Managing your organisation’s reputation, regardless of industry, is a key component of effective corporate governance and – if poorly handled – can adversely affect your bottom line.
Among the most dangerous threats to a company’s reputation are the lasting effects of commercial crimes such as fraud, bribery, corruption and money-laundering. While companies can be liable for fines or jail time if found guilty of commercial crimes or weak due diligence measures, the impact often does not stop when the fines have been paid.
Instead, a host of problems with far reaching consequences can arise from the subsequent reputational damage.
“In this day and age, social media and online news outlets allow for the spread of information at the click of a button. Negative stories and rumours about a company can be seen by millions of people long before you have even had the chance to influence the message,” said Rudi Kruger, general manager of LexisNexis Risk Management.
“Once a company’s reputation is damaged, it can send share prices plummeting,” he said. “A tarnished company image can also increase expenditure on public relations and corporate communication as these functions scramble to salvage the company’s image.”
Damaged reputations can also have a direct impact on sales and supplies as customers and business partners might not want to be associated with tarnished brands. Kruger warned that competitors may be ever-ready to take your place and will do so when the opportunity presents itself. “It becomes difficult to control reputational damage and protect a brand once it is out in the public domain,” he said.
If damage control is the last option, prevention is clearly the safest way to protect your organisation’s reputation and save it from the negative consequences of being associated with bribery, fraud, money-laundering and other criminal activities.
An essential aspect of mitigating financial risks and safeguarding your corporate reputation is through due diligence. “External parties can be the most beneficial or most dangerous relationship your business enters into, so you never want to be caught doing business with an entity that brings risk,” said Kruger.
He added that it is a grave mistake to blindly trust external parties and thus fail to identify, monitor and assess potential security threats in advance.
“You can protect your company from these external risks and ensure that you are doing business with the right individuals, clients, partners and suppliers by thoroughly examining their history and public records,” said Kruger. “Remember, if the third party was involved in legal disputes, embezzlements, fraud or any other wrongdoing in past, the behaviour can be repeated in future, so you need to know the facts before it’s too late.”
High-level, intensive due diligence efforts that are able to uncover hidden information can be time consuming and expensive. While it may be viewed as a burden by many organisations, it is actually the only significant way in which to identify possible problems or red-flags with a new associate.
“We should also keep in mind that the expense and time are far less than what you will spend on the negative consequences,” said Kruger.