Furthermore, the guide considers that although the current market for dedicated reputation products is limited, individual events that can damage an organization's reputation are often insurable. The objective of the guide is to enable risk managers to guide an organization's approach to reputational risk management. If an organization is perceived to be implementing each of the seven dimensions by its stakeholders, increased trust and support will create a strong reputation.
The building blocks of reputation
The Reputation Institute describes a reputational risk event as an event that can affect each of the dimensions in the following ways. Again, a legal issue will not only have a detrimental effect on the perception of governance, but may also reduce trust in the organization's leadership and its commitment to society. This structured approach allows an organization to consider the impact of a risk event on each of the seven dimensions from a perceptual perspective.
Managing reputational risk
The importance of managing reputational risk and responding quickly to a risk event that may affect the reputation of an organization is. This appendix compares two reputational risk events involving product recalls initially considered within the Airmic 'Roads to Ruin' research and highlights the importance of reputation in the continued success of the organisation. The organization should adopt a process that tracks progress in managing and mitigating reputational risk over time.
Risk Identification Examine the reputational challenges that the organization has faced in the past, is currently facing and may face in the future. Assessing the internal ability to manage reputational risk is as important as understanding the external impact of the risk event occurring. To do this, the organization must understand the levels of integration (internal alignment) and the levels of responsiveness (willingness to respond).
By understanding the impact and preparing arrangements to respond to a risk event, the organization can respond to reputational risks in an effective and consistent manner. The Reputation Institute recommends creating a reputation scorecard that enables the organization to identify the dimensions of reputation that are affected by an event and how these change over time. The Reputation Institute has investigated the reputation of several organizations over 15 years and has investigated occasions where an organization has been in a reputational crisis, i.e.
The perception of an organization can influence the intention to buy from the organization and ultimately its business results.
Reputation Institute – Reputation risk case studies
In the following case studies, the Reputation Institute shows that the decline in reputation is related to events that occur within the company and that this decline in reputation has the potential to impact the profitability of the company. The company is based in Puebla, Mexico, and the factory is Volkswagen's largest outside Germany. Almost as an afterthought, company spokespeople made a public statement saying the company expected the increases to translate into a commitment to achieve its target record production by the end of the year.
VW faced a sharp drop in the percentage of people who would recommend the company, say something positive about it or even give it the benefit of the doubt in a crisis. Although the changes were necessary to allow modernization work to be carried out on the railway network, and despite the fact that the company had spent €10 million on advertising the 'Big Bang', this event only seemed to damage the reputation of the declining company to deteriorate as a result of a strike. earlier that year and the threat of further strikes at Christmas and New Year's Eve. Now, almost 25% of the general public would definitely NOT recommend the company in a crisis, say something positive about it, or give the company the benefit of the doubt.
This loss of support was very damaging and has left the company with a huge challenge as it tries to turn the business around. However, the company lacked a strong enough technology roadmap to lean on and reassure employees that these job cuts were a solution that would provide the company with some stability. In September 2011, the company's BlackBerry service suffered a massive network outage, affecting millions of customers for several days.
On January 22, 2012, the two CEOs and founders resigned from the company, and in March the company reported its first net loss in years, resulting in an announcement in June of another 5,000 layoffs. In such a scenario, both rounds of job cuts addressed an immediate need to save costs, but did not address competition or provide any sense of stability to stakeholders inside and outside the company. The lack of business results and the exit of company founders and co-CEOs Jim Balsillie and Mike Lazaridis created an air of uncertainty about the company's future direction.
Reputational risk management framework
Airmic has prepared the matrix below that shows the seven dimensions of reputation proposed by the Reputation Institute and considers how they can be affected by a particular risk event. For each risk event, Airmic considers how the event is likely to affect the organization and those stakeholders whose perceptions are likely to be affected. The list of risk events is not exhaustive and Airmic members can create their own tables for those events most likely to impact their organization and their stakeholders.
Where insurance cover for the event is available and can be purchased by the insurance/risk manager, Airmic members will be in a better position to engage with senior management and business units about the need for sound and effective reputational risk management. The insurance market for pure reputational risk is beginning to develop, and Airmic members may wish to explore policy extensions for reputational impact for the coverages described below. Products/Services The organization's products are of high quality, value and service and meet customer needs.
Leadership The organization's leaders are excellent and visionary managers, and strong endorsers of their companies. As outlined in Section 2 of the guide, individual stakeholders will have specific concerns depending on the purpose and output of the organization. Red: Controlling the reputational risk for this dimension/stakeholder relationship should be a management priority and impact analysis should be considered.
Control of reputational risk for this dimension / interesting relationship should focus on preparedness and response to risk events.
Reputational risk dimensions and
Members can consider the relationships between the seven dimensions and their stakeholders to complete their version of the chart, and therefore prioritize areas for risk management and control. Conversely, if an organization is not perceived to be delivering on each dimension, stakeholders will lose trust and subsequently not buy from, recommend, invest in, work for or even give that organization the benefit of the doubt. . A comparison between how effective reputation risk management can affect company performance can be seen in the Coca-Cola Dasani and Land of Leather product recall incidents.
Risk Event: After a successful launch in the US, Dasani began to be rolled out worldwide. In Europe, the plan was to launch Dasani in the UK and then follow up in Germany and France. The pint bottles were priced at 95p and labeled as 'pure' water, although no mention was made of the tap water source ie.
The press carried the news with headlines such as "Coca-Cola sells tap water for 95p". He set himself the objectives of protecting the global reputation of the Coca-Cola brand, protecting the reputation of the Dasani brand in 20 countries outside Europe and acting responsibly in the UK. Consequences of the risk event: The consequence of the event was the loss of Dasani's UK business immediately (after a high-profile publicity campaign of £7m and expected sales of £35m in the first year) and then in Germany and France.
Damage to the Coca-Cola brand has been minimized in the UK and is almost untouched elsewhere.
Reputation risk management in
The Dasani brand was seriously damaged; the next blow was in March, when a routine quality analysis found traces of bromate (a potential carcinogen) in the drink, which, although small, exceeded the legally permitted concentration. This resulted in the largest class action for damages brought in the UK courts. The source of the allergies was traced to bags containing the mold-inhibiting chemical dimethyl fumarate (DMF) attached to the seat frames inside their leather upholstery.
Management response: After the problem became clear, LOLL withdrew the sofas from sale, but they did not contact the customers who had bought them, unlike Argos, which commissioned a report from a consultant dermatologist to verify the cause of the damage, it withdrew . sofas (of which they had sold about 30,000) and contacted buyers. The direct effects of the 'toxic sofa' cases included injuries to at least 4,500 people and their claims against firms that sold the furniture, including LOLL, of around £20m. It cannot simply be said that LOLL was brought down by the 'toxic sofa' cases, because there were many causes that contributed to the company's downfall.
Not the least of these was the credit crunch, which made refinancing difficult and directly affected LOLL, and the economic recession born of the financial crisis, which hit retailers hard and put many similar firms out of business. Many other firms, including Argos, Homebase and Walmsleys, sold the sofas, but apart from the fact that at least some of these coped better with the crisis, their reputations suffered less because they were not exclusively associated with leather furniture - the only culprit in the crisis. Dealing with the 'toxic bank' crisis reinforces the need to respond quickly and positively where a product recall becomes necessary and to be open with customers and keep them fully informed, even when the news is bad.
Where LOLL failed to inform buyers of the 'toxic banks', Coca-Cola quickly realized the potential seriousness of the incident in terms of public confidence and applied a textbook crisis management exercise, nullifying the impact on the overall business .
