How to Prevent Reputational Risk

Reputational risk is a persistent issue across all sectors and industries. A 2015 Deloitte survey found that 88% of executives see reputational risk as a critical business challenge. The consequences of not addressing reputational risk in time have a significant impact on an organisation, with 41% of executives from businesses that faced negative reputation events seeing loss in their brand value.

Years later, the threat of reputational risk is more menacing than ever. No company is free from these risks. Even tech powerhouse Facebook suffered an almost 40% fall in its share price in 2018 due to its various scandals over the year.

It’s not all doom and gloom though. Whilst the vast quantities of online data available these days have exacerbated risks, that data can provide opportunities for growth. It all comes down to getting the right details and using those details to make better decisions.

Establishing a robust due diligence and reputational management process will unlock value and growth for your organisation, helping you stand out and increase your bottom line.

Why you need to rethink your strategy

Companies need to remember that a reputation is multifaceted and that due diligence is more than just a risk mitigation process. It can also be used to build positive relationships, instil trust, and position an organisation for success and growth.

The risk comes from the fact that information travels faster than ever and once it’s out there, it lasts. Studies show that negative tweets from news organisations are statistically more likely to be shared than positive ones, regardless of even the political affiliation of the news organisation. Unfortunately, a negative story is always going to stick.

Fortunately, as reputational risks have developed, so have the solutions. This article will outline four steps to rethinking your reputational risk strategy in 2022 and beyond.

Step 1: Reassess your due diligence strategy

Due diligence is constantly developing and the internet has transformed the way organisations leverage information. A strategy that takes these factors into account is crucial to making informed decisions on investment, donorship and fundraising, supply chain management, and ESG practises.

Though most organisations already have a due diligence strategy, it may not be sufficient to both protect against the permanence of risk and utilise the vast array of online data today.

In reassessing your due diligence strategy, watch out for:

• Gaps in knowledge: Your due diligence may not be utilising all available, and relevant sources. Getting information online might seem easy, but locating relevant data from news sources, corporate data, and grey literature is challenging without specialised tools.
  
• Gaps in efficiency: Due diligence is time-consuming and typically involves a series of complex searches. The internet is vast. Human teams simply cannot effectively mobilise the data it contains without technological support. Human oversights can also lead to risks — which is counterproductive to the prevention of risk in the first place!
  
• Gaps in action: Cumbersome due diligence strategies are too slow for today’s agile business environment. Producing accurate, actionable due diligence reports quickly helps form business partnerships, secure investments, and win donorships by keeping you on top of growth opportunities. The key is to get the necessary, relevant details, faster.

Key Takeaways

• Due diligence is key to reputational management.
• Reputation is a marker of success in today’s world.
• Your due diligence can make or break your entire business strategy — so be vigilant and act swiftly.

Step 2: Use public data to expand your investigation

publicly available or open source data plays a crucial role in modern due diligence and many governments and regulators are now including it in their guidance.

The FCA has indicated that risk assessments should include “open source internet checks” and the European Banking Authority states that businesses should be “carrying out open source, or adverse media searches, or commissioning a third party intelligence report.”

Online data can provide a rich and detailed account of a business, organisation, or other relevant entity. While company reports and grey literature provide an account of corporate activity, news reports and social media can give an idea of a subject’s connections and networks.

Take advantage of publicly available online sources to gain an understanding of an organisation and/or individual and explore potential avenues for reputational risk.

• Social media: It’s safe to assume that practically every individual and organisation has a social media presence of some sort. Leveraging publicly accessible social media for due diligence uncovers actions, history, connections and potentially problematic associations. Keep in mind that accessing social media data within an ethical and privacy-first framework is only possible using purpose-built tools.
• Adverse media: Adverse media searches are absolutely essential. While locating high-profile mainstream news is relatively simple, it’s necessary to extend searches into small, local news services, often in multiple languages. An effective due diligence tool will be able to research multilingual sources and translate them back to you.
• Other internet data: The above neglects the wealth of information that might be available on biography sites, blogs, chat forums, expired pages, and more. Nuggets of information can be found in obscure places, and developing a workflow to take advantage of that is critical to modern due diligence.

Key Takeaways​

• Online sources are key to reputational risk management and mitigation.
• Governments and regulators are recommending the use of open source data.
• Failing to make use of all publicly available sources results in direct and indirect reputational risk.

Step 3: Deploy automation to improve efficiency

While defining where to look for information is important, the process of deriving insights from complex publicly available sources presents another challenge.

To make use of all the information out there, organisations need to deploy cutting-edge tools that automate the manual labour work. Otherwise, it is exceptionally difficult to create the kind of detailed due diligence reports required to inform critical business decisions.

• Large scale in-depth analysis: Effectively trawling through vast amounts of data and picking out key information is near-impossible without using technology. The more data human teams attempt to use, the higher the risk of error and oversight.
  
• Straightforward yet insightful results: Final reports need to contain insightful and actionable information in a format that is easily understandable and shareable between key decision-makers. A consistent approach and reporting style is valuable for all stakeholders, accelerating the process of informed, accurate and incisive decision making.
  
• Cost-effectiveness: Automated systems enable organisations to save time and resources, allowing them to direct their workforce to higher-level tasks and grow overall productivity.
  
• Systematisation: AI-assisted and automated platforms ensure consistency and reliability across searches. Automated platforms are designed to adhere to privacy regulations such as GDPR. Human teams however can easily and accidentally engage in non-compliant practises in efforts to get better and more detailed information. This creates further risks in itself.

Key Takeaways

• ​Automated due diligence tools support human teams, allowing them to effectively work with all available data.
  
• You don’t have to sacrifice detail for the sake of saving resources and vice versa.
  
• Systematisation ensures that due diligence strategies are consistent and reliable.

Step 4: Use your knowledge to enable positive change

Modern due diligence is no longer solely confined to regulatory compliance. The information derived from a robust report can be used to build positive relationships with prospective donors, customers, clients and business partners.

Of course, regulatory compliance and risk mitigation is always a priority, but today’s business landscape requires holistic due diligence strategies. For example, discovering mutual ground with a prospective partner might be a key strategic advantage when it comes to winning investment, funding, or donorship. This is true both in commercial and non-profit sectors.

• Add depth to relationships: Use the information uncovered from an in-depth due diligence process to derive insights into prospective partners, clients, customers, donors, etc. Use that information to build a holistic, mutually beneficial understanding.
  
• Identify opportunities for growth: Due diligence can locate elements of your partnerships and your existing strategies to expand on for success.
  
• Create strategic advantages: Information uncovered from due diligence searches creates a strategic advantage. Use discovered information to enrich proposals and beat competitors.

Key Takeaways

• Use information uncovered in due diligence searches to deepen your third-party relationships.
• Combine growth with reputational management for a holistic due diligence strategy.
• Promote Private Equity ESG-centric practises and foster a system of positive action.

Conclusion: Preventing reputational risk is about making informed decisions

Online data plays a critical role in modern due diligence. The challenge? Making use of all available information without risking human error or oversight.

Developing actionable insights from such a vast array of sources seemed complicated and even daunting for organisations that didn’t have access to certain resources previously. Today, AI-assisted and automated platforms are supporting all organisations in building more efficient due diligence workflows.

Xapien enables businesses and organisations to realise the potential of holistic due diligence. Not only does our platform enable compliant, robust background reporting for the purposes of risk mitigation, but it also provides opportunities for strategic decision making and growth.

• Xapien automates knowledge: Xapien’s Fluenci natural language processing algorithms understand and extract information from even the most complex publicly available sources. Results are presented in a clear, detailed, and categorised format.
• Xapien locates links: Any possible links between entities involved in the search are provided with full context. This enables organisations to explore the connections between prospective partners and their associates.
• Xapien enhances understanding: Through a combination of AI-graph matching, global address matching, and facial matching, Xapien produces incredible insights without the need for manual searches and data processing.
• Xapien understands risk: Xapien’s sophisticated Neurisk classifier understands the semantic meaning of text and whether it highlights or presents any relevant risks that you need to know about.
• Xapien is a system of action: Modern businesses and organisations need to go beyond simple background reporting. Xapien returns the information required to unlock strategic advantages and beat competitors.
• Still not convinced? Book a demo with us today and experience Xapien’s work for yourself.

Still not convinced? Book a demo with us today and experience Xapien’s work for yourself.