Emphasising Reputational Risk

The impact of technology on global information dynamics over the past 5-10 years has drastically changed the the reactions and consequences of events on people, business, industries and markets. The pace at which the change has occurred has not allowed business and people to adjust at the same rate. News houses must now make fundamental changes to their business models to remain viable, politicians have to devise more complex means of manipulation and businesses have to monitor the internet for user content on their products and services. But above all, as far as trust is the foundation of this clash of social influence and technology, reputation risk management needs to be greatly improved.

While individuals have quickly reacted to the need to manage reputation in this world of social media, organisations, by their very nature, have not reacted as quickly to develop risk models as complex as those used to manage financial risk or operational risk. By and large, it has been a reactionary situation in instances where bad information affects any one organisation. And in other instances, nothing is done or can be done, given existing models for managing this risk. For example, how does Toyota manage the damage to its reputation from safety defects (which is probably over-inflated)? How does Cadbury recover after fears of melamine poisoned chocolate? When these issues are born, the information multiplies globally, even to the smallest states, almost instantaneously in a manner that was impossible even 7 years ago.

This may mean that significantly more resources must be expended to manage reputation than currently. As intangible an asset that reputation is, so is the effect of the damage on future revenues at the moment in time. Might the intangible reputation and future revenue impact of Cadbury's melamine mishap allowed Kraft to acquire it a couple years later?

Comments welcomed.