Managing reputational risk in the age of social media

Companies are aware of the potential dangers that could negatively affect their reputations, but never have those dangers been as pervasive and immediate as they are right now.

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Responsible decision making

As organisations strive to upskill their workforces and encourage responsible decision-making at all levels, the risk of immediate publication, financial flows and business impact increase with the use of technology, even if such activities are executed in good faith.

The law of attraction

This is why business leaders need to understand the importance of their companies’ reputations. From an employment perspective, organisations with strong positive reputations attract and retain better skills and are therefore perceived as providing more value, which allows them to charge a premium for their products and services. They also attract a more loyal customer base that is open to a wider variety of products and services from the firm.

Vulnerable to reputational risk

Enabled by transformation and growth in the internet and mobile communications systems, global economic activity has grown exponentially over the last few decades. However, companies, and in turn brands, are constantly vulnerable to reputational risks that can arise from virtually anywhere, be it factors as diverse as product quality, social media, environmental impact, employee malpractice and outsourcing. Reputational risk has now become a potential threat on par with new competition, technology failures, talent issues and changing regulations.

Crisis management vs risk management

Yet, there are still organisations that do not consider reputation management until disaster strikes. The job of managing reputations in general is mostly done when the company’s reputation has been affected negatively. Dealing with threats to your organisation’s reputation once it has already surfaced is crisis management, a reactive approach aimed at limiting damage, not risk management in terms of reputation.

The influence of social media

Perhaps the greatest risk worth noting is the reputational risk in the age of social media. Before the advent of social media, the focus remained on risk avoidance or minimising asset or financial losses. Today, with over half of the world’s population connected to the internet, companies need to relate enterprise reputation matters to strategic outcomes. In a world increasingly influenced by social media and instant global communications, managing customer expectations and perceptions is critical to success.

The use of social media by organisations to communicate its goods and services is augmented by the need for modern society to connect with the organisations they purchase from. Depending on an organisation’s life-cycle position and its future aspirations, programmes need to be implemented to align employee behaviour with strategy, organisational performance and risk management objectives, thereby empowering employees to make the right decisions when it comes to executing operational and financial activities as well as to communicate responsibly about their organisations.

Most valuable asset

Warren Buffett famously said: “It takes 20 years to build a reputation and five minutes to ruin it”. It’s no wonder that reputation is commonly referred to as a company’s most valuable asset. Reputation is not simply about a balance sheet, service offerings, social responsibility, or even corporate communications, marketing, and public relations - reputation is all of these and more.

Well-embedded risk management and continuity management processes will prepare organisations to respond effectively in the limited time available to respond.