A Business Innovation and Sustainability Blog

A business knows not to leave the interpretation and perception of their brand to chance. It’s an asset that’s meticulously cared for, protected, and designed to leverage opportunity. But what of reputation? An organization has much less control over how their reputation is crafted, sure.  However, like a brand, reputation impacts the financial condition and value of a company. So should it not receive adequate attention when reviewing the principle risks of an organization?

What I’ve read lately suggests most organizations are not proactively caring for and protecting their reputation; reputation is not being considered as value at risk. Alternatively, it’s commonly viewed as an output of managing strategic and operational risk.  

In today’s world stakeholders have an increased interest in the way an organization interacts with the external environment. As a result there is an increased sensitivity (i.e. heightened response) to the perception of the organization observed in the financial performance, and value, of the business. As such, organizations need more than ever to understand what reputation is and how best to manage the risk of degradation.
 

- Warren Buffet

So what is a business reputation? A simple definition is ‘a perception of the business held by others, based on past actions and in anticipation of future actions’ (Honey, 2009).

Managing a reputation can be thought of as managing the gap between stakeholder expectations and the actual behaviour or performance of the organization. Reconciling this gap is done by (1) identifying, evaluating and engaging stakeholders, and (2) understanding the sources of reputation in your organization.

First, you need to understand who your stakeholders are (e.g. shareholders, investors, employees, customers, suppliers, regulators, special interest groups, trade unions, etc.). Then evaluate their level of interest, power and influence on your business. After identifying your most critical stakeholders, you need to understand and clarify their expectations.

Second, you need to understand the attributes of an organization that incite repute (these will inform the strategy you use to manage exposure to reputation risk). So what are those attributes? I suggest you take a look at the Brady Model¹ presented below. The Brady Model was designed to identify the sources of reputation that lie within an organization (Honey, 2009). The model is a good tool to begin your exploration of managing reputation risk (and opportunity!).

  The Brady Model:

Knowledge and Skills	Employee talent pool, drivers of innovation
Emotional Connections	Consumers’ perception of value, stakeholder alignment
Leadership, Vision and Desire	Governance Style and practice, motivation and vision
Quality	Product or service delivery history, consistency
Financial Credibility	History of creating better than average returns
Social Credibility	Good citizen,  license to operate
Environmental Credibility	Legacy for future

After going through this exercise you may identify “touch points” your organization has with critical stakeholders. Then begin the process of evaluating whether current controls are adequate to manage the exposure to reputation risk, or if additional controls are needed to mitigate the risk.

For example, consider the instruction / guidance junior professionals receive in a professional service organization prior to interacting with clients. Are the controls (i.e. training, education, communication of expectations, etc.) sufficient to inform the behaviour, attitude and appearance of the junior professional to obtain the desired level of service quality and not tarnish the organization’s reputation with that client? Is the junior professional aware of the service quality expectations or how to handle resistance and other difficult situations with clients should they arise?

Reference:

Honey, Garry. 2009. A Short Guide to Reputation Risk. Gower Publishing Limited. 

Notes:

1. Model created by Dr.Arlo Brady.