The key to managing reputational risk – part two

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Reputational risk is a dominating issue for many boardrooms, and whether categorised as an individual risk category or part of all other risk groups, there are simple measures that can be taken to avoid a reputation disaster.

Mike Purvis, Managing Director of global consulting firm Protiviti, said there are 10 key factors under five categories to help manage reputation risk:

Strategic Alignment

Strategic alignment with a focus on a sustainable reputation begins at the top with board oversight, strategy-setting, business planning, image building and branding. Under this heading come three important factors to implement:

  1. Effective board oversight
  2. Integration of risk into strategy setting and business planning
  3. Effective communications, image and brand building

Cultural Alignment

To establish a sustainable reputation, cultural alignment can be as important as strategic. A strong culture to manage compliance in a proactive, holistic manner can also contribute to lowering costs, increasing effectiveness and sustaining reputation during times of trouble.

  1. Strong corporate values, supported by appropriate performance incentives
  2. Positive culture regarding compliance with laws and regulations

Quality Commitment

Companies with a strong reputation are noted for their commitment to quality, therefore companies committed to quality have a strong discipline to improve continuously.

  1. Priority focus on positive interactions with key stakeholders
  2. Quality public reporting

Operational Focus

A strong operational focus is vital to managing reputation risk. “A strong control environment and superior quality time, cost and innovation performance in the marketplace over time contributes significantly to a sustainable reputation,” Purvis said.

  1. Strong control environment
  2. Company performance relative to competitors

Organisational Resiliency

A company’s reputation risk management is inextricably linked with the resilience provided by its risk management and crisis management. “Effective identification and management of the company’s risks can identify major threats to reputation and ensure they are reduced to an acceptable level,” Purvis said. “In addition, effective response plans and teams can minimise reputation damage when threatening events occur. Together, these two disciplines are fundamental to managing reputational risk.”

  1. World-class response to a high profile crisis

Purvis concludes that it is persistent attention to what’s really important that offers the best approach to reducing reputation risk to an acceptable level.

Insurance Group ACE adds the following tips on managing reputation risk:

  1. Develop an ‘outside-in’ perspective on risk

Apply a ‘reputational lens’ to the key traditional risk categories to understand how damage to reputation may result if they are not properly managed and take steps to close any gaps.

  1. Place a value on reputational capital

Have experts review the financial impact of various reputational issues and communicate it across the company to drive home the importance of maintaining reputation.

  1. Monitor reputation across all markets

Actively listen to your main groups of stakeholders on the issues that affect your reputation. Learn to use new tools such as social media to monitor external perceptions.

  1. Develop a multi-disciplinary approach

The CRO may have the expertise, but they should work with PR experts and other stakeholder-facing business functions to protect and enhance the company’s reputation.

  1. Learn from others mistakes

Learn the lessons from major corporate reputational disasters take best practices that can adopted from their analysis.

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