Who is responsible for your company's reputation? Increasingly reputation management is outside the control of the marketing and leadership team. Your customers, employees, advocacy groups and the wider general public have multiple platforms to have their views or concerns known. Social media grows ever more powerful and with the heightened and immediate presence of Facebook, Twitter and a whole host of online channels, many platforms can specialise in advocacy and social mobilisation. Not paid your tax in a way "wider society" deems acceptable - never mind that you believe you followed the law, after all that's why you engaged the tax specialist to structure matters so expertly - well your defence doesn't come across too well when cyberspace opinion is against you. How do you figure the longer term costs of shorter term gains?
CGMA research showed that assessing the impact of potential reputational damage is hard to do. In a survey of nearly 1,300 globally, although three quarters (76%) of global financial leaders said their company was prepared to lose profit in the short term for the sake of protecting its long-term reputation and the same number (76%) place more focus on reputational risk today than in previous years this, over 95% of organisations surveyed admitted to not always using feedback from online channels to help them anticipate and manage risk to their reputation. And this is despite social media being one of the key factors that heightened reputational risk.
Similarly, 62% of those surveyed had no formal processes or models in place for calculating the financial impact of not managing reputational risk. It is a challenge, but finance directors and leaders need to better understand the causes and fall out, evidencing the need for better non-financial analysis and internal reporting.
What was striking in the findings was that nearly a quarter of respondents worked for organisations that had experienced a reputational failure - 22%. In the UK this rose to a third at 34%. Perhaps these were the same organisations that now always considered the financial implications of reputational risk, globally 30%. 34% sometimes considered implications, leaving over a third never considering such actions. Let's hope they have a decent back up plan for when things go wrong. I suggest that should not include, as further allegations against JP Morgan Chase now show, planning a cover-up up for wrongdoing. Believe me, that makes things far worse.
With the market demand for transparency listed as the main factor for increasing focus on reputational risk, together with the fear inspired by reputational failure at a leading organisation or competitor coming in second, those working in finance are well advised to truly consider benefits for the longer term against short-term wins that lack integrity.
To do that, sometimes, entails making the case of the costs and escalating as necessary. Consider, for example, how would the Board respond? New CGMA resources including a report and toolkit on the Board and Risk can help guide you to raise the key questions and provide the appropriate information for appropriate and ethical decisions making.