Last week I had the fortune to be invited to speak on the topic of reputational risk management to MBA students and assorted internal auditors, risk managers, HR and communications executives at the Othman Yeop Abdullah Graduate School of Business at the Universiti Utara Malaysia in Kuala Lumpur.
Reputation risk may not be as high up the agenda of boards of directors and management teams in Malaysia as in some other countries, but it has gained importance in recent years due largely to two major crises:
the 1MDB scandal that led directly to the overturning of the Malaysian government, the arrest and forthcoming trial of former prime minister Najib Razak, fraud investigations in 10+ countries, and criminal charges laid against Goldman Sachs and two of its former employees
and the various woes befalling Malaysia Airlines (here’s my take on the mystery of MH370 from an online/social media perspective; if you haven’t already, I strongly recommend you read this in The Atlantic for what may well be the last word on the tragedy).
Whilst unresolved, both crises helped erode confidence and trust in institutions in Malaysia and raised (and continue to raise) legitimate questions about how Malaysia Inc – which is still largely dominated by a few family-controlled businesses – operates.
Accordingly, companies (especially government-owned or linked ones) and parts of government and civil society are actively considering the extent to which they are exposed to reputational risks, and thinking harder about how these should be minimised and managed.
The whys and hows of effective reputation risk management
Predicting and managing reputational risks poses a wealth of tricky questions and challenges – amongst them:
How should reputation risk be defined?
What are the primary drivers of corporate reputation?
What forms do these risks take?
Who is responsible for an organisation’s overall reputation?
Who should own corporate reputation on a day-to-day basis?
What role(s) should communications and marketing play in reputation risk management?
How best measure, track and report reputational threats?
Why can leaders be reluctant to get to the root of reputational issues?
I tackled these and other challenges in my presentation, setting out solutions based on my professional experience, research and observation.
Most companies expressly avoid mentioning past scandals in their advertising. Not so VW, which makes its 2015 diesel emissions crisis the starting point for its latest ad ‘Hello Light’.
The ad is clearly intended to signal VW’s shift to electric driving, while drawing on the company’s glory days of the 1960s and 1970s. It is eye-catching, and feels honest and refeshingly unnostalgic.
It is also brave. For one, there are clear risks in framing the firm’s shift to electric through the prism of its diesel emissions fiasco. Purists might also complain there is no apology – just as there was no apology in VW’s November 2015 goodwill marketing campaign.
Hello Light is no one-off, but is part of VW’s larger ‘Drive Something Bigger Than Yourself’ brand campaign that aims to press home it’s commitment to electric while drawing on its rich history.
Yet VW’s diesel emissions woes are far from over. With legal cases in 50 countries, 2019 may prove to be the company’s ‘most difficult year ever’ according to Hiltrud Werner VW Group board member and head of compliance.
Each court case will bring a rash of unwelcome publicity as old documents are raked over and new evidence comes to light. Much will hinge on the company’s rogue employee defence, which is looking increasingly brittle.
Major cities are banning diesel cars in their centres. And several top auto manufacturers have promised to end production of the internal combustion engine. VW says its last generation of combustion engines will be launched in 2026.
In addition, the electric market is a challenging proposition thanks to new entrants such as Tesla and the relatively high cost of electric technologies, even if these costs are now starting to fall as volume increases.
Set against this background, VW’s electric driving campaign is worth the strategic and reputational risks.
Not that these two views are necessarily mutually exclusive.
Early social media strategy
Initially, many companies took to social media to increase
reach and build buzz. A sale or two might even be recorded.
There were competitions and promotions galore, and plenty of grinning
employee photos and CSR fluffiness to make people feel well disposed.
Lo and behold, follower and ‘engagement’ rates rose and management
was delighted. Now we’re onto something, they figured.
The trouble was that they didn’t really know who was signing
up or why they were doing so. And, frankly, they didn’t much care as long as
the numbers continued to travel in the right direction.
So email addresses and telephone numbers were amassed, channels
proliferated, customer segments segmented, and ‘conversations’ sparked.
Customers appreciated it for a while. It was fun and involving and every now and again you might receive a free bar of soap or a voucher for a half pint of Tennent’s – provided you told your friends about it.
A sting in the strategic tail
Unsurprisingly, things then rather quickly became distracting
and tedious and occasionally menacing.
Promotions and content, even when they were properly considered
and delivered, easily became lightning rods for discontent, their sponsors oblivious
to the fact that the customer wants to use social media for real interaction, a
true conversation, a proper peek into the soul of the company.
What does the GDPR mean for business leaders, communicators, risk managers, lawyers and others preparing for tougher data privacy laws across Asia and responding to data breaches in the EU?
Here are some important principles to bear in mind:
Take swift, decisive
action to address the problem
Companies have no option other than to move fast under GDPR. There are only 72 hours to establish what has happened, assess the likely damage, notify the regulator(s) and communicate with those impacted can seem like precious little time, especially when the facts remain unclear.
Notification and communication can appear especially daunting when the hole remains open and the facts are unclear. Yet, the quicker a company moves to fix the hole and the more decisively it does it, the more likely it will be able to limit the actual and potential damage and rebuild confidence.
Err on the side of caution, but do not panic
It is easy to feel like you are being press-ganged into publicly disclosing a data breach. In fact, not all breaches need to be reported to the regulator, and some don’t need to be reported within 72 hours.
Some breaches do not pose a high risk to those impacted, while others may be considered temporary. In some cases, the data involved is unintelligible and/or already in the public domain, in others, the effort involved in notifying the regulator may be considered disproportionate to the actual or likely damage.
In such instances, a company may choose to inform the customer of an incident without notifying the regulator or making a public statement—provided it is confident it is on a safe footing legally.
However, generally, it is best to err on the side of caution and report a breach to the regulator. If one is unclear, information regulators will generally advise whether it needs to be reported. They may also provide guidance on whether it should be communicated with those impacted.
That said, there may be some instances in which
you feel it is more important to communicate immediately with those impacted,
before notifying the regulator. For example, where the data involved is
extremely sensitive, or where a supplier processing data for a business
customer is breached.
There are also good reasons to be wary of going
straight to the data subject. Customer and stakeholder expectations vary widely
on data privacy and, in the wake of an incident, their behaviours can conflict.
And news of a breach typically becomes public as soon as it has been
communicated with those impacted.
Whichever route you choose, it is usually best
to err on the side of caution. There’s no need to panic.
Be open and honest
EU information regulators have said they will take seriously anything that puts these twin principles into jeopardy and that they are willing to expand investigations beyond assessing IT/cybersecurity governance and controls to testing compliance in areas like technical competence and education and training.
The same goes for customers in Asia, who increasingly expect organisations to be honest about their shortcomings and to move quickly when something goes wrong.
Consider carefully how those impacted might be affected
Understandably, company leaders and executives fret primarily about the sensitivity and volume of data involved in a breach and what it means for the well-being of their employer. But it is just as important to pay close attention to those impacted and to the context in which the incident has occurred.
In August 2018, British Airways suffered a major breach involving the personal and financial details of over 500,000 customers. Despite no evidence of fraudulent financial activity at the time, British Airways quickly appreciated that the potential for lasting reputational damage was significant, given the large number of payment card and CVV numbers involved.
Hence the airline’s decision when it acknowledged the breach to offer compensation to customers for any financial hardship suffered—a promise that may result in significant payouts and higher insurance premiums going forward. The decision almost certainly also took into account the overwhelmingly negative reaction to the airline’s 2017 IT systems outage.
Consider carefully the needs and expectations of those impacted, the degree of external and internal scrutiny the incident attracts, your firm’s historic reputation, perceived culpability and other factors when you respond to a breach.
Don’t walk away
From a communications perspective, it is
tempting to treat a breach as a one-off negative event to be resolved with
a little timely public grovelling.
This is a mistake.
Nowadays, people take naturally to social media to vent their experiences and concerns, which can easily spiral into secondary news stories. Leaks are common, and breaches easily bleed into other business issues, thereby aggravating the situation and elongating the news cycle.
Worse, GDPR means regulatory investigations, fines and litigation are more likely, resulting in additional negative publicity. In the process, you may also come under greater pressure to publish internal and expert investigative reports.
It is important to understand that a breach is
often just the start of the reputational battle, and that you must stay – and be seen to stay – the distance
in all facets of your response if you are to have any real chance of
Align your response
The messiness and complexity of data breaches and the need for different business units to be involved in the response can result in sloppy, inadequate, or inconsistent communications.
Given the expanded legal obligations under GDPR, the likelihood of the emergence of equivalent regimes across Asia and heightened public awareness of data privacy rights, it is particularly important that companies’ legal and communications responses are properly aligned.
Legal and communications teams can sometimes be at loggerheads, so this is not necessarily as straightforward as it sounds. It need not be difficult. Unlike in a court of law, in the court of public opinion, a business is presumed guilty until it proves its innocence.
This doesn’t just mean one should be as open and honest as possible and that one’s rhetoric always meets reality. It means that a company must look at the wider picture, avoid inappropriate legal threats, actions, and lawyerly sounding statements, and apologize sincerely when it is at fault.
By following these principles, you will be less likely to botch your business and communications response to a data privacy incident.
More important, you will be in a much better position you to persuade your customers and others that you are acting in their best interests.
Since the start of the yeara rumour has been swirling that Facebook has been using a then-and-now facial recognition photo-sharing challenge to collect data about users and improve its AI algorithms. The social network denies it started or is involved with the challenge.
That people suspect Facebook of being involved, and that the rumour went viral, is indicative of the suspicion with which the company is held since its flaccid approach to privacy became widespread public knowledge.
Multiple data privacy violations
These suspicions are not new. There was the row over Facebook’s Beacon user-tracking service in 2007, concerns about facial recognition, a bungled psychological experiment into the moods of its users, and run-ins with the US FTU, ACLU and privacy commissioners in multiple jursidictions over many years.
According to Google, there has been considerable public interest in privacy (mostly as a proxy for internet and/or data privacy) for many years.
Facebook had plenty of time to tackle the problem and prepare a meaningful response. The Guardian’sinitial story in December 2015 about the covert harvesting of user data by Cambridge Analytica did not ignite until whistle-blower Christopher Wylie lifted the lid on Cambridge Analytica twenty-six months later.
Yet they did little to address the core of the privacy issue, Mark Zuckerberg disappeared as soon as the story ran, and Facebook’s value dropped USD 119 billion in a single day. Zuckerberg hardly helped matters by refusing to appear before the UK DCMS Enquiry into Disinformation and ‘Fake News’.
How did Facebook fail to anticipate a major privacy crisis when the writing had been on the wall for so long? Were its leaders truly ignorant and out of touch, or simply failed to act substantively on the many warning signs? Why did they behave the way they did? Was Facebook’s experience isolated, or consistent with other reputational meltdowns?
Reputation risk management
These are the kinds of questions posed by lawyer Anthony Fitzsimmons and insurance expert Derek Atkins in their book Rethinking Reputational Risk, in which they get to practical grips with the notoriously knotty, slippery topic of reputation risk management.
Drawing on analysis of recent high profile crises such as BP’s Deepwater Horizon spill, Barclays’ LIBOR rigging, Tesco’s false accounting, and the VW diesel emissions scandal, the authors argue that the problem lies in the complexity of many modern businesses, the emergence of multiple online ‘unseen systems’, fast-changing stakeholder behaviours, inadequate listening, issues management and crisis preparedness, and an unwillingness to get to the root problem of problems and failures, chiefly due to over-confidence, complacency and hubris.
All this sounds familiar. But the book comes into its own when it addresses the failure of ‘classical’ risk management and the three/four line of defence model, which is regarded as overly rigid and ill-suited to handling the many and varied behavioural risks, from weak culture and values and inappropriate incentive schemes, to the blurring of personal and professional lives and the character and personality traits of senior leaders.
The authors rightly argue that reputation risk is first and foremost a leadership responsibility, and too often it is at Board level that things fall down. Board failures were involved in 50% of the 42 crises studied.
Because Boards are essentially self-selecting, and overly reliant on people with financial and operational experience, as opposed to the forensic, analytical, behavioural and digital skills that are required in today’s globalised, networked and inherently volatile economies. There is much in this.
Since concerns about Facebook’s approach to privacy first started emerging several years before its murky dealings with Cambridge Analytica came to light, Mark Zuckerberg and Sheryl Sandberg have admitted that they should have taken user privacy far more seriously.
The important question on why they didn’t heed the warning signals earlier appears to have a single plausible answer: user privacy was regarded as a price worth paying for growth, and they would make the most of it while the sun shone and regulators, politicians, customers and the general public had more important fish to fry.
Mark Zuckerberg may insist he is personally responsible for Facebook’s privacy lapses, but Facebook’s board is also responsible and must prove itself equal to the task of fixing the holes properly, and holding its CEO to account. Its members would do well to read Fitzsimmons and Atkins’ excellent book.
Meantime, Facebook must shoulder part of the blame for the many rumours about it – be they accurate, misinformed, or plain false.
With allegations of sexual harassment and abuse swirling thick and fast in just about every industry, individuals in the spotlight need carefully calibrate their responses.
Some of the accused – Harvey Weinstein, Kevin Spacey and Robert Scoble spring readily to mind – have mangled their responses by appearing highly indignant and combative, overly defensive, cloyingly self-pitying or shamelessly deflective and underhand.
Handling true or partially true allegations about sexual misconduct is no walk in the park, especially when litigation is threatened and your reputation is in jeopardy. Misjudgements and mistakes of one sort or another are easily made.
By contrast, dealing with false allegations should be a piece of cake.
Today’s climate of widespread distrust and more or less instantaneous judgement means the accused stand guilty in the court of public opinion until proven innocent.
Yesterday, a number of individuals listed on a spreadsheet of Conservative MPs accused of various sexual misdeeds, publicly rebutted allegations about their sex lives.
Two stand out as being particularly plausible.
Here’s Minister of State for Justice Dominic Raab MP responding to claims that he had behaved inappropriately with a woman:
And here’s how Foreign Office Minister Rory Stewart MP took on allegations that he had asked a female researcher (aka Sophie Bolsover) to do ‘odd things’.
If the ensuing mediacoverage is anything to go by, most commentators believe the claims about Stewart and Raab were unfair and untrue.
There are some useful lessons in how Stewart and Raab made their respective cases:
Both responded quickly and strongly, supporting their case using demonstrable facts – in Stewart’s case public support from the person he was supposed to have misbehaved with, in Raab’s case a strong denial that he had ever used or been served with any kind of injunction (something that can be checked)
Both communicated in a straight-forward language and professional tone that appeared consistent with their respective values and backgrounds – Raab the lawyer, Stewart the explorer and diplomat – and therefore came across as credible
Neither resorted to overt or unreasonable legal threats against the list-maker(s) or spreaders – sensible when at a time of heightened public sensitivity about a highly inflammatory issue that may yet cause even greater damage to the Government and the broader Tory party, and when the identity of the list-makers remains unknown. (At the same time, both appear to have deliberately given themselves ample wiggle-room for a legal response when the heat dies down. Also noteworthy is the fact that the fully redacted list quickly disappeared from Twitter, suggestive of a speedy, high-level behind-the-scenes takedown request.)
Meantime, rumours continue to swirl around Westminster and beyond about those MPs on the list who have yet to respond publicly, substantively, or who are seen to have responded particularly defensively.