Authored by Himashi Cameron
Reputation risk, oftentimes viewed as an impact of other risk types materialising, is re-emerging into the spotlight as a standalone category of risk on its own right. The shift in perspective follows in the wake of high-profile incidents at Qantas, Medibank and Optus which have highlighted the impact of reputation risk on business sustainability and the need for robust reputation management strategies.
In today’s social media-driven interconnected world, Boards and Executives are grappling with how to proactively define, identify, measure, monitor and manage reputation risk for their organisation. Accurately measuring reputation risk and identifying early red flags can be one of the more complex aspects of managing reputation risk. A key tool for large corporations is sentiment analysis, which provides a real-time gauge of how the public perceives an organisation. By tracking social media and news outlets, companies can monitor for emerging shifts in sentiment towards their organisation, quickly identify potential threats to their reputation, and take quick action. Additionally, monitoring customer complaints for themes, undertaking surveys, forming focus groups, and direct communication with customers, employees, and investors can all assist with understanding perceptions and building trust over time.
CBA is a good case study in the length of recovery time post materialisation of reputation risk. In 2018, allegations of misconduct and unethical practices triggered widespread public scrutiny and a decline in consumer confidence. However, CBA has demonstrated that recovery from reputation risk is possible, although it requires substantial effort, cost, and time. For CBA, this involved a deliberate strategy that included leadership changes, strengthened governance structures, and a commitment to improving customer service and transparency. These measures, while aimed at regulatory compliance, also contributed to rebuilding the bank’s public image, credibility and share price.
Ultimately, the recovery from reputation risk is a gradual process. Companies must take intentional steps to rebuild trust and demonstrate consistency in their actions over time. Taking steps such as sentiment analysis to reduce the materialisation of reputational risk will assist organisations to avoid the lengthy steps required to build back their reputation.
This publication is a joint publication from King & Wood Mallesons, and KWM Compliance Pty Ltd (ACN 672 547 027) trading as Owl Advisory by KWM. KWM Compliance Pty Ltd is a company wholly owned by the King & Wood Mallesons Australian partnership. KWM Compliance Pty Ltd provides non-legal compliance and governance risk advisory services for businesses. KWM Compliance Pty Ltd is not an incorporated legal practice and does not provide legal services. Laws concerning the provision of legal services do not apply to KWM Compliance Pty Ltd.