Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence.
So said Paul Jacobson, director at WebTechLaw, who was addressing the ITWeb Governance, Risk and Compliance Conference, in Bryanston, yesterday.
In his keynote address, titled "Reputation management as an emerging GRC challenge", Jacobson said stakeholders who can effect an organisation include shareholders, customers, media, communities, analysts, employees or potential investors.
Transparent and effective communication is of critical importance, especially today, as consumers have been empowered by social media and technology to such an extent that they can easily damage the reputation of an organisation, he said.
"The perceptions of these stakeholders to an organisation should be taken seriously," Jacobson explained. Stakeholders' overall assessments and, therefore, aggregate perceptions of companies result in the formation of corporate reputations.
"Reputation is based on how well a company performs compared with the legitimate interests and expectations of stakeholders. There is growing awareness of how important the contribution of reputation is to the economic value of the company."
He also noted that constructive engagement with stakeholders could provide companies with valuable information about stakeholders' views, as well as external events, market conditions, technological advances, and trends or issues.
"This can help companies anticipate, understand and respond to external changes more efficiently, thereby enabling the company to deal with challenges more effectively."
He gave an example of Canadian musician Dave Carroll's incident with United Airlines. Carroll composed a song "United breaks guitars", which chronicles a real-life experience of how his guitar was broken during a flight on United Airlines in 2008, and the subsequent reaction from the airline.
Jacobson noted that the song became an immediate YouTube and iTunes hit upon its release in July 2009 - and a public relations embarrassment for the airline.
"The video had 150 000 views in one day; three million views in 10 days; and United's share price dropped 10%, which amounted to $180 million in losses."
Thus, Jacobson pointed out that reputation is a risk factor that organisations must attend to and urged them to listen and capture what stakeholders say.
He added that stakeholders who could materially affect the operations of the company should be identified, assessed and dealt with as part of the risk management process.
According to Jacobson, the board should be the ultimate custodian of the corporate reputation and stakeholder relationships.
"The company's reputation and its linkage with stakeholder relationships should, therefore, be a regular board agenda item. The board should take account of and respond to the legitimate interests and expectations of stakeholders linked to the company in its decision-making."
To maintain a positive reputation, Jacobson also recommended that the board delegate management to proactively deal with stakeholder relationships.
"The board should, as part of the company's stakeholder policies, adopt communication guidelines that support a responsible communication programme. These guidelines should define the respective responsibilities of the board and management in regard to stakeholder communication," Jacobson said.
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