Managing Reputational Risk: Why it’s time to do “outside in analysis”

“O wad some Power the giftie gie us

To see oursels as ithers see us!

It wad frae mony a blunder free us,

An’ foolish notion”

These words, with which Scotland’s national poet Robert Burns brings to a close his poem “To A Louse”, are as true today as they were the day they were written. If we had the power to see ourselves as others do, there’s no doubt in the slightest that it would indeed ‘frae mony a blunder free us’. 

And when it comes to the reputation of an organization, those blunders can cost dear. They can in fact be fatal, as Gerald Ratner discovered to his cost. That case may be an extreme example, but the truth is that reputational risk specifically is all-encompassing, or if you prefer a ‘meta risk’: damage to an organization’s reputation can be extremely damaging, and it can come from anywhere.

This last point is important. Whilst other forms of risk are relatively limited in scope, reputational risk is harder to pin down. Those risks can come from almost anywhere, and indeed other categories of risk that we often use can ultimately impact on reputation. To give three obvious examples:

• ESG (environmental, social and governance) risks are almost by definition reputational risks. Consider the Deepwater Horizon oil spill, which so impacted the reputation of BP that there were serious questions about the survival of the business.
• Supply chain risks cause challenges around revenue and operations in the short term, but an inability to put product on the shelves also causes more serious reputational damage in the medium and long term
• Operational risks, such as those that led to the public (and tragic) failure of the Boeing 737 Max so damaged that company’s reputation that it lost $11 billion of value in just two days.

I could go on: the potential examples are almost unlimited. What is important to understand in the context of this piece is that, as stated above, risks can come from almost anywhere. It is this in turn that makes ‘outside in’ thinking and analysis essential when it comes to managing reputational risks specifically. 

The dangers of thinking ‘inside out’

In business we are used to focusing on what we can control. There are good reasons for that: spending too much time reflecting on chance events or the actions of third parties isn’t always useful when allocating our time and getting things done. But when it comes to reputational risk, this admirable instinct can be dangerous.

What we might call the ‘inside out’ model for identifying reputational risk focuses on our own actions and behaviors. We interrogate our own organization, look to identify areas in which our own lapses or errors may trigger negative risks, and seek to rectify those issues. 

These are all things that need to be done. But with them come the challenges associated with looking inward rather than outward, namely:

• A tendency to view things through our own frame of reference and with a natural focus on the things that we care about and are interested in
• The dangerous belief that we know more about our organization than those who are outside looking in: that we are ‘right’ and other perspectives are ‘wrong’
• The natural propensity towards groupthink that tends to set in within any organization: when we talk on a regular basis about aspects of the business, we tend to end up believing the same thing
• Lastly, the belief that certain things are important, and others are not important, when in reality the reverse may well be true in the eyes of the public and other stakeholders

We can add to this list the simple fact that, particularly in large organizations, we simply cannot know everything, no matter how we may wish to believe otherwise. When reputational damage can come from a single employee, a partner, a supplier, or our own actions, it is unrealistic to assume that our knowledge is close to perfect. 

For all these reasons and more, good reputational risk management requires looking from ‘the outside in’.

Looking from the outside in: what it is, and how to do it

As Robert Burns has it, what a power it would be to ‘see ourselves as others see us’. This is the promise of outside-in risk analysis. In the most simple terms, it is bringing the perspectives of others to the table. But it also requires those within the organization to become active seekers of these perspectives.

When that happens, all sorts of good things happen:

• The understanding of what matters to others (customers, investors, media, the general public) becomes better understood
• Our knowledge of our own organization, and what is happening in our organization, improves
• We gain faster, clearer awareness of emerging threats or risks to the company’s reputation

Collectively, these new perspectives help us spot emerging risks, and equally importantly understand the best way to respond to them. As a result, the outside-in perspective helps us to manage reputational risk much more effectively than the inside-out approach alone.

What does this approach look like? I hesitate to boil what can be an all-encompassing effort into three bullet points, but brevity requires it. In that spirit, my three-point ‘outside-in’ plan looks like this:

1 Change the culture

It starts with being open about what we don’t know. Both the ‘known unknowns’ and the ‘unknown unknowns’ in Donald Rumsfeld’s memorable phrase. Humility is essential. To put this another way, listening is pointless if the brain isn’t ready to act on what it learns. It is imperative to shift the culture to one of curiosity and open-minded inquiry when it comes to the perspectives of others. 

2 Engage with outside audiences

It sounds simple because it is: if you want to know how others see your organization, you can always ask them. Set up formal processes to gather, interrogate and analyze the opinions of ‘outside’ stakeholders, including customers, investors, partners, regulators and the broader public. To the greatest extent possible enable that input to be as free from bias as possible (most people want to say the right thing, and it is necessary to work hard to get real unvarnished insight). 

And as above, make sure to act upon what you learn. The aim of the exercise is to identify weak points and reputational risks. Doing so is pointless is that insight is not followed up with action.

3 Invest in intelligent media monitoring

Those establishing an outside-in risk management process have one ready-made advantage: the thousands of reporters, experts, investigative journalists and opinion formers who collectively make up the world’s media. If something is going on in the world, or there’s an opinion of your organization being shared in public, you can be pretty sure that it will be reported somewhere, by somebody. 

Of course, the very scale of global media is both its strength and - for anyone attempting to gather insight - its weakness. There is simply too much of it, in multiple languages, across every country in the world, in newspapers, specialist journals, blogs and more, to be scanned by human beings. Hence the need for media monitoring.

A good media monitoring solution helps your organization understand how the world sees it, and spot emerging risks and challenges whilst there is still time to do something about them. But not all are created equal. In particular, look for the following key attributes:

• Scope. There’s no point in reporting only the mainstream news stories that are already apparent. For many organizations these will be few and far between. Ensure your monitoring covers titles and outlets of all kinds, across multiple languages and from countries across the globe.
• Accuracy. Poor quality matching, such as that based on keywords alone, can flood a system with false positives and make finding and quantifying real insight almost impossible. Ensure that whatever platform you use accurately identifies the true subject matter and category of every article scanned.
• Speed. Time is of the essence - particular in the context of emerging risks. The goal is to surface significant, new insights as soon as possible after publication: ideally within hours.
• Depth. Good media monitoring is not just about presenting relevant press clippings to analysts. It is about leveraging the ‘big data’ aspect of global media to determine significance and sentiment, spot emerging trends in the nature of coverage, estimate the importance of any particular story and so on. That can only be done with a platform that supports analysis of the nature of coverage rather than simply a list of articles.

There is more, of course, that can and should be considered when considering news monitoring, and indeed the broader challenge of outside in risk management. But the above should help in bringing Robert Burns’ hopes somewhat closer to reality. 

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