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Why protecting corporate reputation matters

When Will Rogers wrote “It takes a lifetime to build a good reputation, but you can lose it in a minute” he was not likely talking about damage to corporate reputation.

For a long time, it was thought that brand was the corporate equivalent of individual reputation.

Today, it is increasingly recognised that corporate reputation is not synonymous with brand and while it does not appear as a discrete balance sheet item, it is an intangible asset of intrinsic value.

In a digital age where everyone is a publisher, the risk of reputation damage is omnipresent, amplified and harder to manage effectively.

Corporate reputation is largely what other people think of the organisation – its public image.

In other words, it is who the public think you are rather than what you do.

A good reputation has a halo effect; it enhances or even creates competitive advantage. It has the capacity to positively impact the attitude of regulators and lawmakers, enables a business to better withstand a crisis, and helps attract and retain the best talent.

Conversely, a damaged reputation potentially reduces earnings, market share and dents stakeholder trust.

It is no wonder then that Aon's 2011 Global Risk Management Survey recorded damage to reputation or brand as the fourth most frequently noted risk concern by global businesses.

As the legal protections or rules shift and adapt to meet the challenge of new media, the balance between freedom of expression and reputation and privacy is being constantly redrawn.

Take, for example, the impact of electronic archiving of media content, news aggregators and search engines. 

Stories are no longer contained and no longer have a shelf life. A negative story now has global reach and is likely to re-emerge at critically sensitive times.

Defamation law is still applicable in the new media age, as Chris Cairns proved in his defamation case against Indian Premier League founder Lalit Modi. 

Cairns was awarded £90,000 in damages, plus significant court costs, despite the fact that the tweet at issue had been read by only 65 people (although there are reports Modi is appealing the decision).

One influence of new media, particularly social media, is that it is increasingly consumers who define how brands are perceived.

A challenge becomes how to police IP across social media in a way that does not alienate the market but still protects IP.

The social media furor when US Olympic committee lawyers apparently sent an aggressive 'cease and desist' to a group of on-line knitters staging a "Ravelympics" show how misjudgment can turn quickly to public scorn.

As reputation has significant value, reputation risk needs to be actively managed. One key element is understanding where risk lies and what solutions are available.

Managing risk in the on-line environment is particularly crucial since the beguiling ease of publishing material through social media channels brings with it significant risk. 

Examples of risk include:

# The digital equivalent of leaving the briefcase with confidential information on the bus.

# Third parties posting infringing content on your branded marketing page.

# Disgruntled customers engage in digital picketing to post negative reviews on an overseas based consumer forum.

# An employee's damaging statements on social media about the business or exposing the organisation to legal liability.

# Media are about to publish an expose on the private life of a key manager of the organisation.

Engaging with media, including social media is a practical necessity. It offers opportunities to connect with customers, enhance reputation and build brand. 

A reputation management plan includes building a positive on-line presence to offer a credible voice in a crisis but a smart plan also recognises that, while cyberspace might be a defamation-prone zone, it is still subject to legal rules.

Tracey Walker is a partner in Simpson Grierson's litigation team specialising in media and intellectual property enforcement. She is author of Reputation Matters: A Practical Legal Guide to Managing Reputation Risk, published by CCH this month. This is a guide for New Zealand lawyers in private practice, corporate counsel, communications managers and public relations practitioners. It explains legal issues relating to reputation management and protection, covers key aspects of the law and corporate communication and provides tips on how to avoid communication pitfalls to minimise legal risk.

© Tracey Walker 2012

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Comments and questions
3

If this were all true, then most CEO's remuneration would be based on the companies reputation, and not largely based on the share price of the company. Unfortunately the average shareholder cares only about the share price.

Well Corporates ain't listening.............
Barclays Bank (Libor shonk), Hong Kong Shanhai Bank (Money Laundering), Standard & Charted Bank (Money Laundering)
Telecom (Breach of Commerce Act) Air New Zealand (Freight price fixing)
We live in a world where greed is good in the pursuit of profit, corporate reputation means nought. Most punters forget within 5 minutes of corporate reputational failings

The ability to instantly post comments about user experience is changing the way companies are having to manage their reputations. It's one thing to just make sure you are doing the right thing and another to have to combat negativity.