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How to move from managing risk to building a reputation

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Warren Buffett

 

An organisation’s reputation could very well be the most valuable asset it owns. Companies with good reputations are seen as providing more value, which often allows them to charge a premium. Their customers are more loyal and buy a broader range of products and services. They attract a higher quality of prospective employees. And, because the market recognises the value of reputation, they’re more likely to enjoy higher price-earnings multiples and market values and lower costs of capital.

In short, a good reputation is a very good thing to have. So, what exactly contributes to an organisation’s reputation? And how does an organisation make the shift from reactive risk management to proactively using the process to build a good reputation?

 

Products and Services. Perhaps unsurprisingly, what you provide is the most important element. According to Reputation Institute’s 2021 report over 20% of your reputation is dependent upon this category.

Governance. The second biggest factor is how you respond to government regulations. Following compliance requirements and acting ethically are key to maintaining a good reputation.

Citizenship. Just behind governance is corporate social responsibility. Both consumers and investors are demanding that businesses respond to global challenges such as climate change, diversity, and economic inclusion.

Innovation. In today’s fast-paced world, the need to innovate and stay on the cutting edge of technology is a significant contributor to your reputation.

Leadership. You only have to look at the impact Elon Musk can have on Tesla’s share price to see how leadership can affect reputation—for better or worse.

Workplace. Good employee engagement plays a part too. If talented people don’t want to work for you, or those that are there aren’t engaged, it’s going to affect your reputation.

Financial Performance. How you’re perceived by the market also impacts your organisation’s reputation.

 

How compliance became an investment, not an expense.

Rather than considering compliance simply as ‘the cost of doing business’, smart organisations are finding ways to extract value from the data it generates.

When organisations approach compliance in a proactive way, they discover genuine benefits to their bottom line.

More accurate cost-benefit analyses. Traditional business analysis doesn’t take into account the third-party-related expenses of due diligence, ongoing monitoring, and possible compliance failures. But if you investigate a prospective partner with these issues in mind, your business could save a lot of money if it’s determined, in advance, that the potential costs outweigh the benefits of signing that contract.

Compliance failures are costly in two ways. Any compliance breach is likely to lead to very hefty fines and a loss of trust from regulatory bodies. But even more harmful may be the reputational damage that it costs your brand in the long run.

Competitive advantages. If you’re able to demonstrate that you’re adhering to compliance requirements and acting ethically, you can use that as a differentiator from your competitors. This can be an advantage in B2B interactions as much as it is in consumer relationships. Companies don’t want to be caught up in someone else’s mess. So, if you can prove you’re following the rules, you’ll be a more attractive prospect than someone who can’t.

Spending money to do it properly, saves money in the end. Establishing an integrated compliance approach using advanced technology should be seen as an investment. It’ll certainly cost less than the fines and damage to your brand caused by a compliance breach. Regulations are continually changing and, of course, it’s even more complex if you’re operating in markets in different countries. But having an organised and systematic approach will ensure nothing gets missed and you can utilise examples of your ethical behaviour to build your brand’s reputation. Using data analytics in the area of compliance allows businesses to predict future compliance issues, improve the efficiency of compliance testing, and conduct real-time monitoring of high-risk areas.

Give it the consideration it deserves. Meeting compliance obligations needs to happen from the top level of an organisation down. How the company deals with compliance should be a part of any board of directors’ understanding of the way their business works. Ideally, there will be someone within the organisation who’s the head of compliance. This person should be able to understand and speak the language of business so that other leaders can recognise its genuine value.

 

Moving beyond compliance.

The opportunity for organisations in the 21st century is to take compliance requirements and use them to proactively build a reputation.

Rather than simply focusing on what’s legally required, businesses should ensure that they operate a high-quality compliance program for its own sake. Doing this illustrates the importance you place on behaving responsibly. This means, if there’s a compliance failure, stakeholders are much more likely to give you the benefit of the doubt. To treat it as a rare mistake, rather than an indication of fundamental problems.

Publishing your compliance policies is a way to not only tell consumers where you stand ethically, but also makes your values clear to employees. All the good intentions in the world can be undone by one rogue actor in your organisation. Ensure that you make clear how your business’s purpose and values align with ethical responsibilities and with environmental, social, and governance (ESG) factors.

Compliance can be thought of as an ethical centre of gravity that can influence your entire organisation. Rather than seeing it as a costly burden that requires a lot of boxes to be ticked, it can provide a foundation upon which you build a business that operates ethically, recognises its ESG obligations, and benefits from the real value afforded by having a good reputation.