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Reputation Risk: Art or Science

Reputational risk is arguably the most imprecise of non-financial risks that organisations need to manage. In our latest blog post, we consider whether it is more art or science and what this means for risk managers.

Like conventional risk categories, should data, metrics and key performance indicators drive your management of reputational risk? Or is the appreciation of reputational risk more of an art form, informed by individual judgement and experience at decoding what actions will most inflame public opinion?

The Reputation, Crisis and Resilience (RCR) team at Deloitte held a roundtable with industry leaders in financial services, technology, and healthcare industries to discuss how they approach the complex challenge of managing reputation risk, focusing on the theme of ‘Reputation Risk: Art or Science.’ Here are the five key things that we learnt.

1. Foster a reputation intelligent culture

The roundtable discussion brought to light the importance of fostering a reputation intelligent culture inside your business. Creating a culture that is sensitive to brand and reputation is crucial, especially if your business receives high levels of scrutiny and brand attention.

Empowering employees to be frontline reputation managers helps create the right culture and extends a level of awareness into the operational mechanics of the business. Business leaders reported success in creating a reputation intelligent culture through holistic onboarding and training programmes; having delegates across the business who are capable of risk reporting and escalation; and ensuring that reputation is represented on the organisation’s risk committee.

2. Utilise reputation risk measurement

Reputation risk measurement techniques are important but difficult to design as they must capture the emotive nature of public perception. Measurement methods include regular surveys, media monitoring, key opinion former research, etc. It was highlighted that too much data collection can be counterproductive.

Analysing and discussing large amounts of data can distract business leaders from the bigger picture and create a risk averse attitude that hampers innovation and prevents reputational benefits. The key is finding a balance fit for your business; one where the data collected is relevant and able to inform qualitative decision-making at pace. There was agreement that regular reporting to the executive board should be a priority but, these reports should strip away unnecessary detail and remain high-level.

3. Set a reputation risk tolerance

On the topic of thresholds, setting a reputation risk tolerance can help organisations make clearer judgements about when to enact mitigating actions to reduce exposure. Few organisations have a set tolerance level for reputational risk. Where is the line?

One example of a threshold used to set tolerances was a loss of public trust. Public trust data is needed here to assess issues and scenarios and forecast a level of loss of this critical commodity. It is intrinsically hard to make such a forecast as public opinion can often be unpredictable and fluctuate rapidly.

4. Limit your intention-behaviour gap

The gap between what we say and what we do is a point of particular concern for reputation managers. Alignment between intentions and actual behaviours is needed to uphold the integrity of the business. It is important not to over-promise in exchange for short-term stakeholder endorsement since this will likely erode stakeholder trust in the long-term.

This is especially valid when talking about climate change commitments. The recent uptick in environmental promises, especially in the run up to COP26, set hard deadlines for many companies and undoubtedly some will face scrutiny as these deadlines approach. To avoid reputational damage, business leaders need to be realistic and transparent about what they can achieve.

5. Consider the expectations tsunami

The final contextual point is the high expectations many have of business in today’s activist society. Social and cultural expectations have changed pointedly in the last couple of decades with many sectors and companies struggling to keep up.

There was a debate about whether companies should spectate passively on the side-lines to avoid confrontation on hot issues or speak up and stand by their values. Similarly, questions were also posed about how to engage with underlying facts rather than emotionally charged opinions.

Whilst the media and pressure groups tend to simplify problems by presenting them as binary “good v bad” issues, the reality is that business activities are complex and should be viewed through different lenses. The seemingly impossible task of getting this nuance across to critics falls to communications teams. It requires savvy techniques and careful language; with this reasoning, reputation risk can be considered an art.

Our conclusion

So, is reputation risk management an artform or a science?

We believe it is a dynamic blend of both. The use of data and analytics is essential in understanding your stakeholders’ needs and reporting the underlying reputational risks your company carries in its operations. Nevertheless, the art of managing competing stakeholder agendas and reading public opinion is essential to act early in the face of emerging issues. To understand how you can apply these learnings in your organisation, get in touch with one of our authors.

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