How much is your reputation worth? Reputation is harder to quantify than many physical assets, but when it’s damaged, the loss is clear. Customers can disappear, top employees may leave, and partners may decide it’s more prudent not to do business with you. Your company can go from clear skies to stormy weather in no time.
As Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it.”
Reputation may be hard to quantify, but it’s important to protect. Prepare for reputational risk by taking these five precautions.
1. Understand how reputations get damaged.
Reputational damage can arise from a number of different sources, including:
- The inappropriate actions of the company’s executives, employees, contractors, and partners.
- A company’s policies or actions.
- Mistakes made by employees.
- A faulty product or service.
- Poor customer service.
- Failing to fulfill contracts on time or meet expectations for quality.
- An outside attack, such as a data breach caused by hackers.
- Complaints and accusations from customers, possibly even if they are unfounded.
2. Learn from the mistakes of others.
Don’t repeat mistakes that others have made. Learn from their reputational disasters and take steps to make sure your company doesn’t suffer the same fate.
- Wells Fargo suffered from a damaged reputation after it was discovered that employees were opening fraudulent accounts. As CNN explains, this was a widespread problem involving thousands of employees and evidence of retaliation against whistleblowers and policies that may have encouraged the practice.
- Equifax’s reputation took a hit after a massive data breach impacted millions of people. As Fortune explains, Equifax has been criticized for using out-of-date software that enabled the attack, as well as its delayed actions in notifying those affected.
- The Weinstein Company went from success to bankruptcy very quickly after numerous allegations of sexual misconduct against co-founder Harvey Weinstein became publicized. According to Vanity Fair, the bankrupt company was purchased by Lantern Capital.
- DoubleTree Hotel in Portland was recently in the news because employees asked a black hotel guest to leave the hotel lobby without good reason. The employees have since been fired, but the hotel’s reputation has likely taken a hit.
3. Mitigate risks from executives, employees, contractors, and partners.
Because reputational risk can come from the inappropriate actions of executives, employees, contractors, and partners, it’s important to take steps to reduce the likelihood of problems.
- Vet individuals and organizations before doing business with them. Checking references, performing background checks, and getting to know people can help you spot red flags and avoid problems.
- Create clear, written policies on what is and is not considered acceptable.
- Enforce these policies and provide training on them.
4. Respond carefully.
When an incident threatens to damage your company’s reputation, a good response is vital.
- Avoid kneejerk reactions that may make the situation worse.
- Have response plans ready for a variety of possible scenarios.
- Consult experts before making major decisions. This can include executives, marketers, public relations professionals, and lawyers.
5. Carry the right insurance policies.
Various business insurance policies can help mitigate your company’s risks. These may include cyber insurance policies, Directors & Officers insurance, and other policies suited to your exposures.
Talk to your Heffernan Insurance agent to learn more about reputational risk management strategies.