Tip Sheet: A Risk-Sensitive Culture Can Stave Off Crises


For the auto parts maker, it was a perfect storm. The customer service center was receiving an increase in calls about a product that seemed to be failing in an unusual way. In the dealer relations department, distributors were reporting similar problems and demanding to know what to tell angry customers.

Down the hall, a backlog of warranty claims was forming. And the legal department was just catching wind that an overseas subsidiary was facing a product liability suit and had begun recalling the product.

Viewed from above, the warning signs that a firestorm was about to erupt were obvious and everywhere. But at ground level, not one alarm was sounded. It took an enterprising journalist to connect the dots and set off a global crisis that also ensnared some of the company’s largest customers. Why?

For one thing, managers were walled off in functional silos and blind to what was occurring elsewhere. They saw the issues immediately in front of them, but failed to recognize them as symptoms of a much larger problem or, if they did, they rationalized that pulling the alarm lever was somebody else’s responsibility. But an even bigger roadblock in this case was rooted in culture. Very simply, the company’s internal culture was not sufficiently sensitive to risk and, more specifically, to the critical interplay between how organizations deal with risks and their reputations and market valuations.

SELF-INFLICTED WOUNDS

The sad truth is that most reputational problems are self-inflicted, the result not of forces or events outside the company but of action or inaction within. They occur because people make decisions without fully considering their risks, or because they fail to sense and respond to issues early on, before they have a chance to coalesce into full-blown crises. Having a well thought-out crisis plan is essential, but it only goes so far.

Developing a culture in which people at all levels are focused on managing risks and preventing crises from ever happening in the first place is even better.

Creating an effective risk-sensitive culture means fostering an environment in which employees instinctively look for and analyze risks to the company and its reputation as part of their day-to-day work, and take those risks into account in their decision making.

In a risk-sensitive culture, employees understand the importance of acknowledging and managing risks, believe that they are integral parts of a larger risk management system, and are motivated to actively protect their organization’s reputation and welfare.

Risk-sensitive cultures don’t just happen. Here are three keys to getting things moving in the right direction:

â–¶ Communicate clear expectations and guidelines: Ensure that employees know what is expected of them when it comes to safeguarding reputation. In a strong risk management culture, employees take ownership of their own risks and those of their colleagues. They understand clearly the process for escalating issues when necessary, and the potential costs—reputational and otherwise—of not doing so.

â–¶ Make risk management an integral part of planning and decision making: No one likes to acknowledge that the bold new initiative they are working on could go off the rails. At a minimum, provide employees with a simple question-based framework to guide them in thinking through the risks presented by a particular decision, action or policy change, and whether it should receive further scrutiny before being implemented.

Requiring managers to subject larger projects to a more comprehensive and documented risk assessment process as a condition of budget approval is a good way to be sure that risks don’t receive short shrift.

â–¶ Model sound risk management behaviors: Train managers to serve as risk management role models by being available, approachable and supportive when potential problems surface. The focus should be on ensuring that issues are properly addressed, not on pointing fingers or covering tracks.

The time to analyze what happened, why and who or what was responsible will come later. Recognize successes and use them to reinforce best practices. Use failures as a chance for the organization to learn and continually refine internal systems and practices.

CONTACT:

Jon Goldberg is the founder and CEO of Reputation Architects Inc., a management advisory firm focused on building, protecting and restoring reputations. He is a member of Counselors Academy, a group of senior-level public relations counselors within the Public Relations Society of America. He can be reached at jon.goldberg@reputationarchitects.com.




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