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.
In the face of hostile media reports, public concerns about AI in general and complaints about their programmes specifically, as well as ongoing litigation, all three organisations have doubled down on the appropriateness and legality of their actions.
Their reaction is hardly surprising. The artificial intelligence (AI) that underpins these technologies is largely unregulated. And the general public is only starting to become aware of its benefits and risks, is largely skeptical of its promises, and is concerned about some of its potential impacts.
Yet as Stanley Kubrick highlighted in his 1968 film 2001: A Space Odyssey in the form of HAL 9000, AI also poses substantial risks. These include:
unfair or discriminatory algorithms
unreliable or malfunctioning outcomes
misuse of personal or confidential data
greater exposure to cyberattacks
loss of jobs
legal risks and liabilities
direct and indirect reputational risks, including malicious deepfakes.
It is likely that these risks will become greater and more reputational in nature as the adoption of AI technologies becomes more mainstream, awareness diversifies and grows, and public opinion consolidates.
Appreciating the scope of public skepticism and distrust and, under pressure from government, politicians and regulators, the AI industry is now making considerable headway in the area of AI ethics.
In addition, the risk management industry is looking at AI from a risk perspective, and the PR/communications industry from a communications perspective.
AI reputation management research study
However, little exists on the reputational threats posed by AI, or how these should be managed should an incident or crisis occur – an important topic given the volume of AI controversies and the focus on corporate behaviour and governance.
Accordingly, I am pulling together examples of recent AI controversies, incidents and crises for a study/white paper on the topic.
To kick-start the process, I have started collecting basic information on recent AI controversies:
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.