When examining the dynamic between corporate reputation and financial performance, it is important to study the effects of large-scale crises, whether man-made or driven by external forces. Events such as the Japan tsunami and earthquake as well as various accounting scandals, have caused many organizations to lose value, according to an Aon-sponsored Reputation Review 2012 report recently issued by Oxford Metrica, an independent analytics and advisory firm. Seven of 10 companies measured in the report that were impacted by disasters in 2011 lost more than one-third of their value and two companies lost almost 90 percent.
The research revealed that 80 percent of firms will lose 20 percent of their value once every five years due to reputational issues. Any company – no matter its size – can mitigate the risks of an event by taking a positive and thoughtful approach to crisis management. Supply chain risk is often the catalyst for crises, so this can be a great place to start the process.
A coherent reputation strategy can be the difference between recovery and failure for many companies. It can minimize the likelihood of a critical event turning into a reputation crisis and will maximize the probability of recovery. Those that have a firm grip on their brand and are actively monitoring it can more easily weather a crisis. In fact, the research shows that companies that successfully navigate a crisis can actually build additional value.
Best practices companies should perform to ensure an effective reputation strategy is in place include:
- Evaluate reputation equity to benchmark the effectiveness of your current reputation strategy
- Analyze the drivers of reputation risks to allocate your financial resources more effectively
- Develop a reputation recovery strategy to generate the best chance of recovery in the event of a crisis
- Monitor reputation equity to provide senior management with crucial and timely feedback, enabling confident decision-making and rapid responses to emerging risks
Reputation event triggers are often outside of an organization’s control, so having the right response is critical.
Download the Reputation Review 2012 report: http://www.aon.com/reputationreview