The essence of life, as highlighted in Tirukkural, underscores the paramount importance of reputation, whether personal or in business. In the complex world we navigate, reputation stands as a fundamental instrument of social order, offering a moral compass to guide us in the right direction.
For businesses, a positive reputation is more than a feather in the cap. It serves as a magnet, attracting top talent, fostering retention, and even enabling cost savings by perceived value. Conversely, a 'reputation deficit' can make recruiting a challenge and cast shadows of suspicion on business actions. As the saying goes, building a good reputation takes time, but a single misstep can shatter it. This is the realm of reputation risk—a risk that can stem from various actions, transactions, events, or decisions that erode trust in an individual or firm's integrity and competence.
Proactive Reputation Management vs. Crisis Management
Often, risk managers focus on dealing with threats that have already emerged, adopting a crisis management approach rather than a proactive risk management one. The real essence lies in being sensitive to potential damage and taking proactive measures. While developed markets may assess reputation risk in specific circumstances, emerging markets, like ours, need to vigilantly guard against reputation damage in every facet of operation due to the vulnerability associated with local laws and media scrutiny.
Key Factors Triggering Reputation Risk
Two critical aspects demand leadership attention when it comes to reputation risk:
- Corrupt Practices: The risk associated with allegations of bribery or corrupt business practices poses a severe threat to a firm's reputation. Acts of bribery to secure contracts or expedite processes, even if ignored by leadership, exact a heavy toll on reputation. Ethical lapses, as evidenced by research, correlate with significant market value differences. Scriptural wisdom, including the Bhagavad Gita, denounces corrupt practices as rooted in greed, emphasizing virtues like non-greediness (Aparigraha).
- Misconduct with Women: Misconduct with women employees and perceptions of workplace safety for women can quickly escalate into reputation risk issues. Toxic cultures prevalent in firms, leading to mistreatment and harassment of women, can severely impact a company's image. Scriptural teachings, such as Manusmriti, stress the importance of proper behavior towards women and guarding them against evil inclinations.
A Lesson from Scriptural Wisdom
A noteworthy episode from the life of the 35th Jagadguru of Sringeri Peetham illustrates the significance of scriptural wisdom in dealing with base instincts. The emphasis on seeking a solution through spiritual means over medicinal remedies reflects the timeless value of aligning one's actions with higher principles.
The Role of a Reputation Risk Manager
Given the critical nature of reputation risk, the responsibility for managing this aspect should rest with the chief executive. The top executive, overseeing the firm's crisis-response system, is ultimately accountable for addressing events that could harm the company's reputation. This calls for a vigilant approach, with senior management being sensitized to potential reputation risks.
Conclusion: Reputation Built on Character
In the words of Abraham Lincoln, character is like a tree, and reputation is its shadow. Good reputation is not a facade; it is built on spotless character and self-management. Wise leaders understand the proactive measures required to safeguard reputation, realizing that reputation is the authentic reflection of a firm's character.
By R. Krishnamurthy