Reputation and Reputation Risk

It is a well known fact that possibly one of the most valued asset for any organisation is its reputation. The brand that has the ability to generate future revenue business for the entity. Firms with larger reputation values find it easier to find customers and sell to these customers. So, we can freeze on one concept as part of this discussion. The concept that Reputation is the most important element of a company and loss of reputation is equivalent to loss of potential business and even the cause of bankruptcy.

Social Media

Now comes in social media. Facebook is creating history each day as more and more users are logging in and sharing views, concerns, friends, photos, complaints and views about their work place and employers. One one part, this is good because social media forums allow people to better connect with others and to relate their personal lives with others. But the flip side is that it also exposes internal weaknesses of a company to outsiders. Not only that sometimes, it is not even a weakness, but just a wrong perception of an employee.

Linkages between Social Media Risk and Reputation Risk

So, what does reputation risk and social media risk have in common. This is where the third concept comes into picture. A few laws in this regard. 1. As the reputation of a firm increases in value, so does the impact of a negative social media event on the reputation. In other words, a negative positing by an employee is likely to have a larger impact on companies that have highly valued brands. 2. Reputation risk and social media risk both feed into each other. To better understand this, lets take an example of two companies A and B. Company A does a poor job in managing reputation risk from one key risk factor. Employee satisfaction or people related issues in the office. Because Company A does not manage reputation risk well, the employees want the world to know about it. And they go online (..yes FB) and make negative posts about how Company A does not treat them well, does not provide work life balance and so on. The postings spread like wildfire and within hours, general public begins to form a biased opinion about the company. These users are less likely to deal with companies that do not keep employees happy. So, the more reputation risk a firm runs, the more social media risk it has to manage. And the more the social media mess or risk a company runs, the higher the reputation risk. This vicious circle has a spiralling effect. As reputation damage increases, social media posts become more in numbers as well as more defaming. This continues to a point where the reputation or the brand value is significantly lower that what it originally was. The vicious circular effect continues to a point whereby an equilibrium is reached. This equilibrium is a point where the reputation of the business is now so low, that negative social media posts do not have as large an impact as it did initially. Now coming to Company B. It manages reputation risk well. Because of good reputation risk framework, users are less likely to post negative feedback on social media, in fact may post positive feedbacks. Positive postings enhances reputation or brand value, which in turn reduces overall reputation risk.This again continues to an equilibrium point where reputation or the brand is so valuable that even a small mistake by the company or the employee starts to negatively impact the brand value. At this point, the good deeds of the company increase brand value, but this is offset by the little damage by social media risk.

The zone of damage control

The first equilibrium was a point where the brand value cannot go lower because of social media risk and the second equilibrium point is when a brand value cannot go higher because of positive feedback on social media. It is the zone in between where companies need to manage both risk - reputation risk and social media risk- to ensure that they are always at the higher equilibrium point, not the lower one. For more advisory services or reputation risk management or social media management, please contact Manoj Jain at manoj.jain@riskpro.in or 98337 67114. You may also like to implement an effective "Social Media Risk Management Policy". For more details, please view the page http://www.riskpro.in/social-media-risk-management-policy