Reputation Risk Definitions

Definitions create the lenses through which we look at the world. The renowned psychologist, Abraham Maslow said that if the only thing you have is a hammer, you tend to treat everything as a nail.

I start every workshop and presentation with definitions, so that I can establish a common framework in which I can work with my audience.In particular there are three definitions to describe reputation risk, each serving a slightly different purpose.

The first definition is that Reputation risk is the risk that an activity, action or stance performed or taken by a company or its officials will impair its image in the community and/or the long-term trust placed in the organisation by its stakeholders, resulting in the loss of business and/or legal action.

A practical example of that right now is highlighted by the headline: "Nokia postpones deal because of Siemens bribery probe!". Cell phone maker Nokia and telecommunications equipment maker Siemens are postponing the merger of their mobile-network units because of an ongoing investigation into allegations of bribery at Siemens.

The deal, which will create a new company called Nokia Siemens Networks, was supposed to be finalized January 1, 2007. But in a press release Thursday, Nokia said it expects the deal to close in March.

Nokia said it is postponing the deal because it is concerned about the ongoing bribery investigation that has already led to the arrest of several former Siemens employees, including Thomas Ganswindt, former head of the German company's telecommunications equipment division.

The second definition is that Reputation Risk is the loss of earnings that occur in a situation of negative public opinion. It normally results in loss of sales, share value decreases and breakdown of relationships. Many a crises have led to stock price decreases and impact in other areas of the business.

The 3rd definition is one that I use in my Stakeholder Reputation workshops. Reputation Risk emerges when the reasonable expectations of stakeholders are not met.

This definition requires a different view. It essentially involves taking a look at each stakeholders needs and expectations, matching the drivers of an organisation's reputation and minimising the gaps that exist.

From the above definitions it must be clear that essentially all risks and all related components of a company potentially impact on reputation risk. This implies that reputation needs to be systemically managed in organisations.