One person who does not have a conflict in evaluating a company’s reputational risks should manage a company’s reputation. This approach starts with one basic requirement – the board and the CEO have to agree that a company’s reputational risks should be managed and mitigated.
As an initial step, the company has to assign responsibility for reputational risk to a senior executive responsible for risk management.
The senior risk manager has to conduct the following steps:
- Assess the company’s reputation
- Evaluate the reality of the company’s reputation
- Identify and close gaps between reputation and reality
- Monitor stakeholder beliefs and expectations
- Monitor and benchmark peer performance in the industry
- Measure and monitor the company’s reputation on an ongoing basis
A senior risk manager assigned to the company’s reputation should report regularly to senior management and the board on the company’s reputation and risks to the reputation. The CEO should work closely with the risk manager and determine which risks are manageable and which risks should be avoided.
Managing reputational risks requires attention and authority. In most cases, reputational risks are managed piecemeal in different parts of a company.
Specific corporate functions have to share information with each other to ensure that everyone has access to all measurements of reputation – investor relations ascertains and influences expectations of analysts and investors; marketing surveys customers; advertising promotes expectations with media ads; HR monitors employee satisfaction; communications monitors the media and promotes corporate messaging; and social responsibility engages with NGOs.
A senior risk manager has to bring together these disparate functions by organizing information and data from these sources and using technology to monitor these operations. A dashboard for reputational risks would not be hard to create or difficult to maintain.
A senior risk manager has to be given sufficient authority to access information about a company’s operations in order to determine the reality of the company’s performance. Additionally, the risk manager has to be mindful of the inherent resistance that certain senior executives will have to acknowledging weaknesses in overall corporate operations. A CEO has to stand by his or her senior risk manager and ensure that the risk manager carries the authority of the CEO.
The important change required in corporate governance is the creation of a separate reputational risk manager. With such a perspective, a senior risk manager can have a positive impact on the company and its reputation by improving corporate decision making to take into account reputational risks.
A senior risk manager can also reduce the impact of senior executive cheerleading – a phenomena that occurs often in the C-Suite as senior managers confuse positive messaging with objective reality and management. I have always believed that cheerleading is unproductive and tends to divert attention and resources form resolving real problems facing corporate leaders.
To the extent a company can focus on its reputation and the gap, if any, in the reality of its performance, corporate decision-making should improve. It is often hard to acknowledge the “truth” about a company but corporate leaders who ignore such truth are doing a disservice to important corporate stakeholders.
The hard truth about a company’s reputation and its performance can bring about real and lasting change that can benefit everyone.