How Much is Reputation Worth to Your Corporation?
A recent report issued by London-based Chartered Institute of Management Accountants (CIMA) highlights the value of corporate reputation in today’s competitive world. Organizations can see their level of success either sky rocket or plummet if they do not take a strong stance on protecting their organization’s reputation through actions and risk evaluation. Even though corporate reputation may not be a line item on a balance sheet or income statement, it is can be one of the organization’s most treasured assets that absolutely affects profitability.
Aspects of Corporate Reputation
CIMA selected ten important aspects that must be considered when valuing corporate reputations. These aspects include:
- Perceptions of control
- Quality
- Stakeholders
- Reputation versus brand
- Reputation as an asset
- The value of reputation
- Reporting on reputation
- Ownership
- Trust
- Damage
Reputation isn’t something that can be directly controlled by a company. For the most part, the reputation of an organization is developed based on stakeholders’ beliefs and previous performances. Because reputation building often occurs through “word-of-mouth” exchanges among key stakeholders and observers, it can be difficult to manage. This consistent actions and performances of the organization become strong drivers of positive reputation. If strong enough trust is built over time, then the organization’s reputation will be priceless because of the sustained success it will bring even if the surrounding environment is bleak.
Key Risk Areas
Organizations must take into consideration how corporate reputation can be both a good thing and a potential risk. If an organization’s reputation begins to falter, then levels of success may begin to fall with the reputation. Reputation risk must be identified, evaluated and measured on a more frequent basis than current practices. The reporting of reputation risk is also an area that needs to be improved upon. CIMA states that if an organization is unable to meet expectations of certain stakeholders, then their reputation may be at risk. Based on this, organizations must manage their risks accordingly to meet stakeholder’s expectations. The key risk areas highlighted by the CIMA’s report that can significantly impact corporate reputations are:
- Cultural risk
- Legal risk
- Ethical risk
- Managerial risk
- Executive risk
- Operational risk
- External risk
- Association risk
- Environment risk
Corporate Reputation Moving Forward
Corporate reputation will continue to be an extremely important topic for organizations in the near future. With constant changes in risk management, technology, and risks in general, organizations will constantly have to evaluate and monitor the impact of risk challenges on their reputation. Based on recent developments, more transparent reporting may be necessary in valuing the reputation of organizations. All of these things add up to corporate reputation being a huge asset with responsibility to manage for the years to come.
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Original Source Article: “Corporate Reputation: Perspectives of Measuring and Managing a Principal Risk,” CIMA, June 2007
