Reputational risk is one of the hardest issues to quantify and mitigate. Most mid-sized companies do not have the in-house expertise to assess this on their own. (Photo: Shutterstock)
Customer trust and company reputation go hand-in-hand. When one is damaged, the other is impacted. Proactively managing reputational risk is crucial for any business, particularly because current sentiment makes it easier than ever for years of hard work to vanish.
One-two-three punch
Three undercurrents suggest the time is right to discuss reputational risk with your clients.
- Trust is down. The 2019 Reputation Macro-Trends Data & Insights finds that the percentage of people who strongly trust companies has slipped from a high of near 50% in 2017 to about 30% at the end of 2018.
- Reputation matters more. An Ocean Tomo study found that intangible assets like reputation account for more than three-quarters of a company's market value today, compared with less than one-third in 1985.
- Your clients face greater challenges. How they respond to natural disasters, active shooter incidents, data breaches, hazing and sexual assaults and other crises can reinforce or erode stakeholder trust.
Many well-known companies can attest to how extensive reputational damage can be.
- Uber's reputation in the U.S. dropped after former CEO Travis Kalanick resigned amid sexual harassment allegations.
- Volkswagen suffered a $27 billion market value loss after admitting to manipulating emissions data.
- United Airlines experienced an increase in customer complaints after video of a passenger being dragged off a plane went viral.
- A scandal at a university covered in a long-form news article has been shown to lead to a 10% drop in applications the following year, equating roughly to falling 10 places in the U.S. News & World Report college rankings.
Modeling the way
Reputational risk is one of the hardest to quantify and mitigate. Most mid-sized companies do not have the in-house expertise to assess this on their own. Agents play a critical role in identifying risk and connecting companies with insurance carriers that have coverages and programs in place to help businesses prevent, manage and respond to reputational risk.
Discussing the following enterprise risk management (ERM) strategies with your clients can be integral to helping them build a strong foundation of trust.
Assess vulnerability to reputational risk with these questions:
Does the company deliver on its promised reputation? Companies spend billions of dollars each year on marketing and branding. Delivering the promised reputation to stakeholders is critical in maintaining trust.
Have external beliefs and expectations changed? External expectations should influence internal practices. An ongoing assessment of internal policies can lead to important adjustments to an institution's risk management procedures, as well as their coverages.
How efficient is internal coordination? Working in silos can lead to inefficiencies, poor performance, more risks and inadequate response to crises.
Set compliance expectations with more than written policies and emails. A company dedicated to compliance and minimizing risk will guide employees at all levels toward truly understanding the laws and regulations and required actions.
Establish highly effective responses to strengthen trust and reputation
A key aspect of maintaining and building trust during a crisis response is effective communication. Best practices include:
- Offering an expression of empathy.
- Confirming facts and action steps.
- Identifying what you don't know about the situation.
- Specifying the process to be followed.
- Providing a statement of commitment.
- Ascertaining where people can obtain more information.
Partnering with reputable companies
Before and after an incident, your clients will want to partner with companies that value trust and work hard to build and maintain a strong reputation.
Christina Villena is vice president of risk solutions at The Hanover Insurance Group, Inc.
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