Proudly263Global business tips. All you need to know about reputational risk


By Barbara A Benhura


Proudly263 Global’s mandate (amongst others) is to offer constructive advice and business tips to its members and Service Providers. This enhances customer satisfaction, grows customer base as well as improves customer service.

If we have all been following the chats from previous weeks, we have had complaints of customer dissatisfaction through poor to no service at all, which as Proudly263 do not condone hence the need to train, mentor and provide free advice to our members through workshops, network meetings, and articles in this newspaper.

This could have been due to ignorance of some important business ethics on the part of the service providers.

On the other hand, it is pleasing to advise that some of our Service Providers have exceeded their customers’ satisfaction by providing excellent service such as Magura Tours, MM Chemicals, Kariba Bream suppliers, Songs Construction just to name a few.

In view of the aforesaid, I saw it necessary to go through some risks associated with day-to-day operations of a business that I believe if identified at an early stage, can be minimized or controlled. I will zero in on Reputational Risk but before I go into detail, we need to understand what Risk is.

What is Risk?

People and institutions have different views and opinions on risk. Some perceive risk as a potential threat and others as a potential opportunity to gain an advantageous position.

For example, a person who is not willing to take a risk and suffer a potential loss would secure an insurance policy that will reduce the actual loss should such a risk event occur.

On the other hand, an investor might see an opportunity in taking a risk by investing money and hoping that the investment would produce a profit over a certain period.

It is therefore clear from the example that there are two sides of risk; one side tries to prevent a loss by minimizing the risk, while the other side takes a risk with the aim of making a profit.

Either way, each entails some form of uncertainty. It is therefore important to include the concept of uncertainty in order to define risk.

Risk Definition: Risk can thus be defined as the uncertainty of an event that could cause a loss or ensure a positive outcome if such an event occurs.

There are two-risk categories i.e.
Financial risks and
Non-Financial risks.

Each main category of risk has a number of underlying risks, and risk factors, that must be managed to ensure that an organization is prepared to, firstly, take risks according to a preset risk appetite and, secondly, to mitigate the negative influences of risk events should they occur.

Financial Risks could be seen as those risk exposures that will lead to a direct financial loss and negatively influence the profitability of the organization. (Watch the space for more info)

Non-Financial risks could be described as those risk exposures that could negatively influence the operations of an organization and ultimately incur losses of a quantitative or qualitative nature, indirectly influencing the profitability of the business.

It is usually very difficult to quantify non-financial risks. Reputational risk falls under this category.

Reputational Risk

Reputational risk is the negative exposure of an organization’s business practices and/or internal controls that may cause a decline in the customer base and/or a reduction in revenue.

Poor service and the inability to deliver products that may damage the organization’s relationship with customers and business partners can also result in reputational risk

Dealing with undesirable counterparties and the negative sentiment of regulators contribute to this risk

In other words, reputational risk is the risk damaging the organization’s trustworthiness in the marketplace.

This negative perception can spread from the organization’s own employees to customers, financial markets, investors, shareholders, counterparties, governments and/regulators
One of an organization’s most valuable assets is its reputation
The reputation can be reflected as part of an organization’s brand and successful branding can secure long-term competitive advantages.

Brand management, indirectly reputational risk management, is a dynamic and continuous activity of an organization to ensure a positive reputation and to protect the brand against any negative influences.

For example, the current developments in social media could have a major impact on an organization’s reputation and brand either positively or negatively.

As such, it is crucial that media be closely monitored in order to neutralize any negative issues and exploit the positive issues so that the organization can enjoy maximum benefits promoting its reputation and brand.

The more the enterprise is dependent on public confidence, the greater the potential financial cost of any reputational damage, as it will affect the total organization and not just a specific part of the business where the problem occurred.
Reputational risk does not merely arise from large-scale, once-off events. A series of small occurrences affecting an organization’s reputation may, in aggregate, be sufficient to destroy the organization.

Possible Effects of Reputational Risk include the following:

A loss of customers and business
A loss of income
A loss of company’s image and branding
A negative influence on the employees in terms of morale and their confidence in the company
A decline in the company’s share price and subsequent loss of investors
A loss of the company’s market share regarding its products/services
An increased focus on the company’s governance by regulators and external auditors, which could be costly in terms of employees’ time

Important: Organizations should monitor the exposures to reputational risks closely in order to establish an adequate reputational risk strategy. Such a strategy will prepare an organization to mitigate and deal effectively with these reputational risk events.

Examples of Reputational Risk Events

Poor customer service
Poor quality of service and/or products
Poor quality of outsourced contractors
Key service interruptions by inadequate systems or viruses
Fraud and bribery
Joint ventures with other organizations with bad reputation
Breaches of law and regulation

It is evident that reputational risk can have a major influence on an organization’s business and sustainability and should, therefore, be closely controlled as a crucial risk type by a dedicated entrepreneur.

All service providers must try to avoid the occurrence of the above-mentioned risk events in order to protect their reputation and brand that will in turn help secure successful long-term competitive advantages that will lead to business growth in future.

The Bible says that …’my people perish because of lack of knowledge’…we at Proudly263 Global do not wish to see our Service Providers lose business or go under because of lack of knowledge.
Happy reading.

Barbara Benhura is Proudly263Global Managing Director.



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