Keep an Eye on Your Reputational Risk Radar

Child Labor

No More “Made by Kids!”

When my friend Sarah embarked on taking her 13-year-old son Pascal to H&M to do some shopping last week, she got a concise answer:

“I don’t buy clothes made by kids‘” Pascal said. “We’ll have to go somewhere else.”

Despite her budget-woes as a single mom, she felt proud and took him to Coop, a cooperative retail group with a strong commitment to boost social values.

Leading With Your Wallet

More and more customers like Sarah and Pascal become aware about their purchasing power to change the world to the better. It is a movement that can no longer be limited to an escapist elite of Western countries, but one that is spreading at a quick pace.

According to a recent study the vast majority of surveyed urban Chinese consumers (94 percent), for example, are prepared to pay a considerable premium (45 percent on average) to get their hands on products and services that are clearly certified as green. Yet, the research also shows that the majority (61 percent on average) of Chinese companies are not able to respond to the wishes of their urban consumers.

They miss to satisfy their customers’ demands resulting in the loss of many strategic opportunities to increase the value of their company.

Legal Does Not Mean Legitimate

Here are some questions to contemplate:

  • So, what have you done as a company to leverage your customers’ ideas of being a better brand?
  • In how far do you deal with environmental and social risks in your supply chain?
  • Are these topic of discussion at your firm?

I hear your complaints: cost-pressure is immense, short-term revenue decrease not acceptable, people don’t care about these issues when they have to worry on how to pay the next mortgage rate, and, for sure, you will tell me, that you always stick to the legal frameworks.

And, above all, you have a corporate code of conduct. So why would you have to change anything? Bear in mind, though, that legal does not always mean legitimate in the sensitive environment of reputational risk. Reputational risk is not confined to infamous Wall Street banks, oil companies or global retailers who support child labor.

It can hit you as well, not by means of a huge media scandal, but by a slow erosion of your customer base.

Consumers are asking for more transparency. How can you make sure you satisfy them?

Know Your Data

On top of managing your classic enterprise risks, you can quickly start to implement a strategy to monitor the data of environmental, social and governance risks implied in your supply chain. I assume you don’t want to hear from the press about 16-hour-workdays at your supplier’s company site.

Solid frameworks are in place meaning that you don’t have to re-invent the wheel. If you follow the ten principles of the UN Global Compact you will cover the full scope of reputational risks. The following statement summarizes the mission of the program:

“The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption. By doing so, business, as a primary driver of globalization, can help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere.“

This is not meant to be political window-dressing. It is the mindful expression of a growing number of consumers (and potential investors). The initiative pursues nothing less than turning the ten principles into the guidelines of mainstream business.

What’s In For You?

This may sound like yet another costly ‘big data’ project to you in the first place; but in today’s world you can link your systems with web-based research tools that free you from the need of data replication and processing.

One of them is the Swiss start-up RepRisk AG, another one is the San Francisco-based CSRware that help you to identify and assess the environmental, social and ethical issues which may harm your reputation.

You will be updated and alerted on any upcoming risk associated with the businesses you deal with, regardless if your business partner has waste issues, poor employment conditions or media trouble because of executive compensation.

I acknowledge that integration of key figures for consolidation purposes is still something that you are responsible for in-house. If you keep the neurotic data hunger of your analysts under control, I am sure you can manage it at a reasonable effort. Your customers will eventually reward you for your attitude and actions to deliver products “made better.”

Building Courage and Trust

Consumer’s trust in companies and their management bodies is significantly diminished. If you don’t convince yourself or your boss to implement a valuable supply chain strategy, your customers will do so by turning to your competitors who have been more aware of the situation.

It’s only a question of time and it’s up to you.

If you are looking for encouragement before presenting the topic internally, I’d suggest you read “The New Capitalist Manifesto” by HBR blogger Umair Haque, a fast-paced and eye-opening blueprint for doing a profitable AND better business. There is no business without social context and responsibility.

Further Links: Cotton CampaignGreen CampaignsReputation Manager (registration required to read)

Dr. Bärbel Bohr owns “Bärbel Bohr – Projekte mit System”
Lecturer at HSR Hochschule für Technik / Rapperswil (Switzerland)
She inspires success in leaders & students on communication patterns & culture awareness

Email | Web |@nachrichtenlos

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I am not associated with any of the companies or institutions mentioned in the post.

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L2L Contributing Author