The Importance of Reputation Risk Root Cause Analysis

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There was this case in a hospital’s Intensive Care ward where patients always died in the same bed and on Sunday morning at 11 a.m, regardless of their medical condition. This puzzled the doctor and some even thought that it had something to do with the supernatural. No one could solve the mystery….. as to why the deaths at 11AM?

So a world-wide expert team was constituted and they decide to go down to the ward to investigate the cause of the incidents.

So on the next Sunday morning few minutes before 11 a.m., all doctors and nurses nervously wait outside the ward to see for themselves what the terrible phenomenon was all about. Some were holding wooden crosses, prayer books and other holy objects to ward off the evil…….. Just when the clock struck 11…… What do you think as to what happened???

Scroll down to see what happened.

The part-time Sunday floor sweeper entered the ward and unplugged the life support system so that he could use the vacuum cleaner.

Reputation Risk can have its origins in seemingly unrelated or small issues in an organisation that eventually becomes big things that can destroy carefully crafted reputations. “Witness, the front pages on a Sunday!”

The damage to a reputation by a crisis can be direct and indirect. These costs could include penalties incurred because of a lack of legal compliance, litigation, media conferences and advertising costs, hiring of crises communication and risk management consultants.

But what about the indirect costs, the effects on various stakeholders? The customers that do not return? The prospective customers that read and base their future actions on today’s impressions?

The Exxon Valdez oil spill cost more than US$ two billion in the first two months. But ten years later Exxon issued a statement to say that the spill cost them more than US$10 billion in just trying to restore the environment. Added to that tally was the news that the company was fined US$5 billion for the incident by the USA government.

And why did the incident occur? Root cause analysis showed that it happened as a direct result of a faulty HR policy – understaffing and poor working conditions. (By the way, the captain was not drunk, he had been suffering from sleep deprivation, I hear).

Many organisations plan for possible business risks but few have in place systems to minimise damage to its most valuable asset – its reputation. –

The latest research shows that reputation and the value of intangibles can make up as much as 63% of a company’s share price.

Any crises situation has the potential to damage an organisation’s reputation, impact on the share price and destroy relationships. No matter the factor or risk that caused the crises situation, reputation risk is inherent in it.

Reputation damage inevitably leads to loss of market confidence, critical stakeholder actions, litigation, higher capital costs, etc.

Reputation damage can be defined as the adverse operational and financial impact on business performance when the company’s good name gets tarnished. Yet, how often do management receive training and education on how to manage reputation and minimise reputation fall out? Seldom, I will wager.

To understand the potential ramifications of a reputation risk incident, it is vital to take a reputation root cause analysis view.

Negative publicity should not be seen as the reason for only further intervention downstream, but as an end-of-the-pipe effect, which could be organisationally have been cured upstream.

Often the root causes can originate in culture(values), leadership (actions), structure(relationships) and process (systems). These variables interact and combine to produce organisational reputation results and outcomes.

To empower managers to understand this inter-play, I  facilitate a program in which I take managers through a guided process so that they can understand how reputation risk incidents develop and evolve.

The training enables them to develop strategies how to minimize reputation risk.

Check out the Mitigating and Managing Reputation Risk Masterclass for more information.