Reputation risk


In the United States we take water for granted.    We turn the tap, open the valve, punch the button and water flows out to meet whatever the demand is.  Not only do we expect the water to come on demand, but we have high expectations for the quality of the water.   When the water doesn’t meet the stringent requirements demanded by government for public safety, the supplier is faced with a potential mountain of cost that runs the gambit of medical coverage for people getting sick, to clean up and production losses, litigation expense and damage to both the providers brand and the customers it provides.  If the provider is smart, they have build back up systems for the back up systems, developed contingency plans for natural and man made disasters and tested both the systems and plans to make sure that everything works according to plan.  Additionally these plans are periodically reviewed to make sure that there are no new systems, technology and/or threats that should be addressed.

Water providers will also look to see how the risks they face can be minimized or transferred as well.  The newest transfer method is through Water Resiliance Insurance offered by AON.   The program is geared to water utility companies and provides not only traditional contaminants insurance, but also forensic analyses, cleaning and flushing of the water system, transportation costs, employee overtime and for third party financial losses.  The first policy was written in for Anglian Water recently.

It’s good to remember that our usable water was not so protected.  In the 1800′s the  water used for the city was usually drawn from a source up river from the sewage treatment area, or the town itself to provide protection from the sewage that entered the water down river.  Unfortunately down river was another town that practiced the same process.    Unsafe and contaminated water was the norm, not the exception. 

In many areas, clean and safe drinking water is the exception.  Managing Business Risk is joining with other bloggers today through blogactionday.change.org  to promote the United Nations efforts to bring clean, safe water to millions of individuals where it is not currently available.  Please join me in supporting this worthwhile cause and sign the petition.

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REPUTATION – while a company is known for the products and services it provides, one of the major reasons a purchase is made is based on the reputation of a company.   A company’s reputation is a wispy thing.  It’s made up of various bits and pieces, the quality of the product, the professionalism of the staff and management team, the contributions to the community, the handling of problems and issues that arise, the “trueness” of the company actions to the marketing image created.    A small mis-step can cause a stock price to fluctuate, and a large one, or several combined can cause a business to cease operations.

The oil situation in the Gulf of Mexico is a prime example of how perceived mishandling of a disaster affects the reputation of a company and the adverse effects it has on that organization.  In April of this year, BP stock was trading near the 52 week high of $62.50 per share.  This morning, the stock was trading below $32.00 and trending downward.  The disaster in the gulf and the subsequent handling of this catastrophic incident is a primary cause for the nearly 50% drop in stock pricing.

When the oil spill first happened,  I viewed it as a “Black Swan” event, an event that is unpredictable, carries a massive impact and after the fact (and in this case, once we get to after the fact) can be explained in a way that makes it less random and more predictable.  However, when I put this thought to a recent meeting of Business Continuity Professionals, an expert in the profession explained that oil company’s and those businesses associated in the industry are well aware of the hazards and risks related to deep oil exploration and would/should have plans in place for these types of events.  From my experience in building continuity programs, plans for irregular events and catastrophic issues are tested and improved through testing and tweaking.  These exercises are designed to help reduce the impact of the situation, and maintain a positive light on the reputation of the organization by showing:

  1. We have designed the process/program/product to be as safe as possible.
  2. In the event of an incident, we understand what is wrong and how to fix it.
  3. We are in control of the situation and are doing everything to return to normal as soon as possible.

A major part of the continuity event is communicating a common message for the organization and making sure all parties of the organization are in line with that message, in other words say what you are going to do, then do it.  If you make a promise, you need to be sure it is kept.  It’s not only important to manage the message and deliverables, but make sure the perception of what is happening is in line with what is actually occurring.

BP has made many positive commitments to the clean up and economic recovery to the individuals and companies that are being affected.  They have promised to promptly pay all authentic claims associated with the oil spill, they have promised to donate the net profits from the recovered oil to wildlife resuce organization, they have promised to pay for all the authentic claims associated with the spill and not be capped by the Government established level of responsibility.  These are all very positive things that would go a long way towards rebuilding the brand and reputation of the company.

It’s important for companies to remember that just saying something doesn’t make it happen.  People remember what was said (or what they thought they heard) and then measure a company against that point. 

Unfortunately it appears that there may be issues in the promise made and the actual delivery.  In a Bnet article posted on June 11th, Kristen Korosec, highlighted an issue with the oil spill claims that have been filed with BP and outsourced to a third party “BP Risk Management Firm is Really Good at Screwing OverOil Spill Claimants“.  The perception among claimants is that the comments Tony Hayward made concerning the claims process and appropriate payment (See Bnet posting) are not being met. 

From a disaster recovery perspective, it is important to monitor these issues and make the course corrections to keep from further eroding the reputation of the organization.  Additionally, I believe BP needs to get ahead of the curve to make sure these continual mis steps (be they perceived or real) stop happening.  Prompt positive action is needed to stop the downward spiral.