What Is Reputational Risk? [+ Real Life Examples]

Business would be so much easier if every possible negative situation you may be involved in came with significant prior warning. Instead, you may find yourself dealing with issues so unexpected that you could not have even predicted them as a worst-case scenario. It is possible to come out on the other side and maintain your reputation with customers, even if it takes some rebuilding.

What is Reputational Risk?

Reputationational risk is any sort of threat or danger that can damage the good standing of your business and negatively impact your reputation with consumers and overall business success

• All reputational risks cause consumers to lose confidence in your business, which negatively impacts all areas of operation

Reputational risk caused by external factors and direct business action

External factors, namely press and articles that outlined the lawsuit for the general public, also threatened the business reputation

• McDonald’s has shown commitment to rebuilding public trust through actionable steps like providing significant warnings about liquid temperature and serving hot drinks in sturdy foam cups that are less likely to tip over

Mitigate Reputational Risk

Acknowledge that it is occurring, and have PR teams create crisis messaging that will help your business explain what is happening to consumers

• Explain what you’re going to do about the issue, and, most importantly, be transparent

Over To You

Practice consistent crisis management by creating actionable plans and taking immediate action if and when a scenario arises

As a result of external factors

Customers can have a significant impact on your business reputation, especially if they have a bad experience

Direct Actions of Your Company and Company Practices

Reputational risk scenarios are caused by direct actions of your company and company practices.

• Not complying with regulations
• Data breaches due to unsafe practices that threaten the personal information and safety of consumers and employees
• Consistent inability to meet customer needs or falling short of customer expectations
• Legal actions involving your business that become public knowledge
• Layoffs and internal scandals
• Poor working conditions for employees

Kendall Jenner and Pepsi Cola

Reputational risk caused by direct actions of your company and company practices

• Kendall Jenner attends a protest and hands a can of Pepsi to a police officer as a peace offering, trivializing the Black Lives Matter movement and protests of police brutality
• Pepsi pulled the ad and apologized, but it damaged their reputation and standing with American consumers as the brand experienced nine months of the lowest perception levels it had seen in eight years

Reputational Risk Management

Consistent reputation management will help deal with situations if they occur

• Prioritizing customer relationships and customer satisfaction
• Listening to customer feedback and acting on their needs
• Compliance with legal rules
• Safe storage of consumer and employee information
• Monitor product quality
• Maintaining safe work environments for employees

Risk 2

Actions of employees, leaders, investors, or anyone that directly represents your business or has a relationship with your business

• Possible scenarios

Direct Actions by Partners or Suppliers

Partners and suppliers often provide critical support that helps businesses run, but their behavior can pose a reputational risk to your business, especially if you have an established relationship.

• Possible scenarios include: Partner experiencing service interruptions that critically affect a pillar of your business (e.g. malfunctioning software), Partners or suppliers engaging in misconduct that becomes public knowledge, or partners or suppliers speaking negatively about your business

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