Companies perform risk management to identify common dangers that can impact their operations. These risks can consist of supply chain bottlenecks, cash flow issues, and cybersecurity breaches. Another type of issue is reputational risk. Reputational risk is any type of threat that has the potential of damaging your good standing. This threat may impact the current and future success of your operations as well as harm your reputation toward consumers.
How Reputational Risks Harm Your Business
When talking about reputation risks, we often associate it with one bad review here and there from a customer who just can’t be satisfied. However, reputational risks can cause so much more damage. Depending on the type of risk, they may cause employees to feel unsafe in the working environment, cause loyal customers to leave your company, and can lead to regulatory fines. Backlash against your company may even weaken your financial standing with investors, forcing them to invest their money elsewhere as this problem can impact your company’s financial stability.
Types of Reputational Risks
Reputation risks can be very broad. They can involve the company solely based on the owner’s actions, could involve employees, or may even be from partners or outside influences. Determining which type of reputational risks are most likely to impact your operations allows you to develop the right strategies and policies to deal with the issues should they arise.
Company Actions
One of the most common reputational risks is product and/or service quality. Poor services and damaged products can lead customers not only to shop elsewhere, but to harbor such negative viewpoints about your brand that it can become a running gag or online meme shared across social media platforms. Such reputational damage can last for years despite making improvements to the quality of your products and services. Other types of company actions could involve poor working conditions, noncompliance violations, data breaches, public scandals, and even a repeated history of being negative to customer reviews.
Employee/Management Actions
It’s not just the company operations that could put you at risk; it’s also those employees and managers that work for you. They can become the face of your company even during their off hours. If an employee does something negative in the public news, it can lead back to the people taking a closer look on how your company responds to the situation. Management misconduct toward employees, employee misconduct toward customers, or a business leader showing a negative reputation are all ways that can create a brand risk that could impact sales and revenue.
Partner Actions
Business partners come in many forms, such as suppliers of goods or services, advertisers, or a company that provides complementary services to your customers. How that partner interacts with their customers as well as your employees could create reputational risks. One growing risk is how partner companies are storing and transmitting shared data information. Security breaches are on the rise across the country, leading to companies taking on a negative brand image due to the actions of a partner company’s poor security measures. A partner may also engage in misconduct, illegal activities, or other negative actions that can harm your online reputation.
Outside Influences
Outside influences may involve unhappy customers, and previous employees or previous business partners with whom you’ve cut ties for the good of your company. They may talk negatively about your company and leave bad reviews online. These reviews may use factual or false information designed to hurt your brand image and cause customers to mistrust your company.
Data Breaches
Security threats and breaches from hackers and scammers can also become a dangerous reputational risk for your company. These breaches could cause stiff legal and regulatory penalties/fines as well as reputational damage.
Public Perception and Risk Management
Keep in mind that any risk that reaches news outlets and social media platforms can spread rapidly across user feeds. The public may come to feel unsafe or dissatisfied with your company based on these problems, as they do not want to take on the risk of doing business with you.
Status Labs recommends that developing a response plan to handle reputational risks allows you to identify which issues are more likely to impact operations, whether the issues are accurate, and how to respond in a way that handles any negative news. Then you can stay on top of current and future risks that could happen depending on how you scale your operations.