POV

Reputation management, traditionally conducted within the portfolio of corporate marketing departments, has been from the outset a complex, multifaceted, mission-critical function. With additional stakeholders including litigators and regulators hanging on to every statement and action, marketers need collaborators. Your board expects this.

In this era of stakeholder capitalism, corporate engagement on controversial social issues, wars, pandemics, and vague or aspirational environmental, social and governance (ESG) goals driving investor decisions, “reputation management” is incomplete without “reputation risk management” and, increasingly, legal compliance. Marketers cannot do it alone.

It has become clear that reputational risks are not merely marketing or communications issues. They occur when stakeholder expectations and actual performance and governance are not in sync. If the company’s annual report or SEC filings or statements on its website describe ESG goals, for example, that don’t actually have operational plans behind them or governance oversight to ensure accountability, at some point in the future, stakeholders are going to be disappointed and their anger toward the company is going to be felt in tangible ways. The board, for example, will face the wrath of angry shareholders.

That’s an example of a reputational crisis and, in all likelihood, marketing and communications departments—along with legal—will be responsible for the clean-up.

We have argued for years that the process for managing and mitigating reputation risk needs to include Risk Managers and Chief Legal Officers. It requires intelligence gathering from throughout the enterprise, an assessment of where gaps exist between expectations and reality, and a plan for either managing expectations or addressing operational performance, and authenticating the process while insuring against potential losses. It is the sort of sophisticated managerial operation that dutiful boards are expected to oversee.

Marketing and communications are important components. A recent analysis by Steel City Re found that companies with strong reputation risk management processes outperform their peers in the aftermath of a crisis. That “reputation premium” doubles when they’ve communicated about their process publicly.

So it’s not entirely surprising that we have continued to hear from Chief Marketing Officers that corporate leaders want them to take the lead on reputation.

If board members raise questions about the company’s response to COVID or to voting rights legislation or Roe v. Wade or climate change, they all too often perceive it as a marketing issue – when, in fact, marketing is only one part of the equation. 

Chief Marketing Officers are voicing frustration, because they’re communicators – not risk managers or legal counsel – and don’t have enterprise-wide sightlines into risks that may be on the horizon. They and corporate leaders need to be more expansive in their approach.

Chief Marketing Officers should advocate for the creation of a Reputation Leadership Team that includes themselves, Chief Risk Officers and Chief Legal Counsel. With support from risk management and legal, marketers will be able to gain a seat at the table from the outset of operational discussions, as well as leadership level consideration of potential government relations, compliance and investor relations issues.

This team should be equipped to gather intelligence about the expectations of all their stakeholder groups—employees, customers, community leaders, investors and regulators – many of which will be outside the normal purview of marketing. Having a finger on the pulse of these varying opinions is crucial, as is an intimate knowledge of corporate values and capabilities, so that responses to hot button issues can happen in real time.

With marketing, legal and risk working together, reputational risks can be flagged and addressed at the earliest stages – brought to the Board of Directors if necessary – and mitigated rather than overlooked until a crisis catches the company flat footed.

Third party authentication of the process provides a value each member of the Reputation Leadership Team should easily be able to recognize. Risk managers understand the value of underwriting risk and risk transfer associated with ESG insurance or broader reputation insurance. Lawyers will be able to appreciate the effect it has in deterring or defending litigation, providing a clear and credible signal of diligent governance and strong operational processes. Marketers are well accustomed to promoting recognition by outsiders to enhance the company’s brand.

21^st century problems require 21^st century solutions—and taking a wholistic view of reputation risk management and combining the marketing, risk and legal forces will put companies in the best position to withstand today’s volatile social climate. The road to reputation resilience can’t be walked alone.