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August 2014

Spending cuts, staff cuts, outsourcing debacles – not to mention politics – these are no easy times for managing reputational risk in the public sector

As Abraham Lincoln said, “With public sentiment, nothing can fail; without it, nothing can succeed.” They may not have to worry about the share price or sales, but reputation is central to public sector group’s operations and risk management efforts.

“We don’t have shareholders but we have council tax payers who we have to keep happy, and we try to encourage people to move into areas we manage and set up businesses,” says Robin Powell, the corporate risk and insurance manager for Sandwell Metropolitan Borough Council and chairman of Alarm, the public sector risk management association. “We can’t do that if we have a bad reputation.”

Consequently, reputational damage is not only recognised as a key risk by the private sector (with three quarters of UK board members seeing it as the most worrying consequence of an incident, according to a study by the Economist Intelligence Unit published by lawyers Clifford Chance in May this year); it is also a significant pre-occupation in the public sector – both here and abroad.
Arild Wæraas, a professor at the Norwegian University of Life Sciences, is co-editor of Organisational Reputation in the Public Sector, a study of reputation management and branding efforts in public sector organisations across Europe to be published next year.

According to him, there is growing evidence of the importance public sector organisations attach to maintaining a positive reputation. This ranges from the inclusion of reputation in most strategy documents and its prevalence at board meetings and municipal councils, to ubiquitous communication strategies and staff, as well as increasing use of external communication consultants and branding experts.

“Reputation risk is a particular issue for almost any public sector entity,” he says. “For many of them, there is reputation risk associated with almost any decision or action.”

While a favourable reputation is an asset that may bring increased power and autonomy within the political system, higher budgets and better candidates when it comes to recruitment, damage can result in funding problems, higher staff turnover, and ultimately a loss of legitimacy, jeopardising the entity’s existence, he adds.

Digital dangers

If the focus on the risk is growing, however, so too is the complexity of the risk.
On the one hand, public sector organisations face challenges common to the private sector, such as the risk in social media; earlier this year, public sector IT management body Socitm warned UK councils they needed to respond quicker to complaints raised through social media and digital challenges. A 2012 IBM-sponsored study of the impact of IT related incidents, meanwhile, found that reputation and brand damage were the largest potential costs of incidents named by respondents, averaging US$5.75 million over two years.

Tony Perry, senior managing consultant for business continuity and resiliency services at IBM, says this should be more of a focus. “The biggest reputational impact comes from loss and unintended disclosure of data, and when you look at the publicity around data loss incidents, such as laptops and documents left on trains, they are nearly all in the public sector,” he explains.

At the same time, the public sector faces particular challenges. Ipsos MORI’s poll for insurer Zurich Municipal in 2011 showed 22 per cent feared spending cuts as a result of austerity could end up resulting in reputational damage. It continues to be a challenge for organisations – internally, as well as externally – says Magnus Carter, chairman of Mentor Communications Consultancy.

“Everybody knows public sector organisations are going to have to get rid of more and more people over the next two to five years,” he points out. “Staff morale is probably the single biggest challenge facing the public sector at the moment.”
For Carter, reputational risk management should start with ensuring good internal communications. This protects staff performance, retention and the ability to recruit good candidates – in turn protecting the quality of services for users, who must be the next priority, ahead of political masters.

“Political decision-makers and opinion formers are massively important in the public sector, but the lever for influencing them is to start from inside: look at the staff and the customers. If you have a good reputation with them, the politicians will leave you alone – at least one would like to think so,” he says. As he admits, however, it is not always the case.

Playing politics

Politics is rarely far from public sector reputational management, according to Gary Honey, founder of reputation risks consultancy Chiron. “When you examine what reputational damage looks like for a public sector organisation, who would it hurt, in most cases it is ultimately a political risk. Somebody’s neck is on the line – whether a local government minister or national government minister, and that minister will look to protect and distance themselves from the problem.”

“Governments can fall because of a reputation issue happening with a particular public sector entity,” agrees Gaurav Kapoor, chief operating officer of governance, risk and compliance solutions firm MetricStream. This makes having the government as an effective backstop is a mixed blessing.

“The public sector can be physically more resilient if things go wrong in some ways but ultimately the ramifications are political as well as affecting the relationship with constituents,
for example,” Kapoor explains.

This political aspect also creates challenges for those working with the public sector – particularly contractors. Earlier this year the chairman of PR giant Weber Shandwick warned outsourcers faced a “torrid” political climate.

Chris Rumfitt, founder of Corporate Reputation Consulting and former managing director of public affairs at PR firm Edelman, says the last few years have “upped the ante” on the scrutiny outsourcers face. Some of this is down to the outsourcers bringing it on themselves, with incidents such as G4S and Serco overcharging the government. However, elsewhere firms have done what they were meant to.

“Look at the welfare to work providers and it’s an area where essentially private companies are getting the blame not for messing up delivery but purely for implementing government policy,” he says. “It is one thing to face a reputational risk if you fail to deliver a contract well, but another if you’re simply implementing government policy and people don’t happen to like it.”

It does not help that public sector clients – seeking to distance themselves from problems – freely criticise those hired to deliver the services. “I have had a number of big companies that contract with government privately start to say some of these contracts are verging on more trouble than they are worth,” says Rumfitt.

Back to basics

In fact, this may be a symptom of a bigger problem: that the public sector overestimates the risks to its own reputation. According to Dr Barry Quirk, chief executive of Lewisham Council and director of consultancy Publicola, the problem is too much, not too little, focus on reputation.

Quirk argues that organisation should distinguish between risks to public agencies and their stakeholders, such as politicians and managers, and the risks to individuals and communities. The former are essentially where reputational risks lie, but the latter should be the priority, he says. Otherwise, the focus on the reputation can lead to an “institutional egotism”.

“Essentially, organisations are focused on what other people think of them, when actually that is a second or third order issue. The major risks we should really be managing are the risks to service users and the public.”
Kelvin Prescott, director of Newbury Management Consultants, agrees that the importance of reputation in the public sector can be overplayed. It may be important, but it is less so than in the private sector, facing market competition. Failure to realise this leads to perverse outcomes.

“In many public procurement processes buyers assign quite a lot of weight to the potential impact of damage to the reputation of their departments or local authority, but actually it is a bit artificial and excessive.” The result is procurement process can be too cautious, with buyers reluctant to risk smaller or new suppliers.
Prescott argues that it also means public sector organisations fail to leverage the issue during contract negotiations to improve private sector service deliver, rather than just cover their backs. Recognising that private sector contractors have more to lose in terms of their reputations buyers should concentrate not on securing terms to terminate the contract if anything goes wrong, but insisting suppliers are forced to publicise post-incident reports and remediation plans.

“One of the most valuable things for a private sector supplier is a good track record and reputation,” says Prescott. “Publicly forcing them to acknowledge failings even while contracts are ongoing could have a much bigger impact in driving better performance.”

This article was published in the September 2014 issue of CIR Magazine.

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