Common Reputational Risk Examples All Businesses Should Learn to Identify & Manage
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In business and in life, reputation is paramount—which is why you should be aware of any potential risks to your business’s reputation. The most common reputational risk examples that affect businesses range from exterior threats to internal blind spots.
Whether a hacker is stealing your customers’ sensitive data, a CEO is embroiled in a public scandal, or anything in between—reputational risks are anything that could potentially damage your business’s reputation.
At Minc Law, we help businesses just like yours monitor, protect, and improve their online reputations. For businesses whose reputations have been compromised, we also offer digital risk protection and content removal services to safeguard against online threats.
In this article, we define reputational risk and explore several examples of common risks to a business’s reputation. We then provide actionable tips and strategies you can use to protect your business against online threats.
Facing a reputational crisis?
Do not let a negative public image damage your future. Contact us today for a confidential consultation.Contact Minc Law
What is Reputational Risk?
Risks to your reputation can be difficult to define since a reputational risk is anything that leaves your business vulnerable to negative publicity. The types of risk that affect your business depends on your unique situation.
Below, we explore the definition of reputational risk, what makes up a company’s reputation, and why your reputation matters.
What is Meant By Reputational Risk?
Reputational risk is any type of danger posed to your business’s reputation. These risks can lead to loss of customers or career prospects, damaged relationships, and financial loss. Many reputational risks are difficult to spot, which means they can happen suddenly and unexpectedly.
What is Reputational Risk Management?
Reputational risk management strives to prevent these situations (and respond to them when they do occur). Being proactive in addressing your business’s vulnerabilities can help prevent many risks to your reputation.
And when a reputational crisis does happen, having an action plan ready helps minimize the economic and personal fallout.
What Factors Make Up the Reputation of a Company?
A company’s reputation is built by several factors. Below, we explore six of the most common elements that contribute to the public’s perception of a business:
- Consumer trust,
- Corporate leadership and financial performance,
- Marketing and online presence,
- Customer experience and product quality,
- Diversity and inclusion, and
- Customer privacy.
Consumer & Employee Trust
The way others perceive you has a big impact on your business’s success. Both customers and employees must trust you to sell quality products or reliable services.
In a 2022 Adobe Trust Report, 80% of employees cited the most important factor driving their trust and confidence in a company is that it “practices what it preaches.” Should a company fail to do so, at any level, word will inevitably spread about its shortcomings – whether it is by a whistleblower in op-eds or scathing online company reviews.
And of course, the best marketing is word-of-mouth. If your customers do not perceive your business as a trustworthy or reliable one, they will not spread the news (or at least, the good news) about your business.
Corporate Leadership & Financial Performance
A business’s leaders are directly tied to the company’s overall reputation. After all, corporate leadership is one of the strongest influences on a business’s actions and overall culture.
And profitability is often dictated by the strength of the company’s leaders. If a business is experiencing financial troubles, consumers may take that as a sign of weak or ineffective leadership.
For example, in a 2020 study published in the Academy of Management Journal examining how CEO’s observed personalities influence market perceptions of firm risk and shareholder returns, “more conscientious CEOs’ firms experienced 2.59% lower stock risk, on average…” and a nearly 4% increase in returns.
For further reading, please see our article explaining how a CEO’s reputation can impact the company’s reputation and guide explaining the importance of brand reputation to stakeholders.
Marketing & Online Presence
An active social media presence keeps your business top-of-mind with your target audience. And consumers take explicit and implicit cues from your online presence to form their opinion of you.
Online reviews also play a large role in a business’s reputation. In fact, 90% of consumers state that positive reviews influence their decision to purchase from a company.
Customer Experience & Product Quality
Your offline reputation and in-person interactions with customers also play a role in your reputation. Customers who have a negative or unsatisfactory experience with your product or service are likely to tell others about their opinion of you.
Factors like low-quality products, poor customer service, and low employee morale can easily damage your company’s overall reputation.
A 2020 report by PWC, examining how consumers see cybersecurity and privacy risks, found that “the vast majority of consumers” believe that the government should take a proactive role in regulating a company’s use of personal data. Further, “92% of consumers think that companies themselves should be doing more about data protection.”
Diversity & Inclusion
A diverse and inclusive workforce provides multiple perspectives and encourages innovation. By hiring employees of different races, religions, ages, and cultures, you help ensure better representation and ability to serve your customers.
Consumers appreciate companies that take ethical responsibility seriously. They should trust your company to protect their information, including addresses, names, purchase histories, and payment information.
Maintaining customer privacy grants a competitive advantage over other businesses that share or sell customer information. Offering customers security helps gain their loyalty and increase revenue.
What Are the Impacts of Positive or Negative Reputations?
Your company’s reputation can have an immeasurable impact on your success, both in the short- and long-term. Below, we provide a non-exhaustive list of the impacts of both positive and negative reputations.
What Are the Impacts of a Positive Reputation?
In today’s competitive business landscape, consumers are more likely to engage with a company they recognize and trust. A positive reputation has a snowball effect of higher consumer engagement, positive online reviews, and increased revenue.
And if your business has a positive reputation, you can attract skilled, loyal employees and reduce hiring and turnover costs.
For further reading, please see our article ‘Why is a Positive Reputation Important in Business?’
What Are the Impacts of a Negative Reputation?
On the other hand, a negative reputation impacts your business in the opposite way. If your company has a reputation for being unreliable or problematic, you may struggle to retain or attract customers.
Most potential clients will turn to your competitors instead, while talented employees may wish to look for a job at another company where they can be proud to work.
Types of Reputational Risk
Reputational risk can be broken down into two categories: internal and external. Below, we give a few examples of each type of risk to your business’s reputation.
Internal Reputational Risks
Your business can open itself up to reputational harm through mismanagement or poor business practices. Such internal risks include:
- Low product or service quality,
- Poor customer service,
- Inadequate working conditions for employees,
- Inappropriate behavior and/or public statements by senior management,
- Poor social responsibility, and
- Irresponsible data security practices.
Poor management, low-quality products or services, and inappropriate behavior from company leaders can easily cause a business to lose customers and face public backlash.
External Reputational Risks
Other reputational harm can be caused by outside factors and third parties. Such external risks include:
- Hackers gaining access to sensitive customer or internal data,
- Negative media coverage,
- Social media smear campaigns from competitors,
- The behavior of third parties like partners and vendors,
- Legal action from dissatisfied customers or angry ex-employees, and
- Negative rumors.
What Are the Defining Features of These Different Types of Risk?
Reputational risk is a sum of many parts, which makes it difficult to define or regulate. It is an umbrella term that houses hundreds (or even thousands) of tangible and intangible considerations.
In the end, any event that affects you or your business could hold potential reputational consequences.
Which Types Of Reputational Risk Are Most Common?
According to a recent DTTL survey, the most common reputational risks are related to:
- Physical security,
- Cyber security,
- Ethics and integrity, and
- The quality of products or services.
Increasingly, businesses are also affected by the actions or shortcomings of third parties with whom they associate, like vendors or contractors.
And the prevalence of digital technology means anyone—from competitors to ex-employees, to customers, to bored trolls—can easily create and distribute misleading online content.
These fake news reports, consumer reviews, and even audio or video recordings of CEOs can be extremely harmful to a business’s reputation. In fact, one 2019 study found that online misinformation is costing the global economy an estimated $78 billion per year.
The Driving Causes of Reputational Risk
Reputational pitfalls can come from many directions. For instance, some businesses are extremely vulnerable to digital security threats, while others have several weak links in their operational processes.
In this section, we explore the most common sources of risk to a business’s reputation.
What Causes Reputational Risk?
Your business’s reputation is at risk when its operations, products or services, and/or public relations are performing worse than anticipated. When your stakeholders or customers have higher expectations for your business than you can deliver, there is a real threat that your reputation will take a hit at the slightest misstep.
For example, consumers expect respectable businesses to have quality products and ethical workplace cultures. A product recall, customer data breach, or poor senior management behavior could easily create negative buzz around your business.
And many businesses take on additional risks when they do not adapt to the changing times. Failing to stay aware of social and market trends makes it difficult to live up to customer and stakeholder expectations of your brand.
Is Reputational Risk an Operational Risk?
As opposed to an external threat, operational risks take place internally. While your reputation can be affected by external factors and third parties, any misstep that takes place internally will (and probably should) be weighed more heavily in the court of public opinion.
Since internal mistakes can quickly spiral into a reputational crisis, it is critical to take any operational weak points seriously.
Common Examples of Reputational Risk
In this section, we explore common scenarios that affect a company’s reputational risk. Then, we give three real-life and high-profile examples of scenarios where a company faced severe public backlash and reputational harm.
What Are Some Examples of Reputational Risk?
Above, we established that the two main types of reputational risk are internal and external. But within each category, there are several common risk factors of which businesses should be aware. We provide a few specific examples below.
Company Actions That Can Affect Reputational Risk
The way your company conducts business has a direct impact on how the public perceives you. Unethical or irresponsible company policies like the examples listed below can open your business up to reputational risk:
- Poor customer service;
- Irresponsible information security, leading to customer data breaches;
- Improper handling of employee layoffs and downsizing;
- Exploitative or unsafe working conditions;
- Failure to comply with local or federal regulations; and
- Lawsuits involving your business.
Company Representative Actions That Can Affect Reputational Risk
Everyone involved in your company has the potential to affect its overall reputation. Your CEO, senior management, employees, or any other direct representatives of your company can quickly harm the brand’s reputation through their actions.
For instance, the CEO may publicly engage in inappropriate behavior. Or a video of employee misconduct toward a customer could go viral online. Or perhaps a company representative posts a controversial message on social media.
If any of these actions become public, they could easily affect public sentiment about your company as a whole.
Partner or Supplier Actions That Can Affect Reputational Risk
Third parties that regularly interact with your business can also affect your business’s reputation. If a regular vendor makes a late delivery due to supply chain interruptions, your customers could blame your business for your lack of inventory.
And if a partner speaks negatively about you or is caught up in a scandal of their own, this behavior could shine a negative light on your business.
Customer Actions & Reputational Risk
If a customer has a negative experience with your brand, they have the power to impact your reputation. In today’s digital age, a negative social media post or one-star review can quickly have a snowball effect.
These posts can go viral, encourage others to add their own negative opinions about you, and even lead to negative news articles about your brand.
What Are Some Real-Life Examples of Reputational Risk?
Every company is vulnerable to accidents or public mistakes. And without an effective risk mitigation strategy, these events can quickly spiral out of control and lead to public backlash. Below, we list three such infamous cases.
Gerald Ratner’s Ill-Timed Joke
In 1991, Ratners Group CEO Gerald Ratner made a speech to the media and industry stakeholders. In his speech, he inexplicably joked about his business’s products being low-quality and not worth the money.
Almost immediately, his company’s stock prices dropped by what would be over a billion dollars today. Ratner was quickly fired for his mistake.
Tesco Horsemeat Incident of 2013
Understandably, the food industry is very vulnerable to sudden and extreme public reactions to any missteps. The British and Irish food chain Tesco faced such a scandal in 2013 when its beef burgers were discovered to contain up to 29% horse meat.
Tesco faced severe public backlash and lost more than £300 million in value. This shocking event is still one of the most well-known food industry scandals today.
Kendall Jenner & Pepsi Cola
In 2017, Kendall Jenner appeared in a Pepsi TV ad. In the video, she offered a can of soda to a smiling police officer at a protest. The backlash to the ad was immediate and scathing, with the public interpreting the ad as a trivialization of the Black Lives Matter movement and protests against police brutality.
Pepsi eventually pulled the ad, but both the corporation’s and Jenner’s reputations were badly damaged by the controversy.
How to Deal With Reputational Risk Online
Clearly, reputational risk can lead to very real financial consequences for a company. In this section, we provide actionable tips and strategies for protecting against reputational risk—and responding to crises quickly and effectively.
Why Should You Immediately Deal With Reputational Risk?
In business, reputation is everything. A positive reputation leads to increased customer engagement, better sales, and a higher market share. But conversely, reputational harm can make it difficult to generate revenue or attract talented, loyal employees.
So if your business is vulnerable to reputational risk, it is critical to eliminate or reduce that risk as quickly as possible.
How Do People Repair Damaged Reputations?
If you or your business have been the target of bad press or negative public sentiment, we recommend taking the following actions:
- Apologize for any inappropriate behavior,
- Set up Google Alerts to monitor your online mentions,
- Claim all of your business profiles and respond to online reviews,
- Encourage positive reviews from customers,
- Create positive online content to bolster your reputation,
- Eliminate ongoing digital threats, and
- Contact a brand reputation or internet defamation attorney for help.
Apologize For Inappropriate Behavior
If your or your business’s reputation has been harmed by your behavior, take responsibility for your actions. Everyone makes mistakes—and an apology is not a sign of weakness. It shows that you are human and trying your best.
Set Up Google Alerts For Online Mentions
Monitoring your online mentions is key to staying aware of reputational risks. A free Google Alert can notify you immediately anytime your name or chosen keyword appears in search results.
For more tips on monitoring your online presence, check out our article: “5 Things You Can Do Today to Monitor Your Online Reputation.”
Claim All Business Profiles & Respond to Reviews
Make sure that you have claimed all online profiles for your business. These profiles include general search engines like Google and Yelp, as well as industry-specific platforms like Healthgrades or RateMD.
Claiming your profile prevents others from claiming it on your behalf. You can also keep your information updated and respond to any reviews to maintain your brand image.
Encourage Positive Reviews From Customers
Inviting satisfied customers to leave a review helps combat the effects of an occasional negative or fake review. Many businesses send follow-up emails thanking customers for their business and include a link to leave a review.
Create Positive Online Content to Bolster Your Reputation
If there is negative or harmful content about your business online, you may want to create positive content on your blog, YouTube channel, and/or social media profiles to drown it out.
Actively creating positive online content helps build a brand image to be proud of. It also helps make your business more visible to prospective clients (especially if you are using search engine optimization best practices to rank highly in Google).
Eliminate Ongoing Digital Threats
It is a good idea to check your social media and online presence periodically for inappropriate content. Check for any past controversial social posts, along with damaging content or fake profiles attempting to impersonate your brand.
The faster you can catch and remove digital threats, the less likely you are to take a reputational hit.
Contact a Brand Reputation or Internet Defamation Attorney
If unwanted or negative online content is damaging your reputation, you may want to enlist the help of a brand reputation professional. Internet defamation and content removal attorneys can act quickly and effectively on your behalf to remove harmful content from the internet.
To learn more about how an attorney can help you manage your online reputation, check out our article: “Hire an Attorney as Your Online Reputation Expert.” We also recommend reading our comprehensive guide explaining how to repair a damaged online reputation.
How Can My Brand Mitigate Reputational Threats?
The best way to protect against reputational risks is to prevent them before they become a crisis. Below, we provide tips on shoring up your business against reputational vulnerabilities.
Strong Company Ethics
The best way to protect your brand reputation is to behave ethically from the boardroom to the factory floor.
A company culture of integrity starts at the top, with c-suite executives taking the lead to communicate and demonstrate clear values. These core brand values should then guide your workplace decisions along the entire chain of command.
Consistent Monitoring of Your Online Reputation
Next, stay alert and aware of the conversation about you online. By using online reputation management services and continuously monitoring your online mentions, you can keep an updated view of your reputation and respond quickly to any false rumors or negative press.
Effective PR & Marketing Strategies
Your public relations and marketing teams help manage your reputational risk by shaping your brand’s image. A consistent branding strategy and process for getting ahead of negative press can help you weather reputational risks more easily.
How Can You Monitor Your & Your Business’s Reputation?
The best way to monitor your brand’s reputation is to be proactive. You can use several free and paid tools to track your company’s digital footprint before a crisis arises.
We list a few of the most popular and effective strategies below.
Strategy #1: Create a Google Alert
As mentioned above, Google Alerts is a free tool that notifies you anytime one of your chosen keywords appears in Google Search results. You can use this service to track mentions of your company name, your CEO’s name, or even a high-profile product or event related to your brand.
Strategy #2: Google Yourself in Incognito Mode
Your browser uses your search history to load search results tailored to your individual interests. To see a less-biased, organic search result, open an incognito tab in the browser of your choice.
Then, conduct a search for key terms like your company’s name, the CEO’s name, or your organization’s contact information. Keep an eye out for any negative or defamatory content about your business that appears in the search results.
Strategy #3: Monitor Your Social Media Accounts
Keep a close eye on all of your brand’s social media profiles for any negative replies, mentions, or comments. It is much easier to get ahead of negative publicity if you respond quickly.
Strategy #4: Sign Up For a Digital Risk Protection Service
If you are concerned about protecting your online reputation, consider using a professional digital risk protection service. These professionals use multiple strategies and tools to identify digital threats and respond to them effectively.
What Services Can You Find to Help You With Reputational Management
Reputation management services are typically a worthwhile investment—especially if your brand is on the receiving end of negative press, fake reviews, or public backlash. There are many reputational management tools and services available today, but most can be categorized into three main types of services:
Online Reputation Management Professionals
An online reputation management (ORM) team does more than suppress or remove negative content. It is a holistic service that uses multiple strategies, tools, and methods to protect your digital assets.
These professionals know how to highlight the positives about your brand and intentionally craft your reputation. Such techniques include creating positive online content and using SEO to help that content rank higher in Google results.
Free & Paid Tools For DIY Reputation Monitoring
While true online reputation management cannot be automated, there are a few tools available to help individuals and brands monitor their reputation more easily, such as:
- Reputation monitoring tools like Google Alerts, Awario, and Talkwalker Alerts;
- Social media “buzz” tools like Sprout Social and Mention;
- Review solicitation tools like ReviewInc and Birdeye;
- Business review management tools like Swell and Podium;
- SEO tools like Ahrefs, Moz, and Website Grader by Hubspot;
- Social media management tools like Buffer, Hootsuite, and Sprout;
- Web content and research tools like Exploding Topics, SEMrush, and Buzzsumo; and
- Digital risk protection tools like ZeroFOX.
Internet Reputation & Content Removal Attorneys
The online reputation management world can sometimes be difficult to navigate for beginners, which unfortunately means there are some predatory and dishonest ORM services out there. In this landscape, many brands choose to turn to attorneys instead, since they are:
- Professionally licensed,
- Easily searchable online, and
- Bound by ethical regulations and considerations.
An experienced defamation and content removal attorney can help you navigate reporting procedures, initiate legal action for court orders if needed, and monitor the internet for new threats.
We also recommend reading our comprehensive article outlining the most effective reputation repair strategies for both individuals and businesses.
We Can Help Repair & Bolster Your Online Reputation
At Minc Law, we know just how devastating a reputation crisis or PR disaster can be for your business and its bottom line (and longevity). We have extensive experience implementing reputation recovery strategies for businesses at the heart of reputation disasters.
We also provide digital risk protection services for businesses that want to effectively monitor the internet for future digital threats and eliminate them.
If you or your business has suffered reputational damage or is under attack, and you want to explore reputation repair strategies, contact us by calling (216) 373-7706, speaking with a Chat representative, or filling out our contact form.
Adobe Communications. 2022 Trust Report: Customer trust is earned or broken with every experience. Adobe (2022).
Harrison et al. Perception Is Reality: How CEOs’ Observed Personality Influences Market Perceptions of Firm Risk and Shareholder Returns. Academy of Management Journal (2020)
Lisa Buckingham. From the archive, 22 August 1992: Gerald Ratner's 'crap' comment haunts jewellery chain. The Guardian (2014).