The Importance of Reputation Risk Management

- Trust or confidence is one of a very valuable asset in business today. Loss of trust can generate a tremendous impact is bad for business. A bad events that befall a business, can result in them losing the trust of the customer. Such risk is also known as reputation risk.

Reputation risk occurs when the situation arises, business practices or incidents that could affect public confidence and stakeholder of the institution. The impact of reputational risk, among others:

* The negative impact on the financial performance of companies in both the short and long term. Short-term negative impacts such as affecting the share price over just a few pecans. Meanwhile, long-term effects such as influencing the decline of earnings.

* The negative impact of the brand in the future. Loss of confidence can certainly hurt a brand's image in the eyes of the customer. Business customers could lose market share becomes smaller.

According to a survey hosted by The Economist about the risks, as risk manager be consulted on the risks is a priority, most respondents chose reputational risk in the first place.Approximately 52 percent of them regard reputational risk is the risk category of its own. But the remaining assume the reputational risk arising as a consequence of other risks.

Factors that lead to a focus on reputational risk to be important include:

* Reputation become a source of competitive advantage along with the goods and services that are increasingly smaller differentiation
* The spread of bad news through the media and other communication channels
* Higher standards set by the regulator
* Customers have more choices than ever before
* Customers are now more like dealing with an ethical company

A risk manager must understand, how the impact of an event on corporate image.

Factors that could affect the reputation risk, among others:

* Failure to comply with regulatory or legal obligations
* Failure to provide goods and services to customers with good quality
* The emergence of practices incompatible with the ethics
* Poor crisis management
* Failure to achieve financial targets
* Security breaches
* Environmental breach

Then, if a crisis has occurred, what should be done by the company?

1. concern

company must provide an understanding that there are things that do not run properly. It also expressed feelings of disappointment and concern.

2. commitment

company must express their commitment to resolve problems that occur, and explains in detail about the things they will do,

3. control

when the company is in crisis, then the leader needs to show that they have successfully held the familiar control of the situation and cooperate with relevant authorities to ensure that these incidents will not reoccur.

According to the survey, the top step taken by the respondent when a crisis is to plan and emndokumentasikan process of crisis management. Then they also measure the perceptions of various parties against the company. In addition, a series of CSR programs were also developed to improve the reputation.

Other measures include:

* Looking for a systematic threat to the reputation of origin
* Training employees to identify and manage reputational risk
* Form a special team to manage reputational risk

A concrete example of reputational risk in Indonesia is a case Lumpur Lapindo. Lapindo mud began to occur around May 2006.Since then the company's reputation continued to decline as more and more villages terrendam Lumpur. And the slow response of government and management in addressing this crisis contributed to a reputation of Lapindo.

This crisis has caused losses worth many trillions of dollars to both parties, including Lapindo and the government, even more people around who lost their homes, possessions, businesses, paddy fields, until his livelihood.

To overcome this crisis, one of the steps taken by the government is forming a team for handling Lumpur later renamed Sidoarjo Mud Mitigation Agency (BPLS). They are on duty to take steps in an integrated operation includes closing the mudflow, flood handling Lumpur and handling social issues.

Meanwhile, in accordance with Presidential Decree 14/2007, the Lapindo will provide compensation to the community by buying land and building communities affected by flood Lumpur with payment in stages.

This crisis is a national disaster for Indonesia. A bad reputation not only become the property of Lapindo, but also the government and people of Indonesia in the eyes of the world. Furthermore, it takes concrete steps from Lapindo in giving compensation to the communities most affected in this case.