The Cost of Protecting Your Reputation

Recently I listened to a Freakonomics podcast where they interviewed former professional cyclist Lance Armstrong. In 2012, Armstrong was identified by the United States Anti-Doping Agency as the ringleader of a doping programme, was subsequently stripped of his achievements including seven Tour de France titles, and given a lifetime ban. The podcast hosts asked the question, ‘Has Lance Armstrong finally come clean?’ In the interview the fallen-from-glory cyclist mentions that he has spent in excess of U$111 million repairing his image.

This got me thinking about the cost associated with restoring a ruined reputation. For Armstrong, it’s actually not just his image that has been ruined; all of his former sponsors, purely by their association with him, have taken a hard knock. Consider what the news of his doping did for the reputation of his Livestrong charity that (rather ironically) encourages a healthy lifestyle?

Let’s take a local example, McKinsey, recently had to pay back almost a billion Rands in fees, Bain & Co has also offered to pay back their consulting fees of R164 million plus vat and interest; both these cases as a result of dubious business dealings. This does not include the amount that they will now need to invest in to get their reputation back on track so that people and businesses will want to do business with them again.

Working reactively is what firefighters do when they put out fires. They rush to the scene with all the tools they can use to pour water on the fire and stop it from spreading further. But depending on the type of fire, different methods might be needed to extinguish the fire; foam, chemicals or water. Knowing how your business works will help you to know how best to manage a crisis situation. 

Unfortunately, the damage is already done and the cost of putting out the fire and repairing the damage quickly adds up.

Investing in your reputation need not be costly if done proactively. Conducting regular research will help you to identify any pressure points or areas within your organisation that are impacting on your overall reputation and the way that people perceive your organisation. Although you may think that research is costly and more of a nice-to-have extra, it is certainly not as expensive as what you will have to spend to fix your reputation if you work reactively. When looking at the bigger picture of associated costs, reputation research is an investment that does not compare with what you would need to fork out to fix a broken reputation.

According to the 2017 Aon Global Risk Management survey, reputational damage is cited as the number one business risk. Unfortunately, the study also highlights that risk-preparedness is at its lowest level since 2007.

Despite the availability of more data and analytics, and more mitigation solutions, surveyed companies are less prepared for risk.

It therefore does not help investing in research and not doing anything with the results and recommendations.

When you conduct reputation research and work proactively to manage red flags, you’ll be able to contain potential crisis situations, and plan considerably better to be ready in the event an issue does escalate into a full-blown crises situation. You will learn a lot from your stakeholders from the research, their perceptions and inputs will help you to highlight potential blind spots.

It is quite interesting that the 2018 Deloitte’s Global Risk Management Survey focuses on the increase in Chief Risk Officers (CRO); this could quite easily also stand for Chief Reputation Officer.

When you have tarnished your reputation it is very difficult to restore it to the former glory it once had. Lance Armstrong is a case in point. The message is loud and clear, spend a small amount now on researching what is building or breaking down your reputation and reap the rewards in the long term. Or ignore your reputation at your peril and be prepared to pay millions in reactive work to restore stakeholder perceptions.

Regine le Roux – Managing Director, Reputation Matters,Cape Town, South Africa