Governance, Risk and Compliance

Brand Risks, Reputational Risk and What They Mean to Business

By Resolver Modified September 12, 2021

Last year, the airwaves were filled with horrifying news stories about “bath salts,” a trending recreational designer drug with some disturbing effects. The most notorious story of bath salts involved a one man chewing the face of another while high on the drug. The media spun likened the incident to a zombie attack. Bath salt drugs aren’t actually bath salts, of course. They are only nicknamed that because they look like common household bath salts such epsom salts – chemically, they are completely different. However, drug dealers would often package the designer drug to make them look like legitimate bath salts, complete with the warning “not for human consumption,” to avoid detection when moving and selling the drugs. Unfortunately, when people hear about bath salts turning users into flesh-eating zombies, the last thing they think about is the chemical disparities between legal bath salts and drugs. Thus, a number of legitimate bath salts companies saw the scare negatively affect their business as a result – people didn’t want to have bath salts in their homes. The reputation of the entire industry still suffers because of the media frenzy. This goes to show how important reputation and brand can be, both to an individual company and an entire industry. Although there are many internal factors that can affect brand and reputation, there are often even more external ones. Defining Brand and Reputational Risks The Risk Insurance Management Society recently held a convention in San Francisco where the company announced a new report pertaining to brand and reputational risk. Noting the growing threat of brand and reputational risks in today’s modern business world, the report set out to define the two risk categories and establish a framework for dealing with them. The report equated brand risks to threats pertaining to distinct and recognizable products, services and processes owned, licensed or managed by organizations, Business Insurance reports. For example, this could mean licensing an asset to another company to use, only for that business to not have success with it, causing the owner to look bad. Reputational risks are generally internal factors, such as management issues. For instance, this could be company deciding to outsource jobs to factories in China, only to discover those factories are employing children workers and maintaining 12 hour workdays for them. Both of these risks can wind up having a significant impact on the company’s bottom line if left unchecked. To make matters worse, the effect of reputational and brand damage grows more severe as companies grow because they have more to lose. This happened most recently with Apple after all the Foxconn revelations pertaining to labor conditions at the factories used to manufacture iPhones and iPads. Businesses must develop a risk management frame work for reputational and brand issues to prevent them from negatively impacting their operations.

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