Sue Copeman reviews a new book on managing reputation risk
Reputation is not properly valued, is rarely fully understood and is seldom managed in a cohesive way by the people at the top. This is the view of Judy Larkin, whose new book, Strategic Reputation Risk Management, provides some useful guidance for delivering success.
Her guiding principles are:
Risks to reputation no longer constitute mere physical failure, says Larkin. The types of risks that are more prevalent today include security failure; product/service shortfall; competitor targeting; bad behaviour; unfair employment practices; damage to health, safety or the environment; inconsistency in policies/practices; poor governance/ethics; regulatory intervention; threat of litigation, and adverse stakeholder perception.
She stresses that the value of reputation as an important intangible asset justifies integration with operational and risk management strategies. A company's vision and leadership, business strategy, HRM, marketing, relationship management and communications all directly influence how the business expresses itself to the outside world. The goal of effective reputation management is to align these activities. 'Outside-in' thinking – a company's ability to view itself from the many different perspectives that stakeholders have of it – can help to pre-empt worst case scenarios and exploit competitive opportunities. Understanding corporate reputation in terms of what stakeholders perceive and expect is fundamental to reputation risk management. Senior management have an obligation to actively anticipate, engage and co-ordinate relations with stakeholders, explains Larkin.
In a risk-averse precautionary environment, the twin spotlights of intense scrutiny and pro-consumer regulation mean that getting it wrong can carry a terminal cost burden. In the chapter 'Risk – perception or reality?' Larkin looks at the damage that adverse public perception of risk can have on commercial goals, and provides guideposts for effective risk communication and, with it, reputation management.
When it comes to the consumer movement, Larkin discusses the backlash against globalisation, and the rise of NGOs. She emphasises that companies have to face the fact that activist groups have moved on from banner-waving at annual general meetings to putting institutional shareholders in the critical frame. NGOs are increasingly professional in their operations. New technologies also enable small groups of protesters to make their message heard through the use of simple, accessible tools. She believes that there is a desire to move beyond mere protest and problem identification towards solution-focused advocacy, influenced by a gradual recognition that government can no longer be the main provider of solutions and that business is becoming the power base of the future. Companies too, are recognising that environmental and social issues can provide commercial benefits.
On the subject of expanding liabilities and the precautionary principle, Larkin suggests that public fear of the unknown consequences of new developments has the potential to seriously constrain commercial innovation. Businesses need to recognise the potential impact of precautionary policy approaches on commercial progress, and the powerful opportunities that the principle provides for anti-business campaigning. At a European level, the perceived decline of trust in experts and in the scientific community is bringing about policy changes that risk institutionalising a loss of public confidence in the benefits of innovation, to the material detriment of business. Larkin considers the impact of precautionary regulation, and with it, some of the developments that are pushing ordinary people to seek 'mind-boggling' financial redress through the courts. She also provides some navigation tools designed to avoid the icebergs and chart a successful course towards stakeholder acceptance and commercial progress.
In her sixth and final chapter, Larkin looks at corporate social responsibility and its importance in reputation risk management. She asks whether there is a commercial case for CSR and whether socially responsible investment and its junior partner, shareholder targeting, are effective tools in helping to value reputation risk management. Larkin stresses that this is not a world for the faint-hearted, but believes that the guiding principles she outlines in her book hold true and provide the basis for self-management models designed to secure and enhance corporate life expectancy.
Strategic Reputation Risk Management by Judy Larkin, price £25, is published by Palgrave Macmillan and can be ordered from Macmillan Direct Customer Services, Brunel Road, Basingstoke, Hampshire RG21 6XS, Tel: 01256 302699, Fax: 01256 364733, E-mail: orders@palgrave.com
Sue Copeman is editor, StrategicRISK
