Five reputational risks every business needs to plan for

Scandals can come out of nowhere. Don't get caught with your trousers down.

by Jack Torrance
Last Updated: 09 Jun 2016

Unless you’re a start-up nobody has ever heard of then it’s not quite true to say that all publicity is good publicity. Scandals can come from anywhere and do untold damage to a business’s bottom line. There’s only so much you can do to prevent them from occurring, but it pays to be prepared.

Data breach

Getting hacked can be costly – just ask TalkTalk, whose cyber attack last year set it back the princely sum of £42m. But it’s not just external threats that you need to be wary of. Personal data can just as easily be leaked by insiders. Just this month the HIV clinic 56 Dean Street was fined £180,000 for accidentally sending an email that revealed the names of more than 700 of its patients.

Even if you don’t have a big online presence, almost every company possesses data that falls under the purview of the Data Protection Act – from customer email addresses to credit card info. As well as bolstering your IT systems it’s important to train staff in how to handle data properly – especially as new EU regulations come into force over the next couple of years.

HR screw-ups

It’s easy to fall victim to an employment scandal. All it takes is a junior manager asking something inappropriate in an interview and you could be in big trouble. As PwC discovered when one of its outsourced receptionists was sent home for not wearing high heels, you don’t even have to be the company at fault to get dragged through the mud.

You’d think these kinds of screw-ups could be avoided just by applying a bit of common sense - don’t ask prospective hires if they plan to go on maternity leave soon, don’t make racist jokes in the canteen – but still they occur. Nobody enjoys HR training sessions but it’s important that staff are clued up on how they should behave. Regularly review your hiring process to ensure it’s not open to accusations of being discriminatory. And if you’re using outsourced or agency staff then be damn sure to check they are adhering to acceptable standards too.

Marketing fail

Some brands (we’re looking at you, Paddy Power) make their name by stirring up controversy. But most would sooner avoid ending up on the Advertising Standards Authority’s most-complained about list. In a world of social media where there are plenty of people only too eager to take offense, it’s easy for a marketing fail to become a viral hit. There’s not a lot you can do to mitigate that, but it’s always worth asking for a second opinion before hitting post on that edgy tweet. And think very carefully indeed before handing the intern the keys to your Facebook account.

Dodgy dealings

Tesco’s accounting scandal is among the biggest reputational blunders of the past five years, but it’s not just big corporations with dozens of accountants that can fall victim to financial malpractice. As small businesses get bigger and their accounts get more complicated the possibility of a Tesco-style blunder increases. And worse, there is the chance that employees could stick their hands in the till.

The reputational implications of such behaviour are less for a small company than one that’s listed on a stock exchange, but such a revelation can still be deeply embarrassing – and cause clients and investors to question your judgement. It’s a good idea for more than one team member to have a thorough understanding of the company’s books and for thorough processes for things like expenses management to be in place. It also underlines the value of a good auditor – a legal requirement for companies turning over more than £6.5m but still an option for those that are smaller.

Losing a key team member

The departure of a high profile CEO or other figurehead can cause myriad problems for a business – from harming staff morale to starving the company of leadership. It can harm outsider perceptions too. On the day Justin King stepped down from Sainsbury’s it lost more than £150m of its market cap. Even in a smaller business the loss of a top dog can still be cause for concern for clients used to dealing with them directly.

It can happen suddenly if the boss goes under a bus or falls victim to a terminal illness. And if they depart in more scandalous circumstances – as in the case of ex-BP boss John Browne – the reputational impact can be even more severe. That’s why it’s always important to have a succession plan in place, even if the boss has no plans to depart any time soon.

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