Managing Reputation Risk

What is reputation and does it matter?

Reputation is one of the biggest factors underpinning the valuation of corporates and Executive management and the Board are heavily focused on protecting this intangible asset. Identifying who has the day-to-day responsibility for managing reputation and how best to bring it into decision-making can be a difficult task. It is important to remember that there are two other Executives who play key roles in supporting the CEO on this agenda. The Financial Reporting Council defines Principal Risks as 'a risk or combination of risks that can seriously affect the performance, future prospects or reputation of the entity'. The Chair of the Audit and Risk Committee is responsible for ensuring that the framework for managing risk incorporates both financial and reputational impact.

This could be for example, in relation to M&A or the implementation of ESG, as well as how the extended supply chain is structured. Evidence suggests that there is less interaction between these two Executives than what we might otherwise have expected.

How can we measure reputation and reputational risk? 

Adverse media coverage is one  element that can be used to measure risk. Other measures and metrics include brand perception, focus group feedback and the capturing of feedback from key stakeholders such as investors, consumers and 3rd party service providers. From a risk management perspective, it is informative to consider how adverse or positive media coverage and stakeholder perception might translate into a quantifiable financial or value impact on an organisation.

What is the role of Board in decision-making? 

The Board has a key role to play in challenging executive management on its decision-making processes, as well as on individual decisions. Many Boards have failed to arrive at an explicit articulation of what the appetite for reputational exposure is. In doing so, the focus should be on both risks with a financial and a Reputational impact.