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March 16, 2019

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Reputation Risks for Businesses in a Global Indian Marketplace


- Dr. Manoj Kumar, Founder & Managing Partner [ Hammurabi & Solomon ]

drmanoj-kumar

It is essential to ensure that in the course of managing reputation risks, all evidences likely to be relevant in consequential legal and remedial actions to safeguard the interest of businesses are duly protected for use...

Reputation

The Subhashitas (compiled by ancient scholars around 5000 BC drawing from the Bhagwad Gita & Puranas) says, ‘One who possesses fame alone does live. One who has good praise does alone live. Who has no fame and negative praise is equal to one who is dead while alive.’

In modern times, the International Covenant on Civil and Political Rights (CICCPR) adopted by the United Nations in 1966 contains similar provisions and expressly subjects the right of expression of a person to the rights and reputation of the other.

The Supreme Court has also dealt with ‘reputation’ and the right to prevent loss of reputation in the Subramaniam Swamy Case (2016). Essentially, an exercise of a right of expression by any person under the law which is causing damage to reputation can be limited primarily by a defence that the allegations are untrue, if affected persons such as business entities have robust and effective processes and compliances to prevent reputation risk. A failure on these counts often leads to business risks, which are initially flagged as financial, operational, security, compliance or a legal risk, but which are capable of transforming into reputation risks capable of undermining the ability of organizations to operate in a manner so as to achieve their goals both business and strategic.

Reputation Risk

From a law & policy perspective, risks arising to business operating in India from damage to reputation are risks which adversely impact profitability or sustainability arising from negative perception in the eyes of various stakeholders created or resulting from such risks. Those risks which acquire significant proportions capable of impacting reputation of businesses and their products and services. Social media and virtual newsmakers & correspondents have further compounded the challenges surrounding reputation risk and have made it increasingly difficult to fix a bar of ‘significance’ of a risk as a minor risk or a major risk capable of transforming into a reputation risk.

Reputation risk often emerges from the conduct of business entities and their officers, ethics & integrity, quality of best practices and value systems relating to sustainability of businesses. Implemented to micro-details, the risks stem from crisis arising out of failure by businesses to effectively processes and compliances relating to risk preventions. It is also true that not all crisis leading up to a reputation risk result from deliberate conduct of managements or businesses and is often completely unforeseen. The causes can be by the hundreds and the triggers could be by hundreds as well, i.e. an unforeseeable development, change in ‘public policy’, compromised ethics and integrity, corruption, bribery, fraud, products & services quality risks, cyber security risk, to name a few.

There is, however, no single size that fits all and therefore the nature of risks that could transform into a reputation risk for a business would differ from one sector to the other and also immensely depend on the nature of constitution of such organizations, issues of conflict of interest, objectivity and subjectivity in management decisions, extent of transparency, oversight and monitoring of law and policy compliance management systems in such organizations doing business in India.

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Anticipate & Prepare

One of the common challenges of businesses operating in India which have faced reputational challenges in recent years have been the management’s inability to appropriately perceive the risks attached to a given information flowing into the system which rapidly transformed huge legal crisis throwing up reputational risks of immense proportions. While most technology sensitive businesses have leaned on data analytics, brand tracking tools, media monitoring including social media and survey monitoring and risk sensing mechanisms in their operational aspects, but that by itself has not been able to mitigate high reputation risks resulting from seemingly small developments/issues. The strategic significance and surrounding circumstances of any given information or development (that may otherwise appear to be routine, normal or manageable) could make it a cause for a potential reputation risk. A dynamic mix of AI/technology driven measures as well as strategic reputation risk prevention frameworks is essential to have in order to make management perceive potential risks real time and be responsive to such risks and to prevent risks from transforming into reputation risk.

Anticipating a risk or crisis on its way to become a reputation risk is key to be able to manage and respond to the same. It is necessary for managements to have well structured Reputation risk management team at the senior management level in order to build and keep up the capability to monitor, manage and respond to crisis and reputation risks resulting therefrom. Such teams, in addition to members from business units, risk managers and key personnel must also have external experts from the law and policy space in order to ensure that monitoring, management and response to crisis and potential reputation risks are aligned with law and policy environment at all times. These teams must continuously evaluate and assess short term, mid-term and long term developments in businesses and issues surrounding the same in order to continuously keep up the preparedness to deal crisis and risks associated with the continuous change and development.

Also, as much as it is difficult to visualize and anticipate all risks from unforeseen developments on real time, it is also consequently impossible to visualize the varied range of risks and crisis such unforeseen developments could throw up. These could range from internal issues like people management, financial management or operational challenges or could be external issues triggering stakeholder interventions such as government interventions in cases of regulatory or policy roadblocks, judicial interventions, people’s interventions or media/social media interventions. Each of these unforeseen interventions throw up crisis and risks therefrom which need to be dealt within a rapidly evolving and dynamic environment.

Manage & Respond To Reputation Risks

Responses to reputation risks in India have to be well timed and right. Failure on either account would impact the outcome of such response. With the ‘right’ bar continuously shifting, it is not easy for businesses to always be on the right side. It is therefore imperative for crisis teams to setup review and monitoring frameworks capable of realtime information gathering and continuously reviewing such information and collaborating response strategies against potential risks likely to arise from developments on a continuous basis.

This space to operate reputation risk management teams is not uniform and differs from business to business. Various factors including the nature of business, the nature of exposure to people, conflict of interest and transparency in decision-making, price sensitive information handling restrictions applicable to such businesses, exposure to retail investor compliance norms sectors of operation such as development sectors such as environment, forests, resources or sectors dependent on licencing or financial support from governments etc.

The test of preparedness for a reputation risk management team is to be able to signal in advance and anticipate the right stakeholder intervention likely to be triggered by a potential reputation risk. In addition to being prepared, the what, how, when and who aspects of a response to reputation risks are very important to be in place in advance. A lag time in putting these into place on the go mostly quantifies the implications of a crisis manifold apart from illustrating and highlighting to stakeholders the lack of preparedness and capability of a business to respond to crisis and risk.

The other most common lag time faced by businesses operating in India in recent times who have dealt with such risks have been lack of adequate external law & policy experts on boarding in reputation risk management teams leading to delays and misses in dealing with responses to external interventions real time.

It is also essential to avoid accelerating stakeholder interventions by keeping communications on the right side of law, policy & stakeholder perceptions by preventing use of misinformation’s and unclear statements. It is critical to ensure that if any information or news which is likely to be perceived as negative or bad for the businesses, such information or news must be communicated by the business concerned itself with due legal and strategic advise. Riding the elephant in crisis is mostly necessary to be able to tide over the risks capable of transforming into reputational risks resulting in severe consequences.

It is essential to ensure that in the course of managing reputation risks, all evidences likely to be relevant in consequential legal and remedial actions to safeguard the interest of businesses are duly protected for use.

Law & policy strategies, business strategies, and strategies to calibrate surrounding policy & public perceptions concerns leading to possible interventions have to go hand in hand in order to ensure that while businesses respond to reputation risks in the right manner, they also prevent interventions and infringements to their ‘right to operate’ their business as well.

Before closing, it is also important to flag that even after tiding over a crisis, it is essential to map the path to restoration of a reputation with equally strategic working approach as the recovery is necessarily in an environment of deeper transparency and oversight of stakeholders. As the business managers engage in fixing the crisis bugs, a continuous handling of external stakeholders (as above) is a must throughout the process of recovery of reputation of businesses.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

 

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