Firms must define their reputation currency

Global corporates must understand their “reputation currency” before they can begin to measure and mitigate the risk, according to RL Expert managing partner Leesa Soulodre.

Speaking at recent StrategicRISK events in Singapore and Kuala Lumpur (pictured), Soulodre said there were five accelerators of crisis for an organisation. These included social and environmental changes, government activism, the growing influence of non-market stakeholders, passionate consumers, and social media and ‘netizens’.

“Reputation is based on seven dimensions,” she said. These include workplace, citizenship, products and services, innovation, leadership, governance and economic performance. But she said it was vital for firms to understand that the “reputation currency”, or weightings, of each of their reputation drivers, would be different in each market that a company operates.

“Where you are in the world will influence the weightings that you can attribute to each of these dimensions and the level of risk that not delivering on these, will represent for your organisation,” she said.

In China, for example, Soulodre said environmental issues can carry a much greater reputation risk for most companies when compared to social issues.

“These seven dimensions and their specific country and sector based weightings are what drive the intangibles of an organisation,” she said.

“If you look at the S&P500 and you look at the FTSE100 as good examples, less than 50% of the value of those companies are, in fact, today tangible value - the rest is intangible. So now we talk about the business of brand and reputation as a large contributor to that intangible value. It’s always been very difficult to quantify and therefore very difficult as a company to resource,” she said.

To help firms measure their reputation, global companies including International Hotels Group, Airbus and Renault have deployed RepTrak®, which provides a template for a company’s global reputation currency. RepTrak examines 15 stakeholder groups in more than 25 industries and more than 50 countries for more than 7,000 companies.

Earlier this year, the Reputation Institute and the UK association for risk and insurance management professionals (Airmic) published a seven-step guide earlier this year detailing a model for managing reputational risk.

At the time of the launch, Airmic research and development manager (insurance) Georgina Oakes said: “The guide aims to create common language and understanding of reputational risk so that risk managers can better discuss with their peers how best to manage the risk and outline to brokers and insurers the events that could affect their company’s reputation.”

Soloudre added: “When we factor for reputation risk, we can’t just consider hazard and probability. In this day and age, we have to factor outrage into that equation and we also have to factor for the likely impact to trust.

“The calculation of outrage is key to adapting to risk appetite/risk tolerance. It is also now critical for assessing how the company resources and rectifies the issues moving forward and the approach they choose to communicate on the issues.”

“As we have seen in the Volkswagen scandal, for all companies there are some non-negotiable ‘licence to operate (Risk)’ components that can cause the collapse of trust in a market and escalate consumer outrage. For the recent car industry crises, leadership (ethics), workplace (culture), corporate governance (compliance) and quality of their products and services appear to be at the core.”

Soulodre said one automotive manufacturer recognised after benchmarking their reputation that, despite these drivers having different weightings in each country, there were really only three core drivers that mattered consistently to their global stakeholders and underpinned their reputation currency, no matter which country they operated in.

These drivers were: they made safe cars (products and services), they were an innovative company (innovation), they looked after their employees (workplace).

“Once they understood this, they could design company communications and assess risk weightings accordingly to resource for both risk management (protect license to operate) and position for opportunity and competitive advantage (leverage license to grow and innovate),” she said.