For corporate affairs and communication professionals, 2018 has already highlighted the increasingly uncertain nature of protecting a corporate reputation. Global events have left many brands on the back-foot, managing a rapidly changing reputation landscape that moves at the speed of a tweet.
Whether it's Harley Davidson managing fallout from the Trump Administration's tariffs, to Mercedes Benz and the cost of Brexit, household brand names are responding to an increasingly uncertain global environment.
Of course, not every company is going to be in the cross-hairs of a global trade crisis. However, there's a broader trend here that sits beyond the headlines. The risks that organisations face and that could spiral into a full-blown reputational crisis are greater than ever. It's these 'black swan' events – incidents that on paper have a low chance of occurring – that are leaving companies on the back-foot.
What are black swan events?
The term black swan event was popularised by risk expert Nassim Nicholas Taleb in his book The Black Swan. In it, Taleb argues that black swan events have three key features:
- They are outlier events that we do not expect.
- They have an "extreme impact".
- That human nature compels us to rationalise these events after the fact to explain away they're unpredictability.
A black swan event is an event that we assume can't happen. Until it does.
The idea is actually one with strong ties to Australia's history. For centuries, Europeans had only ever encountered white swans, and used a 'black swan' as a metaphor for something impossible (similar to how we now refer to something being "as rare as hen's teeth").
This all changed when European explorers reached Western Australia and discovered black swans did in fact exist. Now, a black swan event is an event that we assume can't happen. Until it does.
Taleb argues that these events aren't just a serious risk for businesses, but they are becoming more frequent. Organisations are getting caught up in global cyber attacks, trade disputes and environmental and supply chain disruption. These external shocks are posing a serious threat to businesses, not just to their financial performance but they're reputations as well.
For corporate affairs professionals, the possibility of a black swan event comes with new challenges. After all, how can you manage the potential reputational fallout of an event that may never occur? And how do you get buy-in from senior leaders to plan for risks they may never face? It's going to take a step-change in the way corporate affairs teams plan for different crises if companies are going to meet this new challenge.
A shift in focus for reputational risk management?
Reputational risk can be thought of in a matrix between high/low probability and high/low impact events. The most dangerous for any organisation are those that sit in the high-probability, high-impact space. These are the risks that any corporate affairs specialist will already be focusing the majority of their efforts on.
Black swan events, on the other hand, sit in the low-probability, high impact space – although what makes them such a concern is how hard it is to quantify the risk posed by a black-swan event using traditional reputational risk management methods.
For most corporate affairs professionals, managing these black-swan events will feel like part and parcel of their reactive media planning – there will always be a degree of preparing for the unknown. However, the takeaway from Taleb's work is that companies are facing even more of these 'once-in-a-lifetime' challenges, from an increasing range of sources. At some point, business-as-usual reputational risk management practices have to change to keep up.
Broadening the perspectives on reputational risk
The nature of a black swan event is that it is a surprise for those who are faced with it, but that doesn't necessarily mean it was a surprise for everyone. As an article from the International Project
Management Association described it: "What may be a Black Swan surprise for a turkey is not a Black Swan surprise to its butcher".
In this case, it may be that external commentators, or even individuals within an organisation, are aware of issues that could turn into a major reputational risk. A drought that affects the supply chain for an FMCG company might seem like a black swan event for senior leaders and their corporate affairs team, but that doesn't mean it was a surprise for supply chain specialists in the business who are regularly talking to farmers and growers.
Black swan events require a rethink of the way we understand reputational risk management. These risks, however small the likelihood of them occurring, demand a much more holistic approach to measuring and mapping risk, that draws on expertise from across the organisation. It also highlights the renewed importance of social listening, taking corporate affairs professionals beyond media monitoring and into a more holistic approach that bridges social and traditional media to identify emerging reputational risks.