Regardless of size and industry, it is imperative for organizations to manage their reputation carefully. Just as a strong reputation can help attract new business, a poor reputation can drive potential customers away, leading to financial loss. This is why many organizations are beginning to invest in reputational risk management programs.
With a system in place to manage enterprise risk, companies are able to set quantifiable performance metrics and facilitate reputational alignment across departments. This streamlines a businesses’ ability to identify and respond to reputational threats by enabling risk prioritization. Below we outline four best practices you can follow to effectively manage reputational risk at your organization.
What is reputational risk?
Reputational risk is the damage that can come to a business if they fail to reach the expectations of investors or business owners, and is therefore perceived in a negative light. Consequently, this harms the business’s reputation.
Why is reputational risk management important?
Reputational risk management is important because it directly impacts your business’s success, relationships, and growth; and oftentimes, a reputational risk event is more damaging as it can take years to rebuild a tarnished corporate image. In some cases, these events can even result in a company going out of business if it is unable to regain trust with its customer base. Conversely, organizations that have a strong reputation are better able to attract new customers and employees, have a healthy market value, and receive the benefit of the doubt when an incident occurs.
As more businesses begin to digitize, reputational strength has become more important than ever before. Organizations are facing increased levels of cybersecurity, financial, and compliance risk, which, if mismanaged, can lead to significant reputational losses. This is why it is vital that organizations build reputational risk management systems that monitor enterprise-wide cybersecurity.
Challenges of reputational risk management
The key challenge many businesses face in managing reputational risk is identifying potential risk events. The lack of widely accepted standards for how to categorize and rank reputational risk makes it difficult for businesses to accurately assess and manage threats. In addition, reputational risks can be extremely complex and span across multiple departments, meaning it can take a long time to identify new threats and vulnerabilities. Reputational risk management requires building frameworks that unify threat identification. The challenge is that this process is resource-intensive and requires open communication between the board of directors and the security teams responsible for managing the risk.
Four best practices for effective reputational risk management
Reputational risk management increasingly relies on both protecting information and being transparent about how you manage customer data. In order to balance the two, organizations must create systems that accurately monitor risk indicators while also providing insights that can be easily understood by employees throughout the organization. Below are four best practices for effective reputational risk management:
1. Establish board oversight
Effective risk management requires ongoing board oversight. When creating a reputational risk management program be sure to coordinate with board members with regard to all strategy and policy decisions. The goal is to create a system that allows for constant communication between risk management teams and the board so that stakeholders are always aware of security efforts. The board can also provide valuable insight into which risks to prioritize based on their knowledge of organizational goals and procedures.
2. Integrate your reputational risk strategy into business planning
Integrating your reputational risk management strategy with core business processes ensures that it is factored into business planning. In order to get the most out of these risk management strategies, it is important that directors and executives understand the different aspects of your plan of action, so that they can devote the necessary resources to risk management teams. Doing so will also help you set informed performance metrics as they relate to your organization’s goals and available budget.
3. Create incident response plans
While risk management programs help limit reputational risk exposure, no strategy is ever one hundred percent effective. In the event that you do encounter an event that poses risk to your organization’s reputation, it is essential that you have an incident response plan in place. An incident response plan is a predetermined set of actions that an organization follows in order to mitigate the overall impact of events that could have adverse effects on reputation. When creating an incident response plan, first create internal teams who will be responsible for guiding your organization’s actions in the case of an event. From there, you should define individual employee roles so that everyone at your organization knows what to do if and when an incident occurs. In order to streamline risk response, be sure to also create a checklist of action items that should be prioritized.
4. Ensure third-party risk management
If your organization works with third-party vendors, then it is critical that you manage their risk as you would your own. Vendors have access to critical systems and customer data, which must be carefully monitored as to avoid any potential risk events. Taking a risk-based approach to vendor management can not only help limit potential reputational risk events associated with third-parties but can also help you identify areas of improvement within your organization. Some key vendor risks that should be monitored daily include:
- Cybersecurity risk: Cybersecurity risk is concerned with any potential losses resulting from a cyber attack or breach of your organization’s systems.
- Compliance risk: Compliance risk arises from violations of the laws, regulations, and internal processes your organization follows to conduct business.
- Financial risk: Third-party financial risk occurs when vendors do not meet the fiscal performance requirements put in place by your organization.
- Strategic risk: Strategic risk occurs when a vendor’s actions or business decisions do not align with your organization’s strategic goals.
How SecurityScorecard streamlines reputational risk management
In order to effectively monitor reputational risk, organizations need consistent visibility into potential threats. With SecurityScorecard’s suite of enterprise risk management solutions, organizations gain unprecedented visibility into critical risks with their business ecosystem. Security Ratings offer easy-to-read A-F ratings across ten groups of risk factors, helping you drill down and prioritize cyber threat remediation.
To help limit vendor risk, SecurityScorecard offers third-party risk management tools that actively detect potential gaps in security while also ensuring that vendors are always in compliance with relevant regulations. This allows you to actively manage vendor relationships and address third-party reputational risk in real-time.
With business environments becoming increasingly distributed and cyber threats growing in complexity, continuously monitoring reputational risk is imperative to organizational success. With SecurityScorecard, organizations are able to take a proactive approach to reputational risk management and ensure business objectives are met.