The cumulative nature of a digital footprint leaves firms at risk of rapid reputational damage. In today’s hyper-connected world where information travels faster than ever, protecting organizations’ reputations has never been more critical.
What is Reputational Risk?
Reputational risk refers to the potential for losses, brand damage, or other adverse effects arising from a company’s actions or inactions. It’s not just about what your company does but also about how the outside world interprets those actions—or the lack thereof.
Reputational risk is a multifaceted issue almost entirely contingent on stakeholder perception, or how your brand is perceived by customers, investors, and the broader public. Positive perceptions reflect well on a brand, while negative perceptions can lead to tangible and intangible losses to revenue, brand value, and employee retention.
A company’s reputation accounts for 63% of its market value; other estimates place that figure much higher. Up to 90% of customers say that their brand loyalty hinges on a brand’s reputation and values. Considering its value to a firm’s success, reputation is just as much a resource as time.
More specifically, firms with robust reputations attract better talent and are perceived as providing greater value, directly leading to sales and widespread consumer trust. Unfortunately, few firms are equipped to navigate reputational risks properly, tending to focus resources on threats already apparent. However, as noted in the HBR article “Reputation and its Risks,” this approach “is not risk management; it is crisis management.”
What Triggers Reputational Risk?
Reputational risk is relatively simple to pinpoint, often coming from human error. The following are some key examples that trigger reputational risk:
- Supply Chain: Issues related to a brand’s products and services’ quality, safety, or environmental impact change how they’re perceived by consumers. This was the case when popular fashion brand Shein offered influencers a chance to tour their factory in Guangzhou. Media created during the tour revealed unsafe working conditions, resulting in a multi-million-dollar loss for Shein.
- Leadership Risk: Public opinion is fickle and constantly shifting. A firm’s executive team is constantly under scrutiny, extending to personal matters and business actions. For example, IT firm Hewlett-Packard’s stock fell 9% when news broke of the CEO’s personal relationship with a female contractor.
- Data breaches and information security: Data breaches are one of the primary losses of trust for U.S. firms, with just one breach causing a 9% decline in reputational capital. Worse, 60% of consumers report being less likely to purchase from firms that mismanage customer data.
- Risk by Association (Partnership & Influencer Risk): Aligning with another firm, entity, partner, or even content creator means sharing not only resources and expertise but also potential liabilities, especially in the minds of fickle consumers. Therefore, a partner’s potential legal issues, financial instability, or reputational damage directly impact your business.
The internet is largely responsible for increased reputational threats more broadly. According to a 2024 Reputational Risk Report, 86% of executives agree that online reputational threats are rising, and 56% believe their organization will face at least one reputational crisis this year.
Worse, a whopping 66% of executives believed that misinformation and social media damage were top risks to their brands.
It’s safe to say that managing and protecting reputation is a top company issue. Unfortunately, as Henry Ristuccia, Deloitte Global Leader of Governance, Risk, and Compliance Services, told WSJ, “Reputation, however, is shaped outside the organization.”
Reputational risk issues “usually involve the media and what [the company’s] customers, employees, and other stakeholders are saying in the public domain.” Risticcia highlights the importance of monitoring solutions and innovative strategies to safeguard firms from reputational damage, particularly on social media.
Reputational Risk & Damage: Brief Case Studies
Reputational damage cases are too common. Many such instances have continuous repercussions as firms struggle to cope with and mediate the fallout. Worse, negative impacts on share price, earnings, and balance sheets can be severe, and continuous brand degradation can have long-lasting effects.
Take Delta’s July 19th shutdown, for example. Though Delta had maintained a strong reputation for years, a software and IT issue led to millions of customers being stranded and a 9% drop in premarket value.
Microsoft, another firm whose shares dropped (53%) amid the July 6th shutdown, is another example of leadership and organizational triggers of reputational damage. During layoffs, Microsoft faced significant backlash, the effects of which have yet to be realized.
How to Manage Reputational Risk
Managing reputational risk is a company-wide responsibility for U.S. firms, requiring extensive cross-functional collaboration from all departments.
Leveraging innovative tools and strategies, like social media and continuous monitoring solutions, and other forms of reputational due diligence can help firms navigate their various reputational risks. Vcheck’s product suite includes extensive and simple-to-use social media monitoring and risk assessment, continuous monitoring, and reputational due diligence solutions that exceed firms’ risk mitigation and compliance needs.
- Reputational Due Diligence: Vcheck’s reputational due diligence mitigates reputational risk specifically. Our open-source intelligence (OSINT) and extensive human intelligence (HUMINT) help firms contextualize risk and safeguard their ROI. Discreet interviews broaden our scope and close the paper-information gap in over 140+ countries.
- Social Media Screening: Vcheck’s social media screening solutions assess a subject or firm’s digital footprint, leveraging multiple platforms to find adverse media and negative sentiment. The AI model characterizes historical behaviors to provide a comprehensive risk assessment score. Its innovative continuous capabilities lend particularly well to managing reputational risk.
- ID Verification: ID verification solutions safeguard firms from bad actor and pre-employment fraud, two major sources of reputational risk. Vcheck’s solution provides international risk coverage, capable of verifying thousands of unique IDs across 140+ countries and regions.
The Path Forward: Building a Resilient Reputation
Your organization’s reputation is one of its most valuable assets. Protecting it requires an ongoing commitment to ethical practices and a proactive approach to identifying and mitigating risks.
Reputational risk management is a continuous process that requires vigilance, adaptability, and a strong commitment from every level of the organization. Contact us to learn more about how our continuous solutions can protect and monitor your organization’s reputational risk.
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