INTRODUCTION
Increasingly organizations, both public and private, are recognizing that what citizens, customers, shareholders, legislators, and the financial markets think about their integrity or competency has a significant impact. In a 2014 Global Survey on Reputation Risk a majority of the companies were concerned about situations beyond their control that could affect the reputation of their companies.

A 2015 Survey of federal agencies entitled “Enterprise Risk Management in the Public Sector” saw reputational risk ranked fourth in areas of concern, after Strategic Risk (56%), Operational Risk (48%), and Data Security (48%). The findings of a 2013 survey of universities entitled “A Wake-Up Call: Enterprise Risk Management at Colleges and Universities Today” notes: “There is no choice: each institution and board needs a process by which it routinely identifies, evaluates, and plans for risks that have the greatest potential for reputational injury or obstruction of institutional mission.” (2013.1) Given the importance of an organization reputation and the increasing volatility of the environment, with 24 hours news cycles, blogs and social media, it is worth examining this issue a little more closely.

IMPACT DUE TO DIMINISHED REPUTATION
ISO 3100 defines risk as the effect of uncertainty on objectives. The effect of the a loss of public trust due to a loss or diminishment of the company’s reputation, can impede its ability to meet its objectives and result in loss of market share, product recalls, law suits, additional regulatory scrutiny, loss of stock value and good will to name but a few.   In his analysis of the financial crisis of 2011, Thomas Stanton, in his book “Why Some Firms Thrive While Others Fail” found that while many of the major financial institutions had no legal obligation to support various types of securities, there was a fear that the loss of confidence in the markets and their organization would have greater long term financial impact than any immediate loss.

While one does not often think that reputation is important to government agencies, as noted in the Federal and University surveys, it is. For instance, a university’s reputation helps it recruit top ranked professors, higher quality graduate students, and obtain research funds. It also often can result in higher levels of endowments. At the federal, state and local government levels, reputation can impact the approval of budgets and tax levies.

SOURCES OF REPUTATIONAL RISK
In today’s volatile environment challenges to an organization’s reputation can come from many quarters. British Petroleum (BP) suffered from negative press stories due to a refinery accident in Texas City which killed a number of workers, tax evasion allegations, and the Prudhoe Bay oil spill. Volkswagen is expected to lose significant market share and billions of dollars because of the falsification of records by management. Wells Fargo, a bank which portrays itself as a solid main street lender and weathered the financial crisis, has been fined $185 million dollars over “widespread illegal” sales practices. Further, 5,300 employees have been fired.

While the BP and the Volkswagen problems can be traced to management, Mark Levine in his article “Wells Fargo Opened A Couple Million Fake Accounts” indicates the Wells Fargo problem is more systemic. It appears that management set goals for new accounts which were not realistic. Employees responded with fake accounts. A former employee stated: “When I worked at Wells Fargo, I faced the threat of being fired if I didn’t meet their unreasonable sales quotes every day, and it’s high time that Wells Fargo pays for preying on consumers’ financial livelihoods.” (Sept 9, 2016)

On the government side the State of Oregon’s lawsuit against Oracle over the defunct $300 million health insurance website highlights this issue. The state contends that Oracle billed the state for millions of dollars of shoddy work, even though executives knew the work was shoddy. Oracle contends that it meet is legal requirements under the time and materials contract the state agreed to. Further, state documents and the state’s own investigation indicate that state employees knew the work was shoddy and did not challenge it. Regardless of who wins the lawsuit, it is hard to see the reputation of either party being enhanced.

MANAGING REPUTATIONAL RISK
Managing an organization’s reputation is a difficult process, because, as noted above, challenges come in many forms. The recommendations in the literature cover the gamut from recognizing reputation risk as separate from all other types of risk, to do not tolerate corruption in any form. For most organizations there are three keys to managing Reputational Risk. First, put your customers first by providing a consistently quality product. Second, create an enterprise wide risk management system. Operational problems in any area can create reputational risk. Therefore, an assessment of potential risks and how to mitigate them is essential. Finally, have a risk management plan. If something unforeseen happens, have a response plan outlined. Responding quickly to an accident or reputational risk event can even enhance the organization’s reputation.

Bio:

James Kline is a Senior Member of ASQ, a Six Sigma Green Belt, a Manager of Quality/Organizational Excellence and a Certified Enterprise Risk Manager. He has over ten year’s supervisory and managerial experience. He has consulted on economic, quality and workforce development issues. He has also published numerous articles related to quality in government and risk analysis.