What Is Reputation Risk? And Strategies to Minimise It

By Indeed Editorial Team

Published 5 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

In the fast-paced informational age, organisations and professionals have an important role to play to safeguard their reputations. Any action that can affect a company's brand or integrity can quickly gain wide exposure thanks to the internet, which makes it essential to know how to control perceptions. Knowing how to protect your employer's reputation can help improve customer loyalty and prevent public relations challenges. In this article, we discuss what reputation risk is and outline strategies for minimising it.

What is reputation risk?

Reputation risk refers to factors that can affect an organisation's image negatively. Reputation is how the public or stakeholders perceive a company's integrity or values, and customers use it as a measure of what to expect from an organisation and its employees. It takes a long time for businesses to build a positive reputation, but once they do, it can become easier to gain customers' loyalty and boost brand recognition. This is why it's important to guard this trustworthiness, as it can be difficult to regain once lost.

As a professional, it's important to know the scenarios that can put your employer's reputation in jeopardy and learn how to mitigate them to maintain a good relationship with clients, investors, stakeholders and the public.

Related: What Is Public Relations (Plus 8 PR Tactics That Work)

Types of reputational risk

Here are the major types of reputational risks:

  • Direct: This type of risk to a company's reputation occurs because of the organisation's actions and other internal issues. It becomes a risk when the public or customers know about the problem, leading to a change in their perception of the company's trustworthiness.

  • Indirect: This type of risk arises because of the conduct of an organisation's employees. It may happen during engagement or customer service, and can change how people see the company.

  • Peripheral: This type of risk results from the actions of business partners. For example, a supplier might fail to deliver goods on time, leading to unsatisfied customers.

Causes of reputation risk

There are several factors that can cause reputation issues for an organisation, including:

Negative media coverage

One of the commonest sources of reputation issues for organisations is the media, especially when it relates to unfavourable news coverage. For example, a local journalist can write an article about unhygienic working conditions in a factory, causing the public to doubt the quality of the organisation's products. If you allow such negative news coverage to spread, it can lead to serious damage to a brand's image. This makes it essential to have a proactive public relations unit that can implement damage control strategies to seize the narrative and influence the public's perception favourably.

Related: What Does a Brand Manager Do? (With Salary and Skills)

Leadership crisis

A company that's facing internal leadership struggles can suffer reputation problems. The same can happen if a top executive, such as a chief executive officer, acted dishonourably in public or even in their private lives. Because such people are the representatives of companies, any damage to their image can affect the organisation's reputation in the public space. This makes it important for businesses to promote people with strong personal and professional values to high office and ensure that the organisational culture promotes and rewards good behaviour.

Data breaches

Most people are reluctant to provide their personal and financial data to third parties and only give it to companies they trust to safeguard the information properly. If a data leak exposes customers' sensitive information, such as passwords, bank accounts and credit card details, this can dampen a company's reputation. To avoid breaches, it's important for organisations to invest in a robust database and cybersecurity system that can provide optimal protection.

Social media engagement

While social media platforms provide an effective avenue for businesses to engage with their clients and run sales and marketing campaigns, it's important to set clear guidelines on how to use these websites. Improper use of social media channels can cause misinterpretations that can affect a company's image and reputation. When such incidents occur, they tend to spread quickly because of the viral culture of social media platforms. It's vital to have an experienced social media management team that can create and implement a vibrant strategy for achieving organisational objectives while reducing reputational risks.

Related: What Does a Social Media Manager Do? Duties and Importance

Poor business practices

Issues with a company's business model, customer service and other aspects of operations can also lead to reputational problems. For example, if a business takes too long to resolve customer issues, people may perceive the company as one that's not serious about providing a good client experience. Likewise, a company caught falsifying its financial records to lower taxes can suffer serious public relations issues. Having clear organisational guidelines that ensure employees perform their duties effectively and adhere to regulatory protocols can help prevent reputation issues arising from internal processes.

How to reduce reputational risk

Here are strategies you can use to minimise risks to your employer's reputation:

1. Evaluate the company's reputational risks

The first step to creating an effective strategy to improve a company's reputation is to evaluate public and stakeholder perception of the organisation's image. This information can serve as a benchmark and help the business determine what it wants people to think when they hear about the brand. During this exercise, try to identify potential factors that can affect the company's reputation negatively.

One way companies do this is to search for reviews about their products, services, employees and events on the internet. You can look for negative reviews about the company on prominent complaint aggregation sites. Social media is also an effective tool for assessing risk. To do this, just search the company's name, product or employees on social media platforms. You can even use the hashtag function to streamline results. This way, you can find out what people are saying about the organisation and take steps to correct or mitigate negative perceptions.

2. Develop a reputational risk management strategy

Once you've identified the potential sources of risks to the organisation's reputation, create a strategy or plan to manage the public's perception of the company. This work is typically the responsibility of the public relations department in collaboration with the sales, marketing and customer service units. Together, employees in these departments create plans for proactively finding negative comments and gauging the public's attitude about the organisation's conduct, products, services and other variables.

Some organisations even collaborate with specialised brand management agencies to create, implement and track the results of reputational management plans. That way, the organisation can control the narrative about its image, influence public discourse and prevent internal and external factors from wreaking its reputation.

3. Respond quickly to negative feedback

Social media, review sites and customer service mishaps are three of the most important sources of brand problems. It's important to have clear guidelines for responding quickly to any issues arising from these sources. If you find customers leaving negative reviews about your product or service, quickly get in touch with them to know how to improve their experience. Being responsive can make such customers have a rethink and change their reviews.

Sometimes, a few buyers may just be unhappy with the company, and there're cases where such people act on behalf of competitors. Being proactive allows you to know the right course of action to take. The same applies to negative social media posts and news articles.

4. Provide proper training to employees

Many public relations problems arise from employees misconduct, some of which are due to inexperience or a lack of knowledge of the right operational procedures. If you're a supervisor, it's important to train your team on the right way to engage with the public and share information about the organisation. Social media use is especially tricky for many people.

Let your team know what's acceptable to share and discuss on social media platforms, especially when they're using a company-affiliated account. Plus, it's important for companies to treat their employees well to make them believe they're stakeholders and reduce the chances of reputation-damaging behaviour on the internet.

Related: What Is Corporate Culture and Why Is It So Important?

5. Practise transparency

In many organisations that have experienced reputational issues, the source of the problem might be an employee who isn't comfortable with their employer's conduct. This is often due to a lack of accountability and transparency within the company. Regardless of your position in a company, it's important to encourage a culture of openness within your team to cultivate trust. That way, if the organisation is facing challenges, everybody understands the issues and knows the company is taking steps to improve the situation.

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