Reputation and Brand Risk Have Serious Business Consequences

The deepening Wells Fargo crisis is a classic -- tragically so. Virtually every experienced crisis management expert has written virtually the same advice for decades now. The rule book should be perfectly standard. Yet time after time, companies caught in the headlights persist in imagining they can play things differently.

Just to re-cap what everybody knows: When a problem becomes public...

  • Don't try to deny it -- it always comes out in the end, and looks so much worse when it does Try to get all of it out in the light as quickly as possible. Nothing hurts a company more than the water torture of regular new disclosures.

  • Act immediately to remedy the situation. This includes taking your lumps before you are forced to do so.

  • Don't throw junior people under the bus in an effort to save yourself. Blaming people down the line is almost worse than denying wrong-doing in the first place. Wells Fargo's assertion that it's culture was fine, it was just bad people -- 5300 hundred of them! -- may be the most remarkable recent example, but history shows that sooner or later the problem works its way upstream to the source.

But most of all, try to reduce the likelihood that the problem will happen in the first place. This is where the Board has a role to play.!

Raising the Board's Risk Competence

The idea that Boards need to be taking a hard look at how a company's operations could put its reputation at risk is not new. But Boards traditionally focus on financial risk, and have been relatively slow to add these kinds of skills to their risk assessment agenda, possibly because the issues seem "soft" and the risks so diffuse it's hard to know where to start looking.

Every Board should begin to identify those potential areas for self harm and devise measures that can alert them to situations that can increase the potential risks.

For Wells Fargo, the warning signs were there: For several years they saw that employees were engaging in unethical -- and illegal -- behavior. The pattern persisted despite regular firing of individuals, and management was sufficiently aware that the problem was pervasive that they made a point of talking to employees about what not to do. But no one ever thought to ask if the problem was something systemic. And clearly no one contemplated that the consequences would be so great.

Yet, in retrospect, the outcome seems completely predictable.

Reputation Risk is Business Risk

Wells Fargo's inept handling of its fake account scandal has hurt more than its trusted brand. The problem has escalated from a PR crisis to a situation where they -- and the entire industry -- may face increased regulatory scrutiny and unwanted legislation.

While smarter, faster response to the original problem would have gone a long way toward lowering the temperature, the best approach would have been strategic risk assessment that would have identified this risk before it became a problem in the first place.

The Board has to ask itself how it can support Management in making sure the company is not putting itself in harm's way.

This post relates to an earlier post on Linked-In

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