Managing reputational risk

November 1st, 2017
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By the Practitioner Support Unit of the Attorneys Fidelity Fund

Why should legal practitioners be bothered about reputation? Ever heard of the saying ‘what other people think of you is none of your business?’ This saying may not always hold true.

While reputation has a lot to do with what others think of you and/or your business, it may be all that you have, especially during difficult times. Your reputation and that of your business can make or break you.

There are many definitions as to what reputation is. The business dictionary defines ‘reputation’ as the ‘[o]verall estimation of the character or quality of a person generally held by those who know him or her’ (www.businessdictionary.com, accessed 27-9-2017).

From the foregoing definition, one can see that reputation has a lot to do with how others perceive one or a business. A number of factors such as – experience, values, assumptions and expectations, character and behavioural traits, education, faith, culture, circumstances, etcetera – influence perception. The business dictionary goes on to define ‘perception’ as ‘[t]he process by which people translate sensory impressions into a coherent and unified view of the world around them. Though necessarily based on incomplete and unverified (or unreliable) information, perception is equated with reality for most practical purposes and guides human behaviour in general’ (www.businessdictionary.com, accessed 27-9-2017).

Flowing from the fact that others will always have a perception about someone or something, it then becomes important to manage one’s, or business, reputation. This is done through ‘reputation management’, which the business dictionary defines as: ‘Activities performed by individual or organisation which attempt to maintain or create a certain frame of mind regarding themselves in the public eye. Reputation management is the process of identifying what other people are saying or feeling about you or your business; taking steps to ensure that the general consensus is in line with your goals’ (www.businessdictionary.com, accessed 27-9-2017).

Do you or your business need a reputation?

Practitioners should be alive to the fact that people need information in order to form opinions, and in turn, use those opinions to decide on how to relate and/or interact with the business, if at all. Reputation is a starting point for people to interact or to abstain from interacting with the practitioner and/or his or her business. The importance of reputation stems from the fact that it is not just one aspect of you or your business, but permeates and influences you and or your business as a whole. The perception that others have of you and/or your business is an interconnected system that fuels itself and a good one is necessary for a practitioner and/or his or her business in order to grow and flourish.

While the services a practitioner provides could be within his or her control, it could be difficult, if not impossible, to control the minds of the outsiders and potential clients. However, a good reputation can add advantage to how potential clients view the practitioner and the business, even without having interacted with either before. It is important that as a practitioner, and as a business, you continuously have your reputation on guard; as it is not a once-off activity, but an all-the-time activity. It is extremely expensive to turn around a tarnished reputation, you may find yourself having to put all your effort into it, and sometimes try too hard, resulting in even more damage.

While people have the last say in what they do and think, a good business reputation is a major factor in their decision-making on whether or not to engage with the business. So, a practitioner who intends to grow his or her business should make a good business reputation his or her priority.

Reputational risk

This is one of the most crucial risks that every practitioner and business should always identify and continuously manage. If a practitioner or business does not identify this risk as their risk, and document it in their risk register, the practitioner may as well give up on the business.

There are many causes to this risk, and these may vary from business to business, but there should be a concerted effort to respond to these causes. Importantly, when a practitioner identifies the risk, the practitioner should also attempt to identify the causes for the risk. In responding to the identified risk, the practitioner should always respond to the causes and not the symptoms. Symptoms are just lying at the tip of the problem, but the real problem, if not properly and appropriately responded to, may manifest itself in the future and can be very costly.

In considering the reputational risk, practitioners should strive to not only portray that which they know their stakeholders want to hear and see, but rather do that which they know their stakeholders want to hear and see. This taps into the ethical space of a practitioner and business. Businesses would generally put a Code of Ethics, to which the business subscribes, in place. This code – which should be documented and known to all stakeholders, including staff – if properly crafted, would earn the favour of the stakeholders. However, this is a document, monitoring how people in the firm respond to what the code seeks to achieve is even more important.

Here are some scenarios on reputational risk and possible responses:

Scenario 1

In a legal firm with more than one partner, one of the professional assistants (PA) ran his own practice in the past, and recently joined the firm. The disclosed reason for discontinuance of his firm was ‘unfavourable market conditions’. Months down the line, the firm started to experience a decline in clients, which ultimately began to manifest itself in the bottom line of the firm. The firm took an uninformed decision to increase their marketing and advertising budget, in order to pay more attention to that area of business. The only thing that went through the minds of the partners or directors was that the firm was losing market share due to poor visibility, marketing strategy, etcetera.

The firm vigorously engaged in an advertising and marketing strategy for some time, but realised that this was not the turnaround they expected. They decided to organise a session to ultimately sit around the table and discuss the position. They then came across the rumour that the Regulator received complaints against the PA from his previous firm. This happened amidst the recruitment of a new bookkeeper by the firm, who happened to have been the bookkeeper at the PA’s previous firm. These rumours changed the way the firm looked at the sudden drop in clients, and the firm decided to dig further into the rumours, and indeed confirmed the rumours to be true. They further discovered that the Attorneys Fidelity Fund (the AFF) had also received claims against the PA and his previous firm.

  • What exactly happened here?

The clients to the previous firm had been speaking among themselves and to other people about their ordeal, from the time that the PA still ran his own practice and contacted the PA on several occasions. They later learnt that they could lodge complaints and claims with the Regulator and the AFF. During the period when the clients were talking, even potential clients to the firm that the PA joined as PA (who held the firm at high esteem based on previous dealings and reputation) abstained from engaging with the firm, fearing that the PA would get them into trouble with their trust money. Some clients even began to doubt the partners at the firm, despite having trusted them for all those years, and despite the fact that no complaints were lodged against the partners and/or the firm. The firm decided against the appointment of the bookkeeper and decided to release the PA pending investigations by both the Regulator and the AFF.

This action by the firm is reactionary, and addresses the immediate challenge.

  • Could the firm have avoided this?

Should the firm have identified reputational risk as a risk for the firm, and done a risk assessment for the firm, identifying the causes thereto, and developed responses to the risk, the firm could potentially have realised that recruitment and appointment of staff lies at the centre of this risk. The firm could have come up with recruitment and selection processes to ensure thorough scrutiny and vetting of potential recruits for all positions as a standing requirement. The firm could have spared itself of reputational damage, wasteful expenditure, etcetera, and having to rebuild its good reputation, which by the way is costly, as they may need to issue public statements.

Scenario 2

A sole practitioner, with vast experience in various fields, with a relatively good professional reputation and clientele database, suddenly experienced a decline in clientele. On investigation into the sudden decline, the practitioner discovered that the word had gone out that he was cheating on his spouse. Surprised at the discovery, as this has nothing to do with his profession, nor his love for his profession and dedication to his clients, the practitioner decided not to do anything about it, and relied on his capabilities for providing legal services to his clients. The decline continued, and the practitioner ultimately closed shop.

  • Did the public judge the practitioner fairly?

There is probably no correct or incorrect answer. However, one cannot control what goes on in the minds of the public. The measuring stick that the public holds differs from person to person. To some members of the public, being faithful to your spouse could make or break a deal, purely based on the values of those you serve. Some people hold the view that if a person can cheat on his spouse, nothing would stop the person from cheating on or stealing from them. In this case, the public did not judge the practitioner on his capabilities, or those of the firm, but rather looked at the practitioner holistically and held the view that the reputation is not just one aspect of a person or a person’s business, but permeates and influences a person and or a person’s business as a whole.

  • The lesson

In order to maintain a good reputation, practitioners should not only focus on their professional capabilities, but also consider their overall reputation that can be influenced by people’s perceptions, which in turn are influenced by factors such as values, expectations, assumptions, etcetera.

Scenario 3

A seasoned sole practitioner who had successfully represented clients and businesses across various spectrums suddenly faced a reduction in client base. This is after the practitioner appointed two professional assistants (PAs), and three candidate attorneys (CAs). Having gone through the Curriculum Vitaes of the PAs, the practitioner was convinced of their capabilities, and took them on-board, and relied on their assistance to help develop the CAs. Indeed the PA’s were capable of developing these CA’s, showed them everything they needed to show them, exposed them to the actual work experience. This was exciting to the CAs, perhaps overwhelmingly so, as some of their counter parts were complaining of lack of exposure by their principals, but were made to perform administrative duties.

The excitement got the better of the CAs, and they found themselves talking to their counterparts about specifics of a matter in which they were involved. The Code of Ethics at the firm clearly stated that the attorneys ‘protect the confidentiality of their clients’ information …’. Jealousy got the better of the disgruntled CAs, and the information shared with them went out into the public domain. The public did not take kindly to this, word of mouth spread like wild fire, and the firm lost a lot of potential clients, and even existing client.

  • What happened?

Although the exposure of the CAs was a good gesture by the firm, and what the firms with CAs are expected to do, the firm could have failed to share and embed the values of the firm, as crafted in the Code of Ethics, to the CAs. This led to a reputational damage for the firm, which could be irreparable.

Conclusion

Practitioners should always be on guard for their and the business’ reputation.

The Practitioner Support Unit of the Attorneys Fidelity Fund is situated in Centurion.

This article was first published in De Rebus in 2017 (Nov) DR 12.

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