Reputational risks are among the most crucial types of risks for a business. This is why risk management has considerable importance in businesses. They can cause significant harm to your company if not measured and managed. However, the good part is that you can mitigate the risks by making the right business choices. The causes also contribute to the identification based on the types of reputational risks to measure and prevent them.
What are the Causes of Reputational Risk?
The reputational risk may arise from multiple causes, primary of which are social media and poor customer service. Let’s have a look at all of them briefly.
Social Media Presence
The foremost reputational risk arises from the social media presence of the customers. Social media provides a free space for people to share their experiences and sentiments. Many times, you may not realize, that a small mistake can lead to serious consequences. Nowadays, people take to social media to address concerns and reservations about any business; it is worse when your customer service is bad.
When the customers do not get satisfaction from the brand, they vent out on social media for someone to facilitate them. It not only associates negativity with your name but also diminishes the trust of the existing customer base.
Poor Customer Service
In an era when the customer is called the God of the business, if you do not focus on your customer service, you’re not doing it right. Customer service representatives are the face of a business and they must be equipped with the knowledge and skills to manage the customer’s issues gracefully. Surveys show that more than half of customers who face an issue do not do business with the brand again when their problems are not resolved.
Imagine losing half of the customer base and the reputation built over years; serious damage it is!
Insufficient Cyber Security
Data breaches are a major cause of reputational risk that is not so common, yet may create huge problems for you. A company strives to work better according to the data it collects from its customers through software and surveys. This data along with the personal credentials of the business can be of massive harm if lost. Many times you may experience a data breach that could be a risk to the company. However, it is essential to have a full-proof cyber security plan to mitigate reputational risks.
Leadership Issues
Another reputation risk cause that does not appear on the surface but causes deep-rooted problems are leadership problems within the company. Sometimes businesses fail to choose leaders that add value to their name, leading to reputational damage.
Studies show that the CEO’s reputation accounts for 45% of the market value of the business.
So, if you want to save your business from damage to market value and reputation, it is important to choose people who add value. Avoid people in the top managerial positions with controversial histories.
Unclear Business Objectives
The business plan of a company contributes majorly to its success and reputation in the market. When everyone in the company works together to achieve business goals, you are less likely to suffer from reputational risks. However, if your business objectives are unclear and the employees do not have a mutual goal to work towards, it may cause reputational harm. Unclear Business risks do not offer a proper direction to the people, adding to reputational risk.
Neglecting Employees
People who work with you in taking your business to the top expect you to take care of them as well. Many companies globally give immense importance to their employees by remembering and celebrating their professional and personal achievements. On the other hand, some corporations want to get the best out of their employees without giving anything apart from the minimum salary.
Remember that you get what you give. If you are not interested in keeping your employees happy, it will cause a hike in turnover and damage your reputation. Happy employees make a huge difference from unsatisfied ones.
Not Meeting Expectations
All of the above-mentioned causes collectively attribute to the inability to meet the customer’s and stakeholder’s expectations. Whether your products are low quality, the cybersecurity is insufficient or your employees are neglected, it all exhibits that you are meeting expectations. If you are not able to meet the expectations of people associated with your business in one way or the other, it will cause you to lose your reputation in the market.
The Bottom Line
Reputational risk can result in major reputational damage and financial loss if you do not realize the importance to mitigate it in time. You must identify risks and understand the causes of reputational risk and make your best effort to reduce the risk.
Neglecting the causes can exhibit consequences of not considering reputational risks in the long term. While you may think that managing these risks will take time and money, it is a must-knowing that covering reputational damages costs between $8,000 and $200,000. So, the time and effort to monitor and restrict the causes is essential to keep your business going high.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.
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