A Different Kind of Risk Management

Reputational risk.  Maybe not the term commonly used, but a topic that should be on everyone’s minds.  While there isn’t a business that doesn’t rise or fall on its reputation, it’s is even more salient for an organization, like every nonprofit, that lives or dies on the basis of its reputation.  To a very great extent, our reputation is livelihood.

When nonprofits ask a donor—be it a foundation, corporation, individual—for money, they do so in exchange for a promise backed by the organization’s past success in delivering on that promise and the organization’s overall reputation.  For example, in asking for money to improve reading levels of elementary school students, a nonprofit produces the impact data from its past efforts and lays out its organization’s credibility (reputation) as support for its promise to continue the great work if the donor gives money.  Good results, poor reputation may garner some funds; poor results explained by an organization with a poor reputation is highly unlikely to gather any money.  But, poor results explained by an organization with a stellar reputation is likely to do as well, if not better, than that organization with good results and a poor reputation.

Reputational risk has been rolling around in my brain for a while, but two very different current events brought it to the forefront.  First is the current congressional run-off race in Georgia, featuring Republican Karen Handel, nationally known as a former staff member of Susan G. Komen Race for the Cure, while barely known as the former Georgia Secretary of State.  Her Democratic opponent, Jon Ossoff, is not a household name, though he has been around politics for a long time and currently leads an organization that, among other things, investigates corrupt politicians.

The former has, to a good number of people, a tarnished reputation; the latter does not.  Handel’s reputation was greatly damaged for so many supporters of Susan G. Komen, Planned Parenthood and other women’s organizations when, at her urging, Komen announced that it would stop funding Planned Parenthood.  While she and her political campaign are trying to back-peddle away from this by suggesting she was merely one of hundreds of Komen employees, the reality is that every story at the time of the decision identified Handel as the force behind the defunding.  While, clearly, the Komen incidence did not harm Handel (or Komen) in some people’s eyes, it did tremendous damage in the eyes of many, to the point that Handel’s campaign feels compelled to address this large chink in her reputation.  (And we know that Komen suffered greatly, losing millions of dollars in donations and event participants).  There have been anti-Handel ads featuring Republican breast cancer survivors condemning Komen’s defunding of Planned Parenthood.  Whether this reputational harm is enough to sink Handel’s political bid remains to be seen; but there is no doubt of the cost to her reputation and that of Komen.

The second current event is the brouhaha in Harvard Square, as Harvard withdrew 10 acceptances (out of over 2000 extended) because the individuals in a private messaging group that turned ugly and deeply offensive.  Participants were encouraged to post offensive memes, and they did so.  Images made light of sexual assault, the Holocaust, racism and child abuse, among other issues.  Given that the group was private, the individual members of the group will most likely never be known, thereby sadly leaving their reputations unblemished.  But Harvard’s?  That’s another story.  Some are attacking the University for not allowing free speech, while others are lauding the school’s action.  Reputation damaged.

Reputational risk is the “risk of loss”—revenue, stature, position, clients—that occurs when an organization’s reputation is harmed.  When the risk materializes, the loss may be very measurable, as in the loss of clients and dollars, or more ethereal, but very real, as in unwanted media attention or disparaging speech.  There are also the costs associated with the failure to protect reputation—the cost of countering the bad press, of rebuilding the reputation and trust, and more.  The threats to reputation can come both from within—the organization does something wrong—or without—someone else creates the threat.  Harvard is a perfect example of the latter.  It created the original Class of 2021 Facebook page for the accepted freshmen and women, a not uncommon activity among colleges and universities, thereby giving the soon-to-be freshmen and women the opportunity to begin getting acquainted.  A subgroup of about 100 students spun off the separate messaging group, initially unbeknownst to Harvard.

Given the potential consequences that reputational risk poses, why do nonprofits pay so little attention to their reputation? So little attention to assessing the risks to that reputation, devising strategies to try and control those risks, creating the plans for what they will do when the risk becomes a reality?  Given that the sustainability of your organizations rests on your reputations, doesn’t it deserve more attention than it currently receives?