Social media and reputational risk


The hyper-connectivity that social media fortunes to both organisations and consumers has undoubtedly changed the way business is conducted.

According to a study published in an article by Forbes in May 2021, over 70% of businesses surveyed now rely on social media for customer engagement, and nearly 90% of business executives interviewed agree that companies that don’t invest in social media will be left behind.

By engaging with customers directly and posting relevant content, businesses can build relationships, ‘humanising’ their brand to increase loyalty, advocacy and visibility. Social media can be a helpful tool to measure brand engagement, and manage public perception. However, when used ineffectively, it also poses some inherent risks for companies. With the relationship between consumer and businesses more transparent than ever, reputational risks need to be carefully managed. The lack of awareness or failure to mitigate such risks can often lead to significant brand damage, and other cascading impacts on the company like loss of earnings.

Disgruntled customers can take to social media to air grievances. Criticism now travels at the speed of 280 characters in the most public manner. Even well intended content or messages shared on social media can be misconstrued by consumers, resulting in blowback to the company. Moreover, with the prevalence of cancel culture, organisations and even their partners don’t have to be directly involved with incidents to be affected, just by association is enough.

According to the World Economic Forum, “more than 25% of a company’s market value is directly attributable to its reputation”, which highlights the shareholder value at stake. Although predicating the potential root causes of reputational risk through social media can be difficult, the best way to minimise the associated risks is to build actionable crisis management protocols. Being proactive is the best way to mitigate risks, by engaging prompt damage controls responses in a manner appropriate for the audience. For example, in the event that a disgruntled customer has video evidence of a company engaging in wrongdoing, it is up to the business in question to respond in a way which minimises the potential risks associated. This could involve a rapid apology, acknowledgment of wrongdoing via social media, or even a more coordinated media response.

What can organisations do to minimise reputational risk posed by social media?

Companies should understand the current perceptions of their business and be honest in evaluations of expectations. Are services being oversold or expectations being overestimated? Managing expectations is one of the key measures to avoid dissatisfied customers.

Active monitoring of public perception can also help set expectations using such methods as media analysis, stakeholder surveys and other elements of strategic media intelligence. If any negative or hostile sentiment is discovered, analysis into the root cause can avoid an incident spiralling into a more serious or damaging event. This also allows businesses to spot emerging trends and allows them to amend behaviours.

Approaching reputational risk management in the social media landscape requires an integrated approach, one which instead of being the defined responsibility of risk managers, requires the collaboration of internal auditors, marketing and PR, as well as IT.

Often overlooked, internal auditors play a critical advisory role in risk management by providing insight on the effectiveness of social media governance programs implemented by the organisation. Internal auditors can also assist with guidance on social media policies and ensure their compliance with regulatory requirements.

Since marketing and PR are closely familiar with customer insights, reputation management and all the communications filtered through the brand, their expertise is essential in helping risk managers develop risk management plans or ‘playbooks’ that outline different risk scenarios from social media and assist during times of crisis management such as providing clarity on brand positioning to mitigate further impact on social media.

A company’s reputation is central to its ongoing success, in terms of maintaining loyal customers, retaining higher market values and being an attractive prospect to investors and partners. A resilience to reputational risk, established through actionable, practised and strategic crisis management measures, is essential for any business. With customer expectations at an all-time high, minimising reputational risks adds an extra layer of protection to profits, market position and brand loyalty.

Andrew Devereux
Risk Intelligence Manager
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