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How reputational risk has risen in the age of social media

social media

There was a time when we proposed to clients that they need to have a social media presence, and the response was always predictable. They would rather stay out because that would reduce the likelihood of them ‘being exposed to unwarranted attack and criticism from the X mob!’

Hilgard Kamuna, the head of sister consultancy, Bwanjo Malaiwi would have a sobering answer for them that whether you was on social media or out, like it or not, people were still going to talk about their brand and its shortcomings.

A number of Zimbabwean brands have since discovered this fact at a considerable cost to their valuable reputations.

The reality is that staying out of the social media is no longer an option for CEOs and their boards if they are concerned about the share value their organisations.

Victor Magwenya, then head of Conversations Media, now South African Presidential spokesperson said the cellphone, the internet and social media had irreversibly changed how the world communicates and opened huge opportunities for businesses, but also at a cost.

A survey by Pentland Analytics and Aon’s Global Reputational Risk Management has found that businesses around the world see reputation damage – amplified by social media – as their top risk management concern

The rise of social media and online news sites mean that bad news travels far and very fast.

So when companies run into reputational risk, a quick and strategic response is essential. If at least to minimise the damage.

Communications have changed, both the opportunity for error, punished by social media, and the accelerated response times that are now assumed says Dr. Deborah Pretty, founding director of Pentland Analytics, co-authors of the report.

Aon’s Global Risk Management Survey shows there is a direct correlation between an attack on a company’s reputation and shareholder value.

It’s critical that the C-suite (the decision making team) makes the connection between the risk and shareholder value and are prepared to protect their reputations should a crisis occur.

For companies facing an adverse event, such as a crippling cyber attack or a major product recall, the impact on value is significant. On average, 5% of shareholder value is lost over the year following the event, the study finds.

However, following a reputational crisis, the study shows that companies fall into two distinct groups: winners and losers.

Winners are those that tend to outperform investors’ pre-crisis expectation and actually gain shareholder value in the year following a reputational crisis, while losers experience a value decline that exceeds the average.

The effect of a crisis amplifies a company’s visibility because the market receives substantially more information about it and its management than when the situation is normal.

Investors use this additional flood of information to reassess their expectations of future cash flow. The result could be a dramatic impact on market price. Some management teams impress, and expectations of future performance are even higher than prior to the crisis. Others disappoint, and investor confidence in management is destroyed.

Companies that “win” in terms of shareholder value following a reputational crisis typically are marked by responses that embrace several key characteristics.

There key actions that companies that not only overcome the crisis but thrived afterward have taken.

Responding immediately is critical. A delayed response is almost always costly. Delays can lead markets and the public to question the company’s ability to respond adequately and whether the information provided to the public could be trusted.

Delays also provide more time for social media users to dictate the narrative around the crisis, rather than letting the company control its crisis response message. A deep commitment to preparing for risk helps to reduce delays when crisis strikes.

Knowing the facts is always important. That means moving quickly to gather accurate information about the crisis and its potential impact on the company and the public. Having to issue corrections as the response proceeds will undercut confidence in the company’s crisis efforts.

Also, a leader who responds decisively in a crisis earns respect. The public reward companies that exhibit strong, visible leadership. This is pivotal to a value-creating response.

The CEO who moves quickly to protect consumers by shutting down production of a flawed product and swiftly announce recall plans is a rare yet commendable asset.

Be open. Winners move quickly to inform the public of the crisis and provide detailed information about the event, the steps they’re taking to contain it and what they’re doing to protect the public.

They’ll also keep the public aware of the progress of their response and any changes to the response plan, should they occur. Showing genuine concern is key.

Another key action typical of ‘winners’ is that of responding globally. The impact of the reputational crisis is best managed by addressing the crisis globally, whether it’s in terms of the information the company shares with markets and the public or the remedies it provides, instead of responding in a piecemeal fashion.

Last but not least, winners make amends. Whether with the public for the impact of the crisis, or it’s in terms of future product features, consumer protections or restitution, customer data monitoring after a data breach, or engaging in environmental protection activities.

Among the significant cultural shifts affecting the current reputation risk climate is an increasing expectation that companies should not only acknowledge, but also make up for their mistakes.

Reputational events often arrive with little or no warning, forcing organizations to respond quickly and effectively in real-time, nothe report said, adding that it’s important for companies to have a comprehensive reputation risk control strategy in place to preserve the consumer’s trust.

The choice for the executive management is clear: They can either react to a reputation event or be proactive when it inevitably occurs. To react is to lose control of the event’s narrative, which subjects your brand to the uproar of all those eager to voice their opinion on social media.

But those proactive brands that properly plan for such adverse events and communicate in a genuine manner will find that the market not only forgives, but may also reward those that embrace and respond effectively to their reputation event.

“Reputation risk management must be a top-down priority and the effort should be embraced across the organization,” says Randy Nornes, enterprise client leader at. Aon

In conclusion, the Aon study identifies key drivers of a successful recovery for a reputation event as being the fact that crisis +263773609809 must be instant and global, perceptions of honesty and transparency are essential and, that active, social responsibility is critical.

n Lenox Mhlanga is PR and Reputation Consultant at Magna Carta Reputation Management. He has 24 years in the profession and also lectures at tertiary level. He can be contacted at lenox@magnacarta.co.zw

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