An organisation's value is tied to much more than just its financial responsibilities. In fact, a company's true worth is linked to a range of intangible assets, such as brand value and reputation.
While most organisations will be aware of how public perception influences the value of a business, a recent Deloitte study found that many businesses struggle to understand the true cost of mismanaging social issues and how this affects reputational risk management.
How do social concerns shape businesses?
Businesses can't afford to separate themselves from the communities they service. Whether current social issues are affecting their staff, their supply chain or the general public, it's important they engage with – or react to – these concerns in an appropriate manner.
One of the key points raised by the Deloitte report is that the costs of social issues affect businesses in a range of different ways. The economic variety includes opportunity costs, financial expenditure and time spent managing a problem.
On the other hand, the personal cost of social issues is one that's much harder for businesses to track. Deloitte notes that this range of costs includes those that affect employee well-being, concerns that could impact internal communications and damage social links in an organisation.
An example of a social issue that has both economic and personal costs is alcoholism. A study published in the Australian and New Zealand Journal of Public Health found that hungover employees cost Australian businesses $3 billion collectively, accounting for 11.5 million sick days in the process.
In this example, the economic cost refers to the lost productivity felt by these businesses, and the personal costs refer to the impacts these behaviours have on employee health.
According to Lead Partner of Health Economics and Social Policy at Deloitte Access Economics Lynne Pezzullo, businesses will struggle to manage these concerns in the future without understanding the related costs.
"Without a shared understanding of the true costs of a social issue, we can't begin the conversation about how to best direct investment, prevent poor outcomes and save significant costs into the future, including to governments and private investors," she said.
How can businesses prepare to tackle social issues?
The Australian Centre for CSR outlined the framework organisations need to consider when investigating the effects of social issues on their reputational risk management strategies. According to the organisation, these points include stakeholder engagement and dialogue, as well as accountability, ensuring members of the business feel responsible for their actions.
By focussing on accountability, businesses can begin to understand the true cost of managing CSR objectives and how this affects their reputation.