A CEO’s 5 Step Guide to Managing Corporate Scandals
With social media, corporate scandals can reach millions globally in a matter of seconds. The Allianz 2018 Risk Barometer lists reputational loss as the eighth most relevant global risk faced by companies.
As many companies focus their energy on reactively handling threats, JLT Specialty has compiled a five-step guide designed to provide a framework on how to effectively and proactively manage reputational risks to minimise the damage when negative news breaks. Below Edel Ryan, Partner and Head of Media & Entertainment at JLT Specialty, provides insight into scandal management and 5 steps to managing a company’s reputation.
The most important step on a CEO’s managing a corporate scandal to-do list is putting someone specifically in charge of managing the company’s reputational risk, essentially a Reputational Executive. The nominated person needs to have the credibility and resources necessary to do the job; preferably not someone conflicted by their role within the business, which is almost always by default the most obvious of choices, like the CFO or General Counsel.
According to the Allianz Risk Barometer, 24% of a company’s value lies in its brand reputation. This is the public perception of how the company is being run and the value of its products and services. Reputational loss occurs when a stakeholder or customer’s experience with the company falls short of their expectation. Your appointed Reputational Executive must have the skills to assess the company’s reputation across all areas and pinpoint where significant risks lie. Media analysis, clipping services, surveys, focus groups and opinion polls can all help to measure your public reputation, but these methods must be supplemented with strategic media intelligence.
Your next step should be to align your reputational perception with the reality. If reputation exceeds reality, your company needs to step its game up and manage stakeholder expectations to close the gap. Media presence must be positive and consistently on the public’s radar to boost your reputation. There is also a fiduciary obligation for your company to meet the stakeholders’ performance expectations.
Having an effective reputational risk management strategy in place before a crisis occurs will allow you to take appropriate action immediately and could even prevent a scandal altogether. Putting this into practice consistently, by implementing quality processes and a strong corporate culture reflective of the company’s core values, will allow your reputation to flourish. Your reputational risk management plan does not have to be expensive or time consuming. Most well managed companies will have all the appropriate elements in place already. There is simply a need for companies to co-ordinate these elements to enhance decision making.
Unbudgeted and unforeseen additional costs can be managed using corporate reputation insurance to capture loss of revenue, as well as expensive consulting fees and PR/crisis response costs. Implementing these solutions provides tangible, practical benefits for the CEO by way of a strategic media analysis report, which shows potential vulnerabilities that allow him or her to initiate preventative steps. As strategic media analysis can be costly, you should check with your broker whether it is included in your insurance policy.
During a scandal the CEO’s initial response is crucial. It can make or break a company’s reputation and have an immediate impact on revenues and share price. Failing to act decisively can have long lasting consequences. The response needs to be genuine. Having strong relationships and credibility with the press provides companies with a robust platform to share their side of the story when faced with a scandal.
No business is immune from a scandal and the potential for reputational damage is endless. This drives home the value of proactive risk management combined with innovative insurance solutions. CEOs and their boards should sharpen their focus on managing reputation with the right tools and procedures in place to avoid the negative consequences of a scandal. However, if this advice arrives too late, find a way to change the narrative and always stay focused on improvement.