Common Reputational Risk Cases Every Business Should Know and Manage

Reputation is fundamental in every business, so you should be attentive to any likely reputational risk to your business. Internal blind spots and external threats are reputational risks affecting companies.

Working hard on your reputation is crucial because it determines your success. Have you ever imagined the implications of a public scandal involving your CEO or a hacker gaining access to sensitive data? You must be proactive to wade off these risks from your business.

Defining Reputational Risk

A reputational risk is an attribute that threatens your business outfit's reputation. Damaged relationships, financial loss, punctured career prospects, and loss of customers are some implications of reputational risks. Unfortunately, many reputational risks happen suddenly, making them difficult to control or avoid.

Therefore, activating proactive reputational risk management mechanisms for your business is essential. A damaged reputation is easier to avoid if you address every known vulnerability of your business. When a reputational risk inevitably occurs, you must have a workable action plan to reduce the personal and economic implications.

Factors that make up a firm’s reputation include consumer trust, customer privacy, online experience and marketing, financial performance, corporate leadership, and inclusion and diversification. You must consciously guard these factors for the public to perceive your business positively.

Types of Reputational Risks

The two categories of reputational risks are internal and external.

Internal reputational risks are the damage your business suffers due to substandard business practices or mismanagement. Internal risks include reckless data security breaches, low service or product quality, poor employee working conditions, unknown social responsibility, unethical behavior, and poor customer service.

On the other hand, an organization may suffer harm from third parties or external factors such as unfounded negative rumors, litigation from ex-workers or unsatisfied customers, inadequate media coverage, the unethical attitude of vendors or stakeholders, competitors' online smear campaigns, and hacking.

These reputational risks often target physical security, cyber security, product security, and ethics and security. Also, if your business associates with bad contractors or vendors, they will wreak havoc on your firm.

Typical Cases of Reputational Risk

To make the discourse more practical, we will consider some real-life examples of reputational risks:

CEO’s Ill-Timed Joke

While making a speech in 1991, a CEO crudely joked about his firm’s low-quality products and that they were not worth the money. Immediately after this bizarre speech, his organization’s stock prices dropped drastically. The management fired him for this blunder.

2013 Food Industry Incident

It is an open secret that the food industry is highly vulnerable and reactive to miscalculation. An Irish and British food chain faced a massive scandal in 2013 when it discovered beef burgers had about 29 percent horse meat. The company lost more than £300 million and battled severe public backlash due to this scandal.

Kendall Jenner and Pepsi Cola

Kendall Jenner appeared in a Pepsi TV advertisement in 2017 where she gave a can of soda to a happy police officer. However, this ad faced immediate and unimaginable public backlash because many thought it trivialized the Black Lives Matter movement against police brutality. Despite pulling the advertisement, it already damaged Jenner and Pepsi's reputations.

Why You Should Deal with Reputational Risk Immediately

“Reputation is the backbone of every business. If you do not deal proactively with reputational risk, it will negatively affect every aspect of your business—employees, revenues, and stakeholders. You should quickly deal with reputational risk or vulnerability before it harms your company,” says Attorney Justin M. Gillman of the Gillman Bruton Capone Law Group.

If your business reputation is already damaged, take the following steps: