Reputation-related risks have reached a point where they may threaten a company’s very existence, according to a report published by Deloitte. And at the moment firms are apparently not taking adequate measures.
“More than 76% of companies believe their reputation is better than average″. This figure, which emerges from a survey – ‘2014 global survey on reputation risk Reputation@risk’ – conducted by Forbes Insight on behalf of professional services firm Deloitte, clearly runs contrary to the basic rules of mathematics. The percentage is “a statistical anomaly that suggests companies might be overly optimistic about their current situation,” the report points out. The survey was conducted among 300 executives worldwide, with the aim of finding out how the issue of reputational risk is perceived by companies and how this is influencing their decision-making in practical terms.
A major business risk
The C-level executives, board members and specialised risk executives polled during the Forbes-Deloitte survey may be optimistic about their own companies’ reputations, but they are certainly not blind to the dangers. Some 87% of the respondents rated reputation risk as ‘more important’ or ‘much more important’ than other strategic risks. In other words, they seem well aware of just what is at stake when we talk about ‘reputation’. According to a recent study from the World Economic Forum, “on average more than 25% of a company’s market value is directly attributable to its reputation.” The Forbes-Deloitte report goes even further, arguing that “a company’s reputation should be […] protected as if it were a matter of life and death, because from a business perspective, that’s exactly what it is.” Enrique Alanis, Chief Risk Officer for Mexican building materials firm CEMEX is quoted as saying that: “News travels very fast. Bad news in Nicaragua is going to be known in the US and Mexico, and in Europe as well.” The fact that information can nowadays be relayed very fast all over the world intensifies the risk.
Action being taken but risks remain
Now that firms are becoming more aware of what is at stake, they are focusing more attention and resources on managing reputational issues. Over half of those polled (58%) “plan to invest in data, i.e. traditional media/negative mention monitoring, social media data, surveying, etc,” in order to ensure they are alerted early to even the smallest problem. They reckon they are relatively well prepared to manage risks within their direct control, for example regulatory compliance and employee/executive misconduct. However, they feel far less prepared to deal with risks beyond their direct control, such as third party/extended enterprise issues, competitive attacks and natural disasters – all things which are of course very difficult for a company to anticipate. Accordingly, now that firms have begun to realise that their online reputations are still being neglected we are now seeing the spread of solutions designed to monitor company reputation issues on the social networks.