KQ reputation risk is the board’s responsibility
The corporate reputation is one of a firm’s most important strategic resources as it offers a valuable source of competitive advantage that generates stakeholder support. Surprisingly, many companies fail to implement appropriate assessment and control techniques to manage it.
Companies face significant reputational risks if customers and other stakeholders do not like what they see or hear; which is what Kenya Airways has been experiencing for the past few months. As with KQ, such unpleasant information results in loss of confidence by interested parties inadvertently eliciting a challenge in attracting and retaining talent, loss of customers to rival firms, increased scrutiny from government agencies and the media among others.
Reports in the public domain reveal bad business decisions by the board and senior level management of KQ, frequent flight cancellations, pilot strikes as some of the happenings that have tainted the airline’s image. While a risk to reputation may be the one that brings a company down, reputational risk is, more often than not, an effect (secondary risk) rather than a cause (primary risk). Therefore, a causal chain exists between a primary risk – as a trigger for the consequences of other risks – and reputational risk, and this only increases the complexity of managing reputational risk. This notwithstanding, how can Kenyan companies go about managing this risk?
Corporate reputation risk management should start with the board of directors and members of senior management. Here’s my reason why: if we liken a company to a 50-floor building, the best view of risk would be gained from the top floor or the roof, which is where the board and senior management sit in the corporate hierarchy. Because of the legitimate and referent power they wield given their position, they are better placed to manage the expectations and perceptions of stakeholders, thus ensuring that the company’s trust is retained. KQ’s board failed in this role, amplifying calls for its overhaul.
Board members need to be proactive by undergoing training on crisis management and communication, especially in this digital age we are in, in order to turn any risks presented to their companies into opportunities. They also need to push for their company’s stronger engagement in corporate social responsibility activities as this could increase the trust levels with the public.
If successfully implemented, CSR will enable a company mitigate consequences of reputational risks. With cases of litigation in Kenya on the rise, it is also worth having a directors and officers (D&O) insurance policy in place, as this could provide financial protection for today’s executives, and provide legal coverage in the event of a claim challenging “bad” business decisions by the board and senior level management.