Why Risk Management Beats Risk Mitigation in PR
Any large, medium or small organisation has its own corporate ‘genetic code’ that can be broken down into people, products, services, brands, innovation and customers that combine to make it unique and different.
If you happen to work in a highly regulated industry sector, such as pharmaceuticals, insurance, drinks or professional services, you may be using PR to mitigate your exposure to risk, whether real or perceived, rather than using it to transmit your unique ‘genetic code’.
Be warned. Too much focus on risk mitigation sets up the wrong decision-making dynamic within your organisation. Ironically, it carries more risk!
The culture of the company becomes all about not wanting to make mistakes. This stifles innovation and investment. It creates a non-entrepreneurial culture.
As I explained in my latest book, Essential Law for Marketers, risk management is the preferred route for PR professionals as its both strategic offence and defence rather than risk mitigation that tends to act as a brake on the business.
For example, a company listed on the London Stock Exchange will use corporate communications in order to have an impact on the value of its share price.
In this context, PR is investing in reputation as a strategic asset, as well as using reputation management as a corporate tool.
This approach is much more active, more ambitious and more valuable than being stuck in an obsessive risk mitigation mode.
Those who work in corporate communications (and I include myself here) are often fascinated by three things:
- explaining strategy, structures and restructures;
- reporting results against a matrix of targets; and
- safeguarding reputation by managing away risks and threats.
All of this stuff is vital, isn’t it? It protects the organisation, it explains the direction of travel being taken by the senior management team and it provides evidence of progress against milestones.
Research shows that the market rewards strong, effective communication management – it’s been shown to increase share prices by around 7-8%.
And that’s the dividend that effective risk management can create. For a mid-size FT100 company, that equates to GBP hundreds of millions in incremental value.
The reputation a business creates and the understanding on which it’s built is part of its competitive advantage. It enhances sales, customer satisfaction and retention. It attracts talent and staves off churn amongst key workers that in turn helps to drive innovation and effectiveness.
For those organisations with weaker reputations, the reverse is true.
Here we find companies facing the threat of increased regulatory intervention, a reduced freedom to operate and an increasing cost of doing business.
According to ratings agency Standard & Poor, companies with a poor transparency and disclosure track record tend to have a higher cost of capital. More difficult to measure is the obvious reality that low trust and poor reputation increases corporate vulnerability and it’s these companies that tend to be less well understood. As a result, their leadership is more vulnerable to the impact of a crisis. And they tend to be stuck in risk mitigation mode.
One of the most effective forms of risk management is building a robust reputation. And as anyone who’s been doing this long enough will tell you, this requires a degree of campaigning flair, disruption, effective risk management as well as a dollop of risk!
Image: Stephane Moussi (Creative Commons)
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