Four Steps to Managing Reputational Risk

Effectively managing reputational risk involves four steps: assessing the company’s reputation, evaluating the company’s real character, managing reputation-reality gaps and monitoring changing beliefs and expectations.

Assess Reputation

At its foundation reputation is perception, thus it is perception that must be measured. The assessment of reputation takes place in various ways that are contextual, objective, and quantitative. Three questions need to be answered:

• What is the company’s reputation in each area? (product, financial performance etc.)
• Why?
• How is the reputation in every area compared to peers and competitors?

Several methods exist for evaluating a company’s reputation. These include media analysis, surveys of stakeholders (customers, employees, and investors), or public opinion polls. While all are useful, a particular focsu on what the media says is especially important because the media shape the perceptions and expectations of the public.

Evaluate Reality

The next step involves objectively evaluating the company’s ability to meet the performance expectations of stakeholders. An accurate assessment of the organization’s true character is difficult for three reasons:

• First, managers including corporate executives, have a tendency to overestimate their companies’ and their own capabilities.
• Second, executives assume their company has a good reputation if there is no indication of a bad reputation, when in fact the company has no reputation in that area.
• Finally, expectations get managed. Sometimes they are set low in order to ensure that performance objectives will be achieved, and other times they are set optimistically high in order to impress the market.

Manage Reputation-Reality Gaps

When a company’s reality exceeds its reputation, the gap can be closed with a more effective public relations and communications program. On the other hand, if a reputation is unjustifiably positive, the company must either improve its capabilities and performance or adjust stakeholders’ perceptions accordingly.

Obviously, few companies would choose the latter option. However, if the gap is large and the time required to close down the gap is too long, leading to potential reputational risks, then management should seriously consider lowering expectations.

Changing Environments and Expectations

Understanding how beliefs and expectations evolve is a challenging task, but there are ways to develop an accurate impression over time. For example, regular surveys of employees, customers, and other stakeholders can reveal whether their priorities are changing.

While most corporate companies conduct such surveys, few make the effort to consider whether the data suggests a gap between reputation and reality that needs to be closed. Similarly, occasional surveys of industry experts in different fields can identify political, demographic, and social trends that could impact the reputation-reality gap of a company.