Reputational risk: Strategies for protecting your business

Protecting your brand: A guide to reputational risk management

Building a good reputation for your business is essential. You want potential customers, partners, and employees to view your company as reliable, trustworthy and well-managed.

That’s why it’s important to be aware of reputational risks that could harm the excellent reputation that your company has worked hard to build.

Find out how to assess reputational risks and mitigate their impact to keep your business’ public perception positive. From setting high employee expectations to keeping tabs on online reviews, there’s a lot you can do to help mitigate reputational risk.

What is reputational risk?

Reputational risks are concerns or potential threats that could damage your business’s reputation with consumers or the public. These can come from many sources, including product defects, poor customer service, controversial stances or leadership comments, and data security concerns. Often, reputational risks are unexpected and unintentional.

Causes of reputational risk

Here are some different areas of potential reputational risk.

Business mistakes

From sending out defective products to violating key regulations, business mistakes can be extremely costly to your reputation. Customers want to know that they’ll get a quality product or service when they shop with you and that your business is trustworthy and compliant.

Many major companies have navigated product recalls or major news stories about company errors, but smaller businesses don’t always have the same margin of error and ability to bounce back from such mistakes. They also likely won’t get the same media coverage around business hiccups.

Employee misconduct

Every person, from the CEO to frontline team members, can be viewed as a company representative to the public. Their misconduct is a common source of reputational risk. This can be anything from rude customer behavior to newsworthy scandals.

In the era of smartphone cameras and viral videos, reputational risk can result from employee conduct captured and posted online or by the employees themselves.

If someone goes viral for the wrong reasons, it can often reflect on your company, even if the conduct occurs off the clock. Internet sleuths may find the employee’s name and LinkedIn profile, see that they’re associated with your business, and question your company’s values or professionalism.

Negative press or reviews

Bad product or service reviews online or in the press and negative articles about your business or its leaders are other potential sources of reputational damage.

People search for reviews on social media, through search engines, or on review sites before making buying decisions or visiting a business, so these reviews or stories can have a significant impact.

How you respond is very important. It’s usually best to designate an employee as the community manager to respond to relevant posts and reviews, even if you’re a small business that can’t afford a full-time dedicated social media or community manager. This will help you respond promptly with someone regularly checking the reviews.

It’s also helpful to be an employee, not the owner, because the business tends to be very personal to a small business owner. You put your blood, sweat, and tears (and usually a lot of money) into the business, and it can be hard to read harsh reviews.

However, many small business owners end up damaging their business’ reputation by taking reviews personally and publicly responding on sites like Yelp or in public comments on social media platforms in a way that’s not as professional as expected.

Security or data breaches

Your reputation will likely suffer if you get hacked or compromise customer data. Your buyers need to trust that you’ll securely hold private information such as their contact information and credit card data.

This is why robust cybersecurity protections training employees on proper data management and avoiding phishing attempts are essential.

The impact of reputational risk

Maintaining a good reputation isn’t just about being liked. Reputational risk can have a significant impact across many areas of your business, including:

Financial impact

Consumer purchasing decisions are increasingly being made based on company reputation. Today’s customers care about your company’s values. They want to know if your values align with theirs.

Therefore, you need a good reputation in several areas. These areas include environmental sustainability, worker treatment, and your company’s partners. Essentially, customers care about who your company supports.

We’re also in an age where the news of one person getting poor service or receiving a defective product could spread quickly online. Taking a hit on your reputation can significantly impact your sales and revenue.

For publicly traded companies or small businesses looking for investors or to sell, it’s also important to consider how your company’s reputation will impact its market value.

When a big company takes a reputational hit, you can often see it in the company’s stock prices. The brand and IP are weakened when a local restaurant or small business gets negative publicity or experiences reputational damage. It’ll be more challenging for the owner to sell when they decide to retire or move.

Recruiting and retention impact

Your reputation impacts external perception from customers or investors and internal perception from current employees. A reputational hit can impact internal employee morale and scare away would-be applicants for open roles.

Employees must also consider how your company’s name looks on their resume. If your company is not well-regarded, they may decide their career should leave now and switch to a more highly respected business to improve their long-term career prospects.

Reputational risk management strategies

Find out how to mitigate reputational risk with the right strategies and best practices.

Implement strong internal practices

The best way to minimize reputational risk is to avoid it where possible. Strong internal processes and policies around ethics, corporate governance, regulatory compliance, and quality assurance testing can help you avoid common sources of reputational risk.

Educate employees and company stakeholders

Ensure that your employees, leaders, and major stakeholders understand the impact of reputational risk and the different types of reputational risk.

Sometimes, your team members and leaders don’t understand or adequately consider how their actions can impact the public perception of your business.

This is an excellent time to review your social media policy and how employees should and should not discuss the company on social media. Advise them to avoid online hate speech or harassment of any kind.

High-level leaders should also know that their activities, posts, and public political donations will impact the company’s reputation more than individual contributors or mid-level managers.

Suppose you have some board members and executives who could be more tech-savvy. In that case, it’s a good idea to remind them to have private personal accounts and separate them where they post personal updates and professional content.

Engage in social listening

Monitoring social media posts and press coverage around your company is a great way to monitor potential reputational risks. Social listening is monitoring online conversations about your brand to observe trends and learn more about your audience.

This is a great way to monitor any minor complaints or suggestions your business could proactively address to avoid future reputational risk. It can also help you hone in on who’s talking about your brand and what your more enthusiastic customers like or care about.

Respond to concerns promptly

How you respond to issues that present reputational risk can make or break how your company is viewed. Every business will have hiccups, but consumers want to know that you respond to missteps promptly and transparently.

Be responsive and prompt in addressing issues as they arise. In the event of a larger story or more major backlash, you should engage a crisis management or public relations professional to craft your statement to ensure it delivers the right tone and message.

Make meaningful changes after incidents

The best way to show customers that you care and take their concerns, privacy, and trust seriously is to make a meaningful change after something goes wrong. You don’t have to give the public all the details.

Still, you should explain your actions. Perhaps you are updating your internal practices. Maybe you are changing your quality assurance guidelines. You could be revising other policies to serve them better. In this way, you can avoid future incidents.

Real-life examples of reputational risk

Explore some case studies. These case studies involve companies that faced potential reputational damage. Then, learn how to use these examples. Ultimately, you can manage your own reputational risk better.

Equifax data breach

In 2017, over 147 million Americans’ information was compromised in a data breach through Equifax, a consumer credit reporting agency. Many of their products and services revolve around fraud detection.

Additionally, they focus on safeguarding your identity and sensitive information. Therefore, this breach impacted their reputation in that area.

Leaders can learn a valuable lesson from this event. They must be transparent and responsive during events that may impact consumers. For example, Equifax faced criticism for its slow response in alerting consumers about the breach.

They discovered the breach in July 2017 but only made it public in September. Therefore, responding too slowly or failing to alert customers promptly can present further reputational risk. Moreover, it can damage consumer trust in the company and its leaders.

Lululemon’s founder making controversial comments

As discussed earlier, founders, CEOs, or other key stakeholders can be a significant source of reputational risk. If they’re not careful, their public comments and perceptions can damage their company’s reputation.

In this case, the founder of Lululemon, a popular athleisure brand, faced criticism. The founder’s various comments ostracized specific segments of the company’s customer base.

These segments included Asian customers and plus-size shoppers. As a result, the comments offended a significant portion of the general public, alienating many people.

A key takeaway is this: Have a PR professional work with your key leaders for interviews. Additionally, create a culture of respect for all people, including those you currently view as outside your target market.

For instance, some businesses, like Lululemon and Abercrombie, made missteps. They tried to craft a reputation for exclusivity, but instead, they came across as exclusionary or disrespectful.

Consequently, it’s important to remember that your target customers can change. Ultimately, it’s good to make everyone feel welcome.

More resources:
Internal recruitment: The ultimate guide to finding hidden talent
Employer branding strategy: A step-by-step guide for success
What does DEI mean in todays workplace