Reputation risk

The definition that makes it useful

Most definitions treat reputation risk as the chance of a damaging event. That framing leads straight to crisis planning, which is the wrong instrument for most of the exposure a company carries.

Robert Eccles, Scott Newquist and Roland Schatz put the sharper version in Harvard Business Review in 2007: reputational risk arises from the gap between reputation and reality [1]. If your reputation is better than your performance, you are carrying exposure regardless of whether anything has gone wrong yet. The event does not create the risk. It reveals it.

That reframing changes what you do about it. You cannot plan your way out of a gap. You can only close it, or lower what people expect.

The three sources

Following the same framing, exposure comes from three places.

The reputation-reality gap. You are believed to be better at something than you are. Every quarter that passes without discovery increases the size of the eventual correction, because the gap keeps being reinforced by your own marketing.

Changing expectations. The gap can open without you moving at all, because what counts as acceptable shifts. Practices that were standard become indefensible. Companies are poor at noticing this, because the change is gradual and the internal consensus moves with the industry rather than with the public.

Weak internal coordination. One part of the company makes a promise another part cannot keep. Sales commits to a timeline operations has not agreed. This is the most common and the least dramatic, and it produces a slow accumulation of small disappointments rather than a single event.

Why marketing makes it worse

This is the part that belongs in a marketing reference rather than a risk one.

Marketing’s job is to raise expectation. That is the function. Which means effective marketing, done on top of an unclosed gap, is actively increasing reputation risk. The better the campaign, the larger the eventual correction.

Nobody is incentivised to notice. Marketing is measured on awareness and pipeline, operations on delivery, and the distance between the two belongs to neither of them, which is why it can widen for years inside a company where every individual function is hitting its numbers and no one is doing anything wrong.

What to do with it

1. Write down the three things buyers believe about you that are most flattering. Then establish, with evidence, whether each is true. That exercise is the whole discipline.
2. Where a belief is not supported, decide explicitly: close the gap, or stop promoting the claim. Doing neither is the default and is the exposure.
3. Check whether sales is promising anything delivery has not agreed to. Read five recent proposals against five recent project retrospectives.
4. Review what has become unacceptable in your category in the last three years, and ask whether you have moved.
5. Treat a rising marketing spend as a rising risk position unless delivery capability has moved with it.

If you run the company rather than the marketing

The uncomfortable implication of this entry is that your marketing may be the largest single contributor to your reputation risk, and it will never appear that way on any report.

Every campaign that works raises what buyers expect. If delivery has not moved at the same rate, you have widened the gap and funded the widening. The company feels successful throughout, because pipeline is up and nobody has complained yet.

The test is simple and most firms never run it. Take the three strongest claims in your current marketing. For each, ask the person responsible for delivery whether it is true for every client, most clients, or the best ones. If the answer is “the best ones”, you are marketing an exception as the standard, and the correction arrives eventually as a reference call that does not go well.

The remedy is not to market less. It is to make the claim match the floor rather than the ceiling, which costs you some conversion and removes the exposure.

One governance point. This gap sits between marketing and operations and is owned by neither, which is why it persists in well-run companies. If nobody is accountable for the distance between what is promised and what is delivered, that is a structural problem rather than a failure by anyone in particular.