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Home > Operations Management Best Practice > Fraud: Minimizing the Impact on Corporate Image

Operations Management Best Practice

Fraud: Minimizing the Impact on Corporate Image

by Tim Johnson

Executive Summary

  • Fraud is a threat faced by all organizations, regardless of their size or sector, that can easily plunge any organization into crisis, real or perceived.

  • The key to crisis management—particularly when trust in business remains very low—is to set the agenda, communicate robustly, and not allow speculation or rumor to run rife.

  • Robust communication strategies require organizations to consider their message, their audience, and the medium theywill use to communicate their message.

  • In cases of fraud, such messages should center on concern, control, commitment,and containment.

Introduction

The threat of fraud is faced by all organizations regardless of their size or sector. From the perspective of reputation management, controlling the impact of fraud is particularly challenging for two reasons:

  1. That an organization has become a victim of fraud suggests either that someone in the organization is corrupt, or that the organization and its compliance systems are vulnerable. Neither possibility inspires confidence.

  2. The word “fraud” has a wide range of meanings. It can refer to a sustained, systemic failure that can bring an organization to its knees. Or it can refer to low-level compliance failure that, while regrettable, is unlikely to lead to long-lasting damage.

If fraud has been committed or is suspected, how can an organization’s reputation be protected? First, we need to understand what reputation is and its importance. We also need to understand the rudiments of crisis reputation management.

Reputation and Why It Is Important

Reputation is hard to define. Famously, there are numerous definitions. Put simply, it is the sum total of what our stakeholders feel about a company and how they act as a result of that feeling. This sounds woolly, and indeed it is. Over the years, many attempts have been made to try and measure organizational reputation in quantifiable and, preferably, hard financial terms. Some progress has been made. But you still won’t find a line on the asset—or liability—side of your balance sheet that refers to your organization’s reputation.

Most practitioners and academics now accept that reputation will always be difficult to define and quantify. However, there is broad agreement that reputation is built on the trust stakeholders have in an organization, and that trust is far from woolly. On the contrary, trust brings hard commercial benefits: it helps to build strong brands, launch new products, secure licensing deals, recruit the best staff, and avoid intrusive regulation. Few would disagree that protecting that trust, and thus reputation, is critical to the business.

However, that’s easier said than done because trust is a rare commodity—particularly in light of high-profile incidents, such as the rogue trading which led to the collapse of Barings Bank and, more recently, the Enron scandal. In 2006, Ipsos MORI found that only 31% of those surveyed in the United Kingdom trusted business leaders to tell the truth. This lack of trust manifests itself in many ways, including a surge in the numbers of nongovernmental organizations, a breakdown in accepted societal structures, and the growth of antiglobalization sentiment that is often fueled by an aggressive 24/7 media. Even during times of “business as usual,” reputation management is not an easy business.

So what should be done to protect organizational reputation during a crisis prompted by, for example, a case of fraud?

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Further reading

Books:

  • Alsop, R. J. The 18 Immutable Laws of Corporate Reputation: Creating, Protecting and Repairing Your Most Valuable Asset. London: Kogan Page, 2006.
  • Doorley, J., and H. F. Garcia. Reputation Management: The Key to Successful Corporate and Organizational Communication. New York: Routledge, 2005.
  • Griffin, A. New Strategies for Reputation Management: Gaining Control of Issues, Crises and Corporate Social Responsibility. London: Kogan Page, 2007.
  • Larkin, J. Strategic Reputation Risk Management. Basingstoke, UK: Palgrave MacMillan, 2003.
  • Mitroff, I. A. Why Some Companies Emerge Stronger and Better from a Crisis. New York: Amacom, 2005.
  • O’Hanlon, Bill. Thriving Through Crisis: Turn Tragedy and Trauma Into Growth and Change. New York: Perigee, 2005.
  • Regester, M., and J. Larkin. Risk Issues and Crisis Management in Public Relations: A Casebook of Best Practice. 4th ed. London: Kogan Page, 2008.
  • Ulmer, R., T. Sellnow, and M. W. Seeger. Effective Crisis Communication: Moving from Crisis to Opportunity. Thousand Oaks, CA: Sage Publications, 2006.
  • van Reil, C. B. M., and C. J. Fombrun. Essentials of Corporate Communication: Implementing Practices for Effective Reputation Management. New York: Routledge, 2006.

Articles:

  • Ettenson, R., and J. Knowles. “Don’t confuse reputation with brand.” MIT Sloan Management Review 49:2 (2008). Online at: sloanreview.mit.edu/the-magazine/articles/2008/winter/49213.
  • Gardberg, N., and C. Fombrun. “The global reputation quotient project: First steps towards a cross-nationally valid measure of corporate reputation.” Corporate Reputation Review 4:4 (2002): 303–307.
  • MacMillan, K, Kevin Money, Steve Downing and Carola Hillenbrand. “Giving your organisation SPIRIT: An overview and call to action for directors on issues of corporate governance, corporate reputation and corporate responsibility.” Journal of General Management 30:2 (2004): 15–42.

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