Reputation risk is a growing concern for many business owners.  Last year’s Lloyd’s Risk Index called this out as number 3 on the list of top concerns of business leaders globally.  This is a major increase in priority from years past.

Reputation risk is defined as the damage to a company’s reputation [its most precious commodity] following an incident, which can result in loss of customers, diminished employee morale, or even lawsuits. 

Damaging incidents vary from industry to industry, but can include things like accidents at worksites, faulty products, public gaffes by senior leaders, or data breaches are examples of reputation risks.  While it takes years to build your company’s reputation and brand name, it can come crashing down in minutes with something like this. 

Planning for reputation risk management

Many business owners fail to prepare for reputation risk, because it’s one of those wicked problems you can’t write a check for to make go away.  You can’t just purchase an insurance policy to shield yourself and call it done.  It takes more detailed preparation and requires a lot of advance planning. [Read our recent blog on reputation risk management for more info on how to plan.]

When most companies work on their communications and public messaging, they’re living in the “good times” and trying to improve sales or increase awareness.  Far fewer companies engage help to prepare for the “bad times” – protecting their company from fallout if disaster strikes.  The Penn State public relations crisis last November brings the need for this kind of preparation into laser focus. 

Where Penn State screwed up from a reputation risk management standpoint

When allegations of failure to prevent a football coach from sexually abusing children on its campus were leveled against Penn State, the university took a major hit to its reputation.  The full effects on the school remain to be seen, but it will likely impact alumni donations, applications for grants and federal funding, and even staff and student recruitment.  This is in addition to the time and money spent handling the media frenzy during the crisis (at least $5.3 million dollars were reportedly paid to PR firms) and any settlements they’ll be paying to the victims and their families.

While sexual abuse alone is enough to cause a public scandal, the university compounded the damage to its reputation by responding slowly to the allegations, creating opportunities for others to jump in and fill the gaps in the story.  The chairman of Penn State’s board stated that he didn’t read the charges in the sexual abuse case until over 24 hours after the story went public on major news outlets.

Adding to the damage, the university acted in a secretive way and refused to answer questions.  “No comment” is just not an acceptable answer to questions in a case like this.

When the university fired Joe Paterno [over the phone no less], it sparked outrage for many Penn State fans who knew him as the 46-year face of the football program.  To make matters worse, board members commented to the media about their personal feelings on the matter, something that allowed the media which created an image of internal division and indecision and increased public ill will.

What companies can learn from Penn State’s mistakes

 While this is a high profile example, every company is vulnerable to crises of some kind or another.  It doesn’t take an incident of this magnitude to do damage to your customer relationships, public perception, and employee morale.

The Penn State scandal calls out a couple of vitally important points about crisis management:

• Mobilize quickly to manage a crisis – we live in a 24/7 news environment and the story will move on with out you

• Don’t attempt a “cover up” – the truth will come out

• Designate representatives to speak to the media and make sure they’re on message

Take action now to plan for reputation risk management.  Don’t wait until something happens to decide how you will handle it, or it will be too late.

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