Shotwell the dog, Embroker mascot Embroker Team April 13, 2022 5 min read

Modern Business Risks: What is Reputational Harm?

A person feels the consequences of reputational harm on their business as their computer reveals the results of a recent scandal.

Brand recognition is important, but brand reputation can be even more vital to the overall success and longevity of your business. Reputational harm, however, can do the opposite.

Consumers expect perfection when they pay for a product or service, that’s a fact. 

And beyond that, they expect for your business to rise to that elevated status while maintaining high operational standards; like say treating your staff fairly and ethically and being mindful about the impact your business has on the planet. And as business owners and leaders you strive to provide that high level of satisfaction on all fronts. 

But in reality, issues–of all sizes–arise every day and it’s how you handle those hiccups; those disruptions, that really end up impacting how the consumer perceives your service, your product, and ultimately your brand. 

The Inevitable Risks of Doing Business

Today’s businesses need to take a ton of risks and concerns into account when looking to keep their brand’s reputation in good standing. Thanks to social media at the forefront of almost everything we do and instantaneous news notifications coming through our phones, watches and even eyeglasses, both large and small businesses have more pressure to mitigate reputational harm then they have ever had to before. 

In fact, Embroker recently surveyed over 500 SME owners and CEOs and startup founders in August 2021, and when asked about risks and liabilities to their business, 43% of owners’ named reputational harm to their company or brand as their top concern. 

Big Risks for Small Businesses Report

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Is the Current Approach to Business Insurance a Match for Today’s Modern Risks?

Spoiler: It’s not.

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Reputational harm. Its definition may seem straightforward enough, but in practice, it can rear its head in various complex ways. To help ward against it and foster and maintain a positive reputation, let’s dive in: 

What is Reputational Harm?

Essentially, reputational harm is the damage that can be done to a business as a result of publicized reports of a disgruntled employee, poor working environments, an internal scandal or even a mishap in production that leads to the need to recall a product. Reputational harm can manifest because of any number of things that are bound to occur in business at some point–even if unintentionally. Only now, when compared to decades prior–another thing to thank Meta for!–these circumstances have the potential to go viral and leave a lasting mark on your brand name. 

Reputational harm can take many forms, including but not limited to: 

  • Negative product reviews
  • Data breaches
  • Negative public posts on social media
  • A bad news story that has gone viral
  • A negative local news story or report 
  • Product recalls 
  • Workplace accidents 
  • Negative employer ratings
  • Unfair workplace and culture

Still, reputational harm can represent more than a potential threat to your business. It can also be viewed as a motivation to always strive to do better and can act as a reminder of the responsibility you have as a business to serve your internal team and your consumer to the best of your ability.

An Example of How Reputational Harm Can Impact a Business

A person is being affected by the reputational harm on their business.

You know the old saying that “any press is good press”? The sentiment behind the phrase was built around the idea that it’s better to be talked about and on people’s minds than to have no buzz at all. Well, that is most definitely no longer the case for today’s businesses. 

Once a negative report surfaces, that story can follow a brand for years to come. Take the ride sharing mega giant Uber for example. The former CEO and co-founder, Travis Kalanick, was outed by employees for setting Uber up with a toxic and abusive “bro culture”. The harmful environment was amplified and shared out by journalists and ultimately the public criticized Kalanick and let their buying habits and selling of stock shares relay their distaste. 

In surveys commissioned by Uber public relations personnel in late 2016, results showed that customers “appreciated Uber as a service, but had a strongly negative perception of Kalanick”. Even after his resignation and replacement, riders still revert back to this dark time for the brand. 

Under new leadership, it does seem as though the brand has been making efforts to correct the course. That being said, people see it as a response to fix a problem and a continual attempt for redemption versus an inherent or authentic attribute. 

An Example of a Business That Has Benefited From Having a Good Reputation 

On the flip side, having a positive brand image and reputation can really pay off. Patagonia, for example, is a brand that has continually made headlines for all of the right reasons. 

For starters, the company lives up to its brand mission to help protect the environment. In fact the brand made a pledge to donate 100% of their 2021 global retail and online Black Friday sales, which amounted to a whopping 10 million dollars, directly to earth-conscious grassroots nonprofits. 

Not to mention that the brand has made numerous appearances on “best places to work” lists. They care for their cause and their team and in turn, their consumers make it a point to continue to shop with them over other brands. 

The Damage that Reputational Harm Can Cause

product-liability-insurance-cost-of-not-being-insured

Reputational harm can negatively impact your business in numerous ways.  

A single occurrence of reputational harm can stick with your brand for years. And in turn, can negatively impact client and employee retention, consumer loyalty and investor trust. This can lead to increased costs for hiring as your company will appear to be a less desirable place to work. And of course there will be the additional marketing and PR costs that it will take to turn the narrative around. 

Plus, trust, which is at the crux of every valuable relationship (between both company and employees and company and consumers) will be tarnished. And like any good relationship expert will tell you, trust can be rebuilt, but it will take time and lots of hard work to do so. 

How to Avoid Reputational Harm 

Not only will companies with positive brand reputations garner loyalty from consumers but also employees. This is valuable on so many levels, that it makes the methods to foster and maintain a positive image worthwhile. 

To mitigate risk and fortify a reputable brand name consider building your company culture around ethics that promote a fair workplace. Further, clearly state a brand mission that you feel you can achieve and live up to the promises you make to both consumers and employees. Look to benefit causes your company cares about and do good things in your community. Further, focus on the quality and safety of your product. And of course invest in security to protect consumer information through every step of the purchase process. 

Add value to people’s lives through your product, but also your purpose. Take the responsibility seriously and stay engaged with real time issues as they occur. You may find that the time you devote to your company’s reputation is the most valuable investment of all.

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