Tag Archives: reputational risk

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A New Approach to Managing a ‘Classic’ Reputation

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coca cola sweetener challenge

A new Coca-Cola-sponsored contest seems to publicly acknowledge its reputational risk, but at a minimal cost that could manage or even reduce it.

In early August, the beverage giant announced its Sweetener Challenge, seeking non-employees (preferably scientists or agriculture or nutrition professionals) who can bring the company a “natural, safe, reduced, low- or no-calorie compound that generates the taste sensation of sugar when used in beverages and foods.” The winner will be announced in Fall 2018 and will receive million.

Taxes on soda, the decline of its consumption, and mounting data that sours on sugar has unquestionably affected the bottom line for the company and put pressure on the broader beverage industry. By initiating the contest, Coke seems willing to try a fresh approach to manage or favorably alter its reputation as a brand founded on sugary cola, while simultaneously attracting and retaining consumers and generating sales.

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That seems far less risky than not trying new techniques.

“[Reputation risk] is created when expectations are poorly managed and exceed capabilities, or when a company simply fails to execute,” wrote Nir Kossovsky in the 2014 Risk Management article “How To Manage Reputation Risk.” “Managing expectations is all about governance, operations and risk management—the blocking and tackling of running a business. Clearly, there can be perverse brilliance in a business strategy of setting expectations very low.

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Last year, Coca Cola suffered a net revenue decline from $11.5 to $9.7 billion, making the $1 million prize a cost-efficient gamble that, as Kossovsky suggested, can “conceptualize an ideal state and implement a roadmap to reduce reputation risk.”

Other companies have turned to their audiences for new ideas to increase awareness and improve their reputations. Folgers was jonesing for a new jingle this year and paid a songwriting duo $25,000 for a flavorful new take on “the best part of waking up.”

Even the commercial aviation industry sought out-of-this-world innovations from average stargazers. When the X Prize Foundation wanted to inspire the private sector to pursue commercial space flight, it did so with a $10 million prize. The pursuit of the Ansari X Prize generated $100 million in new technologies and was ultimately won by the Tier One project’s ShapeShipOne, which was financed by Microsoft co-founder Paul Allen.

According to Kossovsky, “reputational events are tried in the court of public opinion,” and Coke’s will both there and in stores. The company’s new sugar substitute will be announced in October 2018 and will eventually make its way into supermarkets. With just a few sips, consumers can ultimately decide if the company’s investment and reputation risk management technique was a sweet move.

Laremy Tunsil’s Social Media Controversy Highlights NFL Draft Risks

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shutterstock_212182807Last night was the first round of the 2016 NFL Draft and the lead story was that of Laremy Tunsil.

By many scouts’ accounts he was one of the most talented prospects in the draft and was expected to be chosen in the top five or six.

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Instead, Tunsil tumbled all the way to number 13 after an untimely video was posted to his Twitter account depicting him smoking marijuana through a gas mask. The tweet was quickly deleted but not before creating a snowball effect that will likely cost Tunsil approximately $8 million in lost contract value, as estimated by Forbes based on the NFL’s Salary Cap and Rookie Compensation Pool (a player chosen at #6 would be expected to receive a contract of $20.4 million, while the 13th pick would receive an estimated $12.4 million).

If you watched the first round coverage last night, the term “risk management” was thrown around generously by commentators. In many cases, NFL draft prospects are investments worth many millions of dollars. But with each investment comes questions of risk versus return.

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The Miami Dolphins, who selected Tunsil, made a decision last night that the investment of approximately $12 million dollars mitigated the risks posed by a player who could have drug related issues that could violate NFL player conduct rules. Moving forward, the Dolphins will have to consider the following risks:

  • Organizational Risk: In addition to the marijuana video, Tunsil admitted to what amounts to violating NCAA rules while in college, which will certainly result in disciplinary actions against his alma mater. The Dolphins still have to sign Laremy Tunsil and now have to determine if they can expect a positive return from a player who demonstrates the potential to weaken an entire institution.
  • Reputational risk: Will there be a backlash from the fan base for drafting someone who clearly demonstrates serious lapses in judgement? Remember, these players are not just investments in terms of their performance, but in the revenue and public relations image they create for their respective team. As has been demonstrated in the past with other NFL teams, reputational risk is not just an external factor but an internal one at that that can affect team’s performance on the field.
  • Social media risk: Laremy Tunsil’s agent claims that his client’s social media accounts were hacked. Regardless of whether or not that is true, the damage has been done. But what prevents any of his accounts from being hacked in the future? Will this inspire other potential black hats to hack athlete’s social media accounts? Can the Dolphins impose a social media blackout on its entire franchise? The Dolphins will need to consider what social media risks Laremy Tunsil may pose to the franchise’s image moving forward.

Overall, if Tunsil is as talented as he is expected to be, then the risk of selecting him will likely be worth the reward.

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Right now, the Miami Dolphins have made a decision that their potential investment of $12 million dollars will benefit the team in the future. Let’s hope for their sake that they have a risk management program in place that will give as much consideration to the risks listed above as they presumably give to winning a Super Bowl title.

What to Do About Reputation Risk

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Of executives surveyed, 87% rate reputation risk as either more important or much more important than any other strategic risks their companies face, according to a new study from Forbes Insights and Deloitte Touche Tohmatsu Limited. Further, 88% say their companies are explicitly focusing on managing reputation risk.

Yet a bevy of factors contribute to reputation risk, making monitoring and mitigating the dangers seem particularly unwieldy. These include business decisions and performance in the following areas:

Financial performance: Shareholders, investors, lenders, and many other stakeholders consider financial performance when assessing a firm’s reputation.

Quality: An organization’s willingness to adhere to quality standards goes a long way to enhancing its reputation. Product defects and recalls have an adverse impact.

Innovation: Firms that differentiate themselves from their competitors through innovative processes and unique/niche products tend to have strong name recognition and high reputation value.

Ethics and integrity: Firms with strong ethical policies are more trustworthy in the eyes of stakeholders.

Crisis response: Stakeholders keep a close eye on how a company responds to difficult situations. Any action during a crisis can ultimately affect the company’s reputation.

Safety: Strong safety policies affirm that safety and risk management are top strategic priorities for the company, building trust, and value creation.

Corporate social responsibility: Actively promoting sound environmental management and social responsibility programs helps create a reputation “safety net” that reduces risk.

Security: Strong infrastructure to defend against physical and cybersecurity threats helps avoid security breaches that could damage a company’s reputation.

But brand crises make headlines with increasing frequency, and companies are laying responsibility at the feet of the C-suite, particularly chief risk officers. Deloitte reports that respondents considered the primary responsibility to rest with: the chief executive officer (36%), chief risk officer (21%), board of directors (14%), or chief financial officer (11%).

What can they do? The study offered these key points to consider when crafting a crisis management plan:

  • Don’t wait until a crisis hits to get ready. Monitoring, preparation and rehearsal are the most effective ways to get ready for a crisis event. Organizations that can plan and rehearse potential crisis scenarios should be better positioned to respond effectively when a crisis actually hits.
  • Every decision during a major crisis can affect stakeholder value. Reputation risks destroy value more quickly than operational risks.
  • Response times should be in minutes, not hours or days. Teams on the ground need to take control, lead with flexibility, make decisions with less-than-perfect information, communicate well internally and externally, and inspire confidence. This often requires outside-the-box thinking and innovation.
  • You can emerge stronger. Almost every crisis creates opportunities for companies to rebound. However, those opportunities will surface only if you’re looking for them.
  • When a crisis seems like it’s over, it’s not. The work goes on long after you breathe a sigh of relief. The way you capture and manage data, log decisions, manage finances, handle insurance claims, and meet legal requirements on the road back to normality can determine how strongly you recover.

But the real objective should be preventing these potential crises to begin with. Deloitte recommends exploring the possibilities of “risk sensing” – using real-time data to monitor the issues that might impact a company’s reputation:

Crisis management for C-suite executives

Check out the infographic below for more insights from the Deloitte Reputation@Risk survey:

Deloitte Reputation@Risk Global Survey

Dealing with Reputation Risk

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reputation risk and social media

Properly assessing risk is critical to any business. Successful businesspeople understand that every decision they make must be weighed against the potential risk to the company. This risk assessment must not be limited solely to situations directly related to the business itself, however.

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They must also consider reputation risk, or the risk events will have a negative impact on one’s personal reputation and, by extension, the business.

Whether fair or not, the decisions made in someone’s personal life can have a substantial impact on the company they are connected to. This risk extends beyond just the owner or executives of a company; employees caught doing unscrupulous things can cause a public relations nightmare for the business, ultimately resulting in massive losses for the company itself.

Assessing Reputation Risk

Unlike business transactions, where there are countless models and historical examples of the likely risk and reward of most given situations, reputation risk is far harder to quantify and prepare for. It is nearly impossible to predict, for example, whether or not an executive will get belligerently intoxicated and assault a police officer. The executive can bring unwelcome attention to the company, which in turn can cause investors, advertisers, and partners to shy away in the short or even long-term.

Exacerbated in the Social Media Generation

Social media platforms such as Facebook and Twitter have dramatically intensified reputation risks. In the past, it was possible for a relatively minor incident to be swept under the rug or forgotten relatively quickly. If not, chances were good that a story would stay relatively local, perhaps reported in an area newspaper once or twice before fading from memory.

Today, however, even a single story in a local newspaper (or, worse, an online blog) can be shared and re-shared thousands of times in a matter of hours.

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“Viral” stories can spread across an industry and the country within only a day or two. By the same token, an ill-advised Facebook or Twitter post on a controversial topic can be shared just as quickly.

Mitigating the Danger

Unfortunately, there is only so much one can do when trying to guard against reputational risk problems. It is impossible to control every human being’s actions, and even harder to control them every second of every day. The only viable solution is offering guidelines to employees and executives to try and minimize the problem as much as possible. It is also worth calculating risk factors among employees. For example, an employee with a history of public intoxication or domestic abuse issues may not be someone you want representing your company.

At the end of the day, there is only so much one can do to reduce reputation risk. It is important, however, to have a public relations strategy on hand for if and when a troublesome situation arises—and it almost certainly will at some point.

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