Preventing Crisis

Four Triggers of Reputational Risk

Posted May. 12 2016, 07:11:32 pm

Standing Partnership

Safeguarding a company’s reputation is a high priority for most senior executives. But with the seemingly endless number of ways a reputation can be damaged, the task can seem overwhelming. The most progressive companies conduct annual reputation audits to identify potential gaps and the areas of greatest risk.

While it’s true that each organization’s reputational risks are unique, insights from Standing Partnership’s 2016 Reputational Risk Report – based on a survey conducted by Edison Research of more than 1,000 executives – found there are common areas of reputation risk. Although it’s best to regularly audit for reputational risks, these four triggers identified by survey respondents are a good place to start.

1)    Customer Satisfaction

Even though the customer comes first for most companies, many still struggle with keeping them happy. According to the 2016 Reputational Risk Report, past reputational challenges were most frequently the result of customer satisfaction (69%). An even greater number of respondents (77%) are concerned about this going forward.

The telecommunications industry is one that continually struggles in this area. In fact, seven of the 10 companies listed in 27/7 Wall St.’s customer service hall of shame are from this industry. Comcast leads the pack and has the worst customer service reviews of any company by a wide margin according to their study. While I don’t live in an area served by Comcast, my son does. And his stories of continued service inconvenience and inadequacies seem almost unbelievable, except apparently he’s in good company. There is no question poor customer service is not only affecting Comcast’s reputation, it’s a problem for the industry.

2)    Public Perception

Coming in a close second, (64%) of survey respondents who experienced past reputational issues cited public perception. The same concern also ranks number two (66%) for anticipated future reputational issues.

One of Coca-Cola’s sustainability commitments is well-being, including a goal of “helping people get moving” by supporting physical activity programs. Last year, the company faced criticism for backing obesity research that found maintaining healthy weight had more to do with exercise than cutting calories. By choosing to help fund a nonprofit established to help promote the research findings, the company was criticized in a New York Times article for using the research to secretly mislead people into thinking they can still eat and drink what they like as long as they exercise. The perception was that Coca Cola was saying people can drink their sugary sodas as long as they exercise. The company did cut ties with the nonprofit, but the damage was done and three months later the company’s top scientist who led its well-being strategy retired from her position.

3)    Product Quality

More than four in 10 (43%) respondents experienced a reputational issue tied to product quality. Customers expect companies to provide a good product at a fair price. If either quality or price is compromised, so goes the company’s reputation.

Chipotle’s numerous food safety issues in 2015 and early 2016 are of late one of the most prominent product quality stories in the news. Restaurant after restaurant from locations throughout the United States experienced E. coli and other food borne illnesses. And just last week Food Safety News released legal letters from Chipotle to the CDC questioning the need for public updates. The same publication pointed out the disconnect between the restaurant chain’s actions and its “food with integrity” claims. It was no surprise that Chipotle reported its first quarterly loss ever of $26.4 million in Q1 2016.

4)    Integrity

While Chipotle serves as a strong example of a reputational product quality challenge, it also makes a nice segue into integrity as a reputational trigger. While 34 percent of the 2016 Reputational Risk Report respondents said their organization had experienced this issue, more than half (52%) cited it as a potential liability.

When news broke that Volkswagen installed devices in millions of cars to circumvent U.S. emissions tests, the company was immediately in the hot seat. The company’s slow and muddled response made matters worse. It’s never good when even the media are reporting on how the PR efforts made things worse. It’s very evident that Volkswagen had not considered the implications of a situation such as this, nor was it ready for a crisis. If there was a crisis communications plan it place, it was either poor or it wasn’t being followed.

There are two key actions required to ensure none of these reputational risk triggers catch your organization by surprise. First, conduct a reputation risk audit and second, develop and regularly update a crisis communications plan.

To learn what more than 1,000 executives have to say about reputation risk, download our 2016 Reputational Risk Report conducted by Edison Research.

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