What Is Reputation Risk? Causes and Steps to Minimize It

By Indeed Editorial Team

Published April 20, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Maintaining a positive reputation is critical for a business's brand image and overall success. The term reputational risk discusses the elements that have the potential to harm a business's reputation. To handle reputational risk effectively, it's critical to understand what causes it and how a business can mitigate it. In this article, we explain the definition and significance of reputation risk and the key steps that you can take to reduce it.

What is reputation risk?

Reputation risk refers to the various factors affecting a company's reputation. It's critical for businesses to maintain a positive reputation because it can help grow their customer base. Knowing the different sources of reputation risk and how to manage them can help companies increase their profits and brand recognition.

Significance of reputation risk

Understanding reputation risk is critical because a company's reputation may directly relate to its overall success. Positive events and public exposure to the brand can improve a company's public perception, making customers more likely to choose the business over its competitors. Managing risk to a brand's reputation is a critical business practice that can help increase revenue while maintaining this favourable perception.

Causes of reputation risk

Numerous factors can affect a company's reputation, including the following:

News coverage

News coverage is a critical factor that can impact a company's reputation. A news article highlighting an issue with the business can be detrimental to its public image and precipitate a public relations crisis. It's critical to have a strong public relations team on hand to handle press inquiries and quickly repair the company's image.

Leadership issues

Leadership issues can also have a detrimental effect on a company's reputation. CEOs and other senior executives frequently serve as the face of their organizations, and their organizations' reputations may mirror their own. As a result, it's critical to hire executives with strong reputations to help the company maintain a positive public image.

Social media presence

Another potential source of this risk is a company's social media presence. While businesses can use social media to cultivate a positive public image, improper use of social media can erode a company's reputation. You can ensure that the organization has a knowledgeable social media team and a comprehensive social media strategy in place to combat this reputational risk.

Data leaks

Data leaks are another significant event that can have a negative impact on a company's reputation. Occasionally, businesses experience data leaks, putting their customers' sensitive data at risk. Customer data leakage, such as social security numbers, passwords, and logins, erodes customer trust and can have a negative impact on a company's reputation. It's critical to have safeguards in place to address this security vulnerability.

Related: A Guide to Risk Management Process (With Practical Examples)

Business model

Some business models are better at reducing reputational risk. Improving a company's financial health and customer service record can also improve its public image. It's important to address any potential issues with the business model to ensure that you can maintain a positive reputation.

How to minimize reputational risk

The following steps can help you manage your reputational risk:

1. Assess your reputational risk

Assessing the company's reputational risk is a critical step in managing a company's reputation. To begin, establish a baseline for the company's current public image. This enables you to compare your reputation over time to a reference point. You may identify any reputational risks the company may face during this step and classify different risks according to their severity. You can identify risks and other issues by performing the following:

  • Consultation with stakeholders, including employees and investors, to ascertain their viewpoints

  • Inspecting search engine results for the business

  • Reading recent news articles and posts on social media about the business

2. Create a reputational risk management plan

It's critical to develop a reputational risk management strategy. You can either form an internal risk management team or hire a public relations or risk management firm. Your plan can be broad in scope, as each risk is unique and requires a unique response. Once you've developed a strategy, you can implement it whenever you face reputational risks.

3. Respond to negative feedback

It's critical to respond to negative feedback from customers or the press when addressing reputational issues. The public relations department can craft statements and other responses to negative feedback. Make certain that your response directly addresses feedback, explains how you intend to address it, and emphasizes positives.

4. Monitor progress

It's critical to track the company's progress toward reestablishing its reputation. You can track progress by developing success metrics that are unique to the business. You can compare your current reputation to the one you established previously. This can assist the business in determining how to enhance its reputation further.

Tips for managing reputational risk

Here are some suggestions to assist you in managing a company's reputational risk:

  • Maintain transparency. Transparency is a critical component of developing a strong reputation for a business. Maintaining an honest relationship with the company's stakeholders can help promote a trustworthy image.

  • Monitor your online presence. Another critical tip for preserving the business's reputation is to monitor its online presence. Ensure that you respond to any negative social media posts, maintain professional social media profiles for the business and that all the company's social media posts advertise your branding strategy.

  • Prioritize accountability. To mitigate reputational risk, ensure that you accept responsibility for any mistakes or errors. It's critical to demonstrate accountability to rebuild public trust and the company's reputation.

  • Maintain a cheerful disposition. It's critical to maintain a positive tone in the company's messaging. Maintain a growth mindset and a kind tone to assist the company in responding appropriately to reputational risks and maintaining a positive image.

How to form an efficient reputation management strategy

You can create an effective reputation management strategy for an organization by following these steps:

1. Perform preliminary research

The first step in developing an effective reputation management strategy is to conduct preliminary research to ascertain what information about the brand is already available online. A successful reputation management strategy begins with understanding what others are saying about you. There are several methods for obtaining this information.

Conducting preliminary research may include searching for the company or name on major search engine websites, reading comments and reviews about the company or yourself on social media profiles and consumer review websites, and reviewing comments and reviews about the brand. You can use tools to monitor when new reviews about the company get posted or when the company's name gets mentioned online.

Related: Understanding How to Complete a Risk Analysis

2. Establish the brand's presence

If you haven't already, your next step is to establish the brand's online presence. This may require forming a social media account. Suppose you're a marketing professional. This role can include developing a website for the company, ensuring that the company's general information remains indexed by major search engines, and actively engaging with the community and your customers through the company's social media profiles.

3. Prepare a response strategy

The following step in developing a reputation management strategy is determining when and how to respond to negative reviews and comments about a brand. When designing a response plan, you can consider how to decide which comments require responses, who may write them, and what tone the messages may use. Developing a comment response strategy can help a brand ensure its messaging is effective and consistent.

4. Respond promptly and appropriately to negative feedback

Knowing when and how to respond to negative feedback is a critical component of a brand's reputation management strategy. It's best to respond to negative feedback, reviews and comments as quickly as possible. It's critical that your responses are professional, polite, candid, and friendly. You can use the information gleaned from negative feedback or complaints to determine whether internal changes are necessary and then communicate those changes publicly.

Even if you cannot provide detailed information or a resolution in your initial response, acknowledging that you're aware of the issue and working to resolve it can be more effective than simply ignoring the comment or responding too slowly. After you've had time to resolve the issue, you can write a follow-up response. This demonstrates to your customers that you value their opinions and can easily resolve any issues or complaints.

Related: What Is Process Improvement and How Can You Utilize It?

5. Build on the positives

A brand may receive various positive reviews. Encouraging satisfied customers to provide feedback can also help you obtain more positive comments. These favourable reviews and comments can aid in the development of a brand's credibility and awareness. Responding to these happy customers can show that you value their opinions and may generate more positive messages about the brand.

6. Measure your results

After implementing a reputation management strategy for the brand, you can collect data to determine the plan's effectiveness. There are several tools available for monitoring brand reviews and mentions, grading a brand's messaging, and obtaining insights into its domain authority and web traffic. These insights can be highly beneficial in determining the effectiveness of your reputation management strategy.

7. Monitor your brand

After the brand reputation management strategy gets implemented successfully, it's critical to continue monitoring your brand's reputation to ensure that your strategy is effective. With time, you may revisit the initial steps and check all reviews and comments to ensure they represent the brand accurately. You can also regularly review the brand's reputation management strategy and make necessary adjustments.

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