According to a study by the World Economic Forum, more than 25% of a company's market value is directly attributable to its reputation. Maintaining and enhancing this asset is vital to any organization's growth, continuity, and success. However, in our hyper-connected world, reputational risk can threaten a company's good name and undermine that trust.
Reputational risk has constantly threatened organizations, considerably impacting their validity. How can a company continue when its customers do not believe in or trust that it can satisfy their needs or care for them?
Today we present a complete explanation of the definition of reputational risk; let's analyze some cases and some recommendations to manage it correctly.
TThe reputational risk definition refers to any threat or danger that has the potential to damage an organization's reputation with consumers and negatively impact the organization's continuity and success.
According to an Adobe survey, "44 percent of global consumers will spend at least $500 or more each year with the brands they trust most."
This scenario of danger occurs through the disclosure of actions, statements, or omissions of the organization massively disclosed to the public through the media and today, primarily through social media.
The problem with this risk is that it violates consumers' trust in a brand, company, or business. It triggers an infectious cycle of crisis for the company that goes viral and spreads without further ado, calling into question a company's values, quality, or level of satisfaction.
The reputational risk definition refers to any threat or danger that has the potential to damage an organization's reputation with consumers and negatively impact the organization's continuity and success.
According to an Adobe survey, "44 percent of global consumers will spend at least $500 or more each year with the brands they trust most."
This scenario of danger occurs through the disclosure of actions, statements, or omissions of the organization massively disclosed to the public through the media and today, primarily through social media.
The problem with this risk is that it violates consumers' trust in a brand, company, or business. It triggers an infectious cycle of crisis for the company that goes viral and spreads without further ado, calling into question a company's values, quality, or level of satisfaction.
What can cause a reputational risk?
The truth is that several actions can represent a reputational risk for the company; here are the seven main ones. Keep reading!
To better illustrate the severe impact on the continuity of a company, Piranirisk presents two reputational risk examples that demonstrate how losing trust and a good image with customers can mean losing everything.
Let's get started!
Undoubtedly one of the most controversial reputational risk examples of the last decade. Valeant Pharmaceutical International was an American pharmaceutical company founded in 2000.
A company destined to become a worldwide giant in the pharmaceutical business, and by 2015 it reached its peak of success with shares trading at around $257 per share, a unique figure.
When news of the fraudulent practices finally broke, it faced legal action, and its stock fell below $10 per share, meaning it had lost 90% of its value.
Patients affected by the highly inflated prices-initiated protests to have Valeant executives punished.
By 2018 as a strategy to put the episode behind them, the company changed its name from Valeant pharmaceuticals to Bausch Health Companies Inc.
A case that occurred last 2022 and that questioned the integrity, values, and message that the Spanish luxury brand Balenciaga wanted to convey to its consumers. The problem arose in October 2022; the brand launched an advertising campaign for its summer 2023 children's clothing line that included children wearing stuffed animals with harnesses and leather straps around them, which the public quickly associated with elements of BDSM.
The images went viral online, with millions of comments demanding the company remove the repulsive and disturbing campaign.
Some comments accused the company of advocating child abuse and child pornography.
The firm offered a public apology, removed the photos, and filed a lawsuit against the photo company. However, the suit was dismissed by the court. Several celebrities, including Kim Kardashian, the company's ambassador, spoke out against the campaign.
Here are some practical tips that can help to implement adequate reputational risk management to prevent or mitigate any crisis scenario.
Every organization should establish a direct communication strategy through different channels, which allows them to inform in time about any event that may change the target audience's perception.
Pro tip: avoid vague or imprecise publications or statements with the audience, and keep your content brief, concise and direct.
Organizations must recognize the potential risk; trying to hide or remain silent about an incident only allows it to go viral and spread. Being proactive in dealing with incidents increases the likelihood of overcoming the risk.
Pro tip: if something happens, send a direct message through an excellent targeting strategy, segmentation, and understanding of your audience.
Following the organization's guidelines when making any decision can help protect it from damage, and it also helps to consolidate the company's culture and establish a unique way of doing things.
Other actions can also help companies with efficient reputational risk management, such as:
At Pirani risk, we recognize that while the reputational risk is an unexpected necessity, you can have the technology and cybersecurity solutions to help you be prepared. Good reputational risk management improves with consistent operational, legal, communication, marketing, and public relations practices that allow you to stay ahead in a competitive marketplace. One lousy action is enough to destroy the trust gained over the years.
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