or about a change in the management of a particular banking institution, depositors may try to withdraw their money from this bank as quickly as possible, which, again, will negatively affect all its activities.

“Don't lose face”

The main task of every risk manager is to ensure that reputational risk is properly assessed. These are, first of all, those factors that can negatively affect the image of the structure, “drop it” in the eyes of customers and other companies. To prevent this from happening, you need to not only try not to “lose your reputation”, but also constantly improve it, bring it to a new level. To do this, the largest companies create special funds, hold a lot of events, turn to different tools, so that only the company's reputation is improved and “cleansed”.

Repairing reputation

Finally, if any scandal occurs or undesirable information is made public, the organization's image can be saved. Whether it is the business reputation of a legal entity or the opinion of a client, all this can be corrected if the right strategy is chosen for future behavior. Often business leaders whose reputations have been damaged as a result ofother informational scandals, some situations unpleasant for society, and the like, first of all, they apologize and show that they are fully involved in this process, they understand how important it is. Then compensation measures begin, and so on. However, this is another conversation, not related to the subject of the article.