Reputational Risks

Nowadays the slightest error by a professional firm can be quickly shared and amplified on social media or in the press, causing damage to reputation and impacting financial performance. In this Insight article we look at the main reputational risks faced by businesses and how these can be mitigated through careful planning and monitoring. 

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

Reputation is one of the most valuable intangible assets your firm can own. It says everything about the quality of your work, commercial stability, approach to business and ethics.

Damage to your reputation can have an impact way beyond the incident itself. Clients may stay away – or switch to a rival firm if they think your firm has done something wrong, whether justified or not. Financial performance might be impacted, and it could be much harder to recruit quality staff.

Loss of reputation can happen incredibly quickly. Say you lose client information in a cyber attack or are accused of inadequate specification in a Grenfell-like incident. A regulatory investigation or ESG failure can be equally damaging. So too are lawsuits or careless comments on gender, race, sexual orientation, and other protected characteristics.

Word spreads like wildfire on social media and even negative coverage in your professions’ trade press can leave a lasting damaging mark.

Don’t underestimate the value of intangible assets such as reputation. Howden’s Insuring the invisible study published in 2021 reported intangible assets, account for nearly 70% of total business value of the world’s largest 50 corporations.

So how do you protect something as ephemeral as reputation?

Like all business processes it takes careful planning and monitoring. Take time to think about the work you do which carries reputational risk. Do you hold client data or act for clients working in controversial sectors? Do you specify materials, or could your work impact the environment?

Make sure your risk management procedures are robust enough to protect against these risks and are regularly reviewed. Train staff on cyber security, managing client relationships and other core functions. Keep an eye on your culture – its surprising how quickly the odd harmlessly intended comment about a protected characteristic can be normalised if it’s not challenged.

Find out what your clients and staff think about your firm by undertaking attitude surveys and monitor changing perceptions over time. This can act as an early warning of something happening to your firm’s reputation.

Monitor social media and the press to see how your firm is being reported and think carefully about how you would respond if an issue blows up.  Its far easier to respond to a crisis if you’ve through about it in advance – rather than trying to make up a response on the hoof. If necessary, take professional advice from a PR firm.

Above all take reputation management seriously. Make one senior member of your team responsible – otherwise your efforts will become fragmented or fail to be actioned properly.

Fixing damage to your reputation can be expensive and time consuming. So, if you feel exposed, consider insurance solutions such as reputation or reputational risk cover. These insurance policies can provide the finance and resources needed to give your firm time to recover.

Protecting your reputation is an investment in business success. If you would like to discuss this topic further and understand the implications for your firm, please don’t hesitate to contact the team.