What is reputation risk management?

Reputation is one of the most important assets for companies today. Companies with a strong reputation perform better, attract qualified employees and increase their overall success. But as valuable as reputation is for a company, it is also fragile: in the digital age, one’s own missteps, inappropriate communication or targeted attacks from outside can destroy a company’s reputation in a very short time. Appropriate reputation risk management helps to prevent these threats and minimize potential damage to a company’s reputation.

In this article we explain what reputation risk management is and how you can integrate reputation as a factor in your risk management.

What is reputation?

Reputation can be defined as the perception of a company by relevant stakeholders such as customers, business partners, shareholders or employees. Reputation is made up of various aspects and can be influenced by various factors. Influencing factors include aspects such as the quality of performance and service, compliance regulations, integrity, data protection, employee satisfaction, social responsibility and sustainability.

If a company achieves a good performance in this area, this in turn has a positive effect on reputation-constituting aspects such as the credibility of the company, the trust of stakeholders, identification with a brand, the assessment of a company’s performance or the company’s rating as an employer and thus also on its overall reputation.

Caution! Reputation is not the same as a company’s image. The image is a rather short-term “snapshot” of a stakeholder’s attitude towards a company and can change repeatedly within a short period of time. An image enhancement therefore usually leads to an entertaining increase in the value of the company – e.g. through new customers who buy once, but then move away again. In contrast, reputation is a long-term phenomenon and must be built up over a long period of time, because it is made up of past and current experiences as well as the resulting requirements and expectations of a company.

Why is reputation important?

Reputation is often described as the most important value of a company – and not without reason. Studies show, for example, that a strong reputation can account for more than a third of a company’s sales and up to 60 percent of a company’s market value can be attributed to its reputation. And even when we look at our own purchasing behavior, these results are confirmed: When making a purchase decision, we usually pay attention to different aspects such as our previous experience with a company, whether the company seems likeable to us, how much we trust a company or store, or whether products or services are valued.

Reputation in the digital age

In the digital age, we often no longer rely solely on our own experience, but make use of a mass of information that strongly influences our perception of a company or product and thus our purchase decision. There are now numerous evaluation platforms on which companies and products can be evaluated by various stakeholders such as customers or employees. In the past, you had to ask acquaintances personally about their experiences with a product or brand, but today we have an almost infinite pool of experience reports available on the Internet.

Building a digital reputation

Recent studies show that these online reports of experiences from strangers are relevant for one’s own purchase decision: Over 80 percent of customers regularly read online reviews and ratings before deciding to visit a store or buy a product. And everyone probably knows this procedure from their own experience: If you are unsure about buying a product, booking a service or using an online store, we usually throw in the usual search engines and find information on the net and the social web. Nowadays, in addition to communication via classic media such as print offers or TV commercials, it is therefore also extremely important to present oneself on the internet and to build, maintain and protect a so-called digital reputation there.

What reputation risks are there?

A strong reputation, trust and credibility not only boost a company’s sales. Rather, in the digital age, they can themselves be seen as essential currencies that contribute (in-)directly to the overall economic success of a company. But as valuable as reputation is to a company, it is also fragile and vulnerable. Particularly in today’s world, there are many risks and dangers that can have a negative impact on a company’s reputation, because the way digital media works means that even the smallest issues or incidents, individual negative evaluations or rumors about a company can spread like wildfire on the Internet and quickly turn into a tangible reputation crisis. Depending on the extent of the crisis, it will then not only remain an issue on the Social Web, but will also be picked up by classic print, TV or radio editorial teams, making it accessible to an even wider audience. At the same time, the public debate about classic corporate crises such as industrial accidents or data breaches can quickly diffuse into the social media and escalate into a shitstorm.

This brief list alone shows how many potential triggers and reputation risks there are. In general, however, these can be divided into two categories: self-inflicted and third-party-induced.

Self-inflicted reputational risks and crises

Self-inflicted reputational risks and crises arise from misconduct on the part of the company or its employees. Examples include poor product and service quality, inadequate production conditions or working practices on the part of the company or its business partners – particularly in terms of corporate social responsibility, reprehensible behavior or borderline public statements by employees, particularly at senior management level, or inappropriate handling of stakeholder data (corporate digital responisibilty). Ultimately, however, unsuitable corporate communications or a single advertising campaign can also lead to an enormous negative reaction and major damage to the company’s reputation. There are many examples from the past in which companies have triggered an avalanche of outrage in social networks through their own communications. The result: Shitstorms, boycott calls, sales slumps, the loss of important business partners or the crash of stock prices.

External reputational risks and crises

Reputational risks and crises caused by third parties are always triggered by a targeted attack. Examples include cyber attacks, where criminals gain access to and publish confidential data or information, but also digital attacks. Digital attacks focus less on the IT infrastructure of a company. Rather, the focus is on destroying a company’s reputation with large-scale digital smear campaigns. To this end, the attackers spread rumors or false information on the Internet in order to create a large (artificial) reach for their campaign through the technological means and unfair methods of so-called social media warfare (e.g. social bots or hashtag hijacking).

Due to the constant technological development, such attacks are not only becoming more numerous, but also increasingly sophisticated in their execution. Thus, it is now possible for anyone with Internet access and little technical know-how to produce and distribute fake news, to forge reviews and ratings on the various rating platforms or even to create fake audio or video recordings of individuals such as CEOs (so-called voice spoofing or deep fake s). If you are not able to do this yourself, you can now buy these services easily and without much effort in Dark Net. There, individuals or dark PR companies offer just such services as Disinformation-as-a-Service (DaaS). The spectrum ranges from negative comments and ratings in the social web, to false reports and the placement of fake news in well-known media outlets.

And that digital attacks on reputation are as widespread as they are dangerous is shown by examples from the past as well as recent studies and reports: Fake news costs the global economy more than 78 billion US dollars annually – 39 of which are due to plummeting share prices alone. At the same time, executives and even the World Economic Forum consider disinformation such as fake news to be one of the greatest current economic risks.

The importance of reputation risk management

It becomes clear: the reputation of a company is threatened from many sides. Regardless of whether self-inflicted or through external negligence, there are countless reputational risks in the corporate environment that need to be taken into account. Because once damage to reputation has occurred, it is difficult to repair it. On average, it takes 3.5 years to fully recover from a reputation crisis. The good news is that many reputational risks can be minimized and reputational crises prevented. This is because comprehensive reputation risk management reduces the risk of reputational damage and helps to respond quickly and adequately in the event of such incidents.

What is reputation risk management?

The reputation risk management is a part of risk management and understands the reputation of a company, institution or person as an important success factor that must be protected. Reputational risk management is thus concerned with minimizing all risks and dangers to one’s own reputation as far as possible and preparing oneself as well as possible for potential reputational crises in order to prevent negative economic effects caused by damage to reputation.

Good reputation risk management includes the identification and assessment of potential reputational risks, the monitoring of these risks, preventive preparation for a possible crisis, as well as a suitable overarching strategy for dealing with existing and future reputational risks. Both classic triggers of reputation crises and new types of digital reputation risks should be taken into account in order to provide the greatest possible protection against damage to reputation.

5 tips for reputation risk management

To prevent a reputation crisis as far as possible, the “reputation” factor should definitely be integrated into existing risk management. We have put together five tips for this.

Tip 1: Conduct risk assessment

In the first step, a risk assessment should be carried out in which as many reputational risks as possible are identified and evaluated. In order to protect oneself in the best possible way, not only classic but also digital reputation risks should be taken into accoun

Tip 2: Set up a monitoring system

Once the individual reputation risks have been identified, critical issues and threats should be permanently monitored. This enables us to react as quickly as possible in the event of an escalation and to keep damage to our reputation as low as possible.

Tip 3: Train employees

Before, during and after a reputation crisis, fast and adequate action is essential. This requires trained employees who know what to do at all times. If employees are also sensitized to potential reputation risks, they help minimize them.

Tip 4: Develop a strategy

Reputational risks can develop and escalate extremely quickly – especially on the Social Web. It is therefore worthwhile to develop a comprehensive strategy for an emergency before a reputation crisis occurs. This helps to remain capable of action in the event of a crisis and not to lapse into a reaction mode.

Tip 5: Hire a reputation risk management agency

In order to obtain comprehensive protection against old and new reputation risks, it is worth hiring an agency that specializes in the management of reputation risks. After all, new types of risks – e.g. fake news or campaigns developed in Dark Net – are often difficult for companies themselves to find, assess and deal with. And this is where expert knowledge and experience are particularly in demand, in order not to make a crisis worse than it actually is. Experts help to develop and implement a professional reputation risk management.

You need support in reputation risk management? We are happy to help!

Better safe than sorry.