Social media and reputational risk

A good reputation is the lifeblood of any organisation. And managing reputation in a world where social media plays an increasing part is hard. After all, no organisation can stop consumers criticising them if they choose too. In the past it might not have mattered much if one or two unhappy consumers complained to their friends. But now, a bad review (whether fair or not) can spread around the globe in hours.

Social media risk is the risk that the use of social media by an organisation, or by third parties including the general public, causes loss or damage to that organisation. The risk can be divided into five basic types:

  • reputational risk
  • operational risk
  • compliance risk
  • legal risk
  • asset risk

Reputational risk is the most common form of social media risk, and certainly the most well known. This is in part because much reputational risk is a consequence of other risk factors. In other words, most social media risk factors can lead to reputational damage.

The risks can involve damage to an organisation’s reputation, or to the reputation of brands and products it owns and the services it provides.

These risks vary in importance but they can be found right across most organisations, in finance, operations, HR, marketing, sales and general management.

Social media reputational risks occur across an organisation

There can be a wide variety of causes including:

  • Unethical employee behaviour online or offline such as inappropriate tweets or the uncovering of unethical manufacturing practices by an organisation
  • Consumer reactions to poor quality products and services or inadequate after sales service, especially where these are amplified by the media
  • Impersonation of prominent people associated with the organisation who are then apparently heard saying inappropriate things; or the takeover and altering of corporate social media assets so that they are no longer “on-brand”
  • Inappropriate use of social media by employees such as bullying behaviour or simply the posting of unwise content
  • Poor marketing activity including allowing consumers to discover and respond to obsolete marketing campaigns
  • Unflattering comments by third parties on social media platforms (e.g. poor reviews, aspersions made against directors, negative analysis of financial performance)
  • Unwise comments by executives that are amplified by the media (the “Gerald Ratner syndrome”) with disastrous results

Many instances of reputational damage are not particularly important. There is often a lot of fluttering by social media commentators but if the damaging issue isn’t seen by mainstream consumers the main outcome can be red faces in the marketing department! In these cases it is important not to over react.

The real danger is that a particular issue – low quality, unethical practices, inappropriate public comments by senior executives – gets taken up by the mass media and “amplified”.

 Growth of a social media crisis

Organisations often place their social media risk management processes within PR or marketing. However, reputational damage is not just a concern for marketing departments. A damaged reputation can affect many things adversely, including:

  • Finance: The ability of an organisation to borrow at the best rate of interest; the ability to attract investment can also be damaged and this can result in damage to the share price
  • Operations: The image of the organisation as a “corporate good citizen”, which in turn may reduce influence with external stakeholders such as regulators or suppliers, ultimately resulting in less efficient operations
  • HR: The organisation’s “employer brand” which if damaged can result in difficulties recruiting the best talent
  • Sales: The sales a company makes; in addition the profitability of those sales can be reduced due to increased costs (less influence with suppliers) or by the inability to charge higher prices (less credibility with consumers)

Because the potential effect of reputational risk extends across organisations, it is sensible to monitor the risks outside PR and marketing departments. The ideal organisational structure will allow for social media risk management to be a separate and stand alone function which can work with the relevant business function to manage any difficulty.

As with other social media risks, the simple ALP management process should be applied:

  1. Audit: Identify potential risks using scenarios or knowledge of previous social media “fails
  2. Listen: Listen out for potential problems
  3. Prepare: Prepare for potential problems by:
    1. Developing an appropriate social media policy and training all employees in its meaning and use (this includes Board members)
    2. Agreeing management processes to handle likely risks including escalation processes and generic position statements
    3. Simulating problems and practising the response

As we said at the start of this post, reputational risk isn’t the only risk area to stem from social media. More on the other social media risk areas next week.

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