What Is Reputational Risk? Definition, Types, and Strategies (2024)

Building brand goodwill can take years of delivering products consistently, thoughtful customer service, and genuine community nurturing. Yet, your carefully cultivated trust can vanish in an instant. An organic skin care brand’s reputation might shatter when customers find its “clean beauty” products contain harmful synthetics. Or a luxury retailer’s image could crumble after warehouse workers expose dangerous working conditions. The reputation of your business is its most precious—and precarious—asset.

In an era of viral headlines and instant customer feedback, every business decision carries the weight of potential public scrutiny. Learn about various types of reputational risk, their potential impact on your business, and proven strategies to protect (and repair) your brand reputation.

What is reputational risk?

Reputational risk is the potential for damage to a brand’s credibility, public image, or market value due to negative public perception. Whether based on facts or mere impressions, these threats manifest in various forms—from scathing online reviews and social media backlash to product controversies, ethical missteps, and data breaches that erode trust.

Managing reputational risk is important for a business’s survival; even one public misstep can destroy years of built brand trust, leading to an exodus of customers.

Types of reputational risk

From data breaches and employee misconduct to supplier scandals and regulatory violations, threats to your organization’s reputation can come in many forms. Prioritize your mitigation efforts by recognizing that these risks belong to three distinct categories:

Direct

Direct reputational risks arise due to the decisions (or lack thereof) of a company’s business leaders. Mismanagement of data, poor working conditions, and eroding product or service quality are direct forms of reputational risk. These outcomes can damage public perception, weaken brand loyalty, and lead to public outrage that causes plummeting sales, organized boycotts, and customer flight.

For example, gas and oil companies face direct reputational damage when their corporate decisions to cut safety protocols lead to preventable environmental disasters.

Indirect

Indirect reputational risks emerge from the actions of individuals within the organization that cast a shadow over the company’s reputation. These incidents—while not stemming from official policy—can still adversely affect the entire brand’s credibility.

In the financial services industry, for example, a bank’s reputation might evaporate if individual employees engage in unauthorized trading activities despite the bank’s strong compliance policies.

Peripheral

Peripheral reputational risks are ones a company faces due to the actions of its partners, suppliers, and other players outside the organization’s direct control. The missteps of external connections—from payment processors experiencing data breaches to raw material suppliers using child labor—can tarnish a company’s reputation through guilt by association.

For instance, a coffee brand might face backlash if its primary supplier is exposed for using unethical labor practices.

What is reputational risk management?

Reputational risk management is how organizations protect and maintain their name, image, and competitive standing through preventive policies, diligent monitoring, and quick response. Companies that take measures to protect their reputation can maintain customer trust, preserve revenue streams, and safeguard their market position during challenging times.

Risk management programs typically include employee training, preventive guidelines, customer feedback systems, social listening, and crisis response plans to address issues before they escalate. Most importantly, risk management involves making ethical choices in the first place and aligning yourself with thoroughly vetted partners who have similar values.

Methods for reputational risk management

Managing reputation risk can be tricky when vulnerabilities can emerge across your business operations—from production quality failures to executive missteps. While you can’t prevent every threat to your reputation, these tactics can help you protect your brand before damage occurs and respond effectively if it does:

Vet your partners

The most important preemptive measure you can take is to make decisions you stand behind. These decisions can relate to product quality, working conditions, data security, privacy, and customer service. Choose partnerships you can trust to uphold the same values you do. No company is an island and your manufacturers, suppliers, warehousing, and logistics partners—even the advertising and public relations firms you employ—matter when it comes to reputation management.

Do thorough research before signing partnerships. Read customer reviews, interview past clients, lean on referrals, and ask potential partners for as much information as you need before you agree to collaborate.

Train employees on ethics and standards

Employee training is a significant strategy to mitigate reputational risk. By ensuring every team member understands your company’s ethical, privacy, and human resource policies, and their role in protecting your organization’s image, you’re setting up a first line of defense against mismanagement.

Incorporate training into your company’s employee onboarding and continue with annual refresher courses that keep reputation protection top of mind. These sessions should cover practical workplace ethics, including handling confidential information, maintaining professional conduct, and adhering to compliance standards.

As part of training, include common reputational risk scenarios, from handling sensitive customer information to addressing potential conflicts of interest. Along with workplace conduct guidelines, establish social media policies around discussing company information, communicating with customers online, and representing the brand on personal accounts to reinforce employees’ roles as brand guardians.

Monitor brand mentions 

Brand mentions (any time someone discusses your company or products online) surface across customer reviews, social media posts, Reddit threads, and industry forums. Monitoring these conversations helps identify potential reputation threats early, allowing your team to address concerns before they escalate into larger issues. Quick and thoughtful responses to negative feedback demonstrate commitment to customer satisfaction and can transform critics into advocates.

For instance, if a customer posts about receiving a defective product on TikTok, sending a free replacement with a handwritten apology note might resolve the issue. It could also prompt them to update their review and share their positive experience with others.

Here are a few tools to track your brand mentions across the web and social media:

Develop a proactive public relations strategy

Having others sing your brand’s praises carries more weight than self-promotion, which is why strategic public relations (PR) can do wonders for your brand. Just as negative press can damage reputation, positive media coverage can shape public perception and create powerful first impressions, driving sales and building credibility. Beyond reaching out to journalists at mainstream press outlets, consider building relationships with newsletter authors, podcast hosts, and industry influencers who maintain deep connections with their dedicated audiences.

Pluto Pillow, a custom sleep pillow brand, pitched journalists directly rather than hiring expensive PR firms, building brand legitimacy and driving organic growth. Its founder spent three hours daily crafting personalized emails to journalists who covered sleep products and direct-to-consumer brands, leading to features in Business Insider and the Today show that generated thousands of sales.

Measure brand sentiment

Regular customer surveys provide direct insight into how your target audience perceives your brand, revealing potential reputation issues before they surface on public channels. By gathering feedback systematically, you can identify patterns in customer sentiment, spot emerging concerns, and make proactive improvements to your products or services. These check-ins with your customer base help quantify brand perception while providing actionable data to guide reputation management decisions.

For example, if your brand sentiment analysis reveals frustration with shipping speed, you can adjust carrier partnerships or add expedited options before customers take their complaints to social media.

Here are key questions to include in your brand sentiment surveys:

• How likely are you to recommend our brand to friends or colleagues?
• What five words would you use to describe our brand?
• What could we do better to improve your experience with our brand?

Seek brand-aligned causes

Partnering with meaningful causes helps build authentic connections with customers while demonstrating that your brand’s values extend beyond profit. When selecting causes to support, focus on initiatives that naturally align with your company’s mission and resonate with your customer base—as Patagonia did with environmental activism. However, these partnerships must feel genuine and long-term rather than opportunistic, as consumers can quickly identify and criticize surface-level PR plays.

Our Place, a premium kitchenware company, centers its brand around the cultural power of home cooking and connecting people with their heritage. Through partnerships with influential voices like Selena Gomez and commitments to sustainability and mental health initiatives, Our Place has aligned with meaningful causes to strengthen its brand reputation while creating positive social impact.

Establish clear escalation procedures

Most public complaints on social media come from customers who feel ignored or frustrated by standard support channels. Your initial customer service response is crucial for protecting your reputation. A clear escalation process allows your team to quickly identify high-risk issues and provide personalized solutions that bypass standard policies.

Empower your support team to make immediate decisions—from sending replacement products in response to quality issues to refunding shipping after delays to offering store credit for inconveniences.

Prepare a crisis communication strategy

Despite your best efforts, your business may face a situation that requires you to directly confront a misstep. Whether you’ve discovered a quality control issue or are facing a major website breach, you’ll need to issue a public statement through appropriate channels. This might be through customer emails, an Instagram update, or a formal press release.

Here are some tips to approach a crisis communication strategy:

• Act swiftly but thoughtfully. Respond quickly to prevent speculation, but ensure your message is accurate and comprehensive.

• Take full accountability. Avoid deflecting blame or making excuses; customers respect brands that own their mistakes.

• Outline specific solutions. Detail exactly how you’re addressing the issue and what steps you’re taking to prevent future occurrences.

• Consider consulting outside expertise. Guidance from PR professionals or crisis management experts can help you avoid tone-deaf responses that could worsen the situation.