prsa ic october 2012 reputation risk competence final

Linda Locke, Reputare Consulting

Building Competence in Reputation Risk Management

PRSA International Conference16 October 2012

What keeps you up at night?

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Problem: Major gaps in reputation risk management for corporations

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Reputation literacy not on risk agenda

Reputation literacy not on risk agenda

Risk literacy not on reputation agenda

Risk literacy not on reputation agenda

What keeps your board up at night?

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Reputational risk a top concern for boards

• 63% of directors see reputational risk as top concern…and concerns are growing

• Primary concerns cover product quality, liability, customer satisfaction

• Secondary concerns: integrity, fraud, ethics

• Three-fourths of directors seek broad-based risk assessment… and they want to know more

Third Annual Board of Directors Survey 2012 - Concerns About Risks Confronting Boards – EisnerAmp

They see what is happening to others

Scraps debit card fee after consumer backlash

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Penn State abuse scandal

chilling in details

FedEx vows to track down delivery man who tossed computer monitor over fence

Komen Foundation In Contortions Over Justifying Planned Parenthood

Decision

There is no reason to be surprised by reputation risk in 2012

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Bank of America Komen Foundation

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If we are surprised by stakeholder reaction to

major decisions -

it means we aren’t doing our jobs.

If we are surprised by stakeholder reaction to

major decisions -

it means we aren’t doing our jobs.

Risk can be predictable, IF…

• You know your stakeholders

• You understand what drives their perceptions

• You are aware of their values

• You listen to them

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Risk can be manageable, IF…

• You know what your stakeholders are feeling

• You understand the level of emotion related to issues, events, topics

• You can track its trajectory

• You are willing to engage and address stakeholder concerns

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In a volatile world companies must prepare differently than in the past

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Stakeholders demand

resiliency:

- Strength, flexibility- Swift recovery- Adaptability

Stakeholders demand

resiliency:

Strength

Flexibility

Adaptability

Stakeholders demand

resiliency:

Strength

Flexibility

Adaptability

Resiliency: The ability to adapt to a continuously changing environment

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• Two sides of risk resiliency:

Preventing conditions of risk

Managing consequences of events

Source – Carnegie Mellon Software Engineering Institute

Outcome: You will have greater value to the organization

Risk Assessment (RA) and Business Impact Analysis (BIA)

Business Continuity Disaster Recovery

(BC/DR)Operational Resiliency ModelOperational Resiliency Model

Business ContinuityBusiness ContinuityIT OperationsIT OperationsSecuritySecurity

Risk/crisis management/business continuity “owned” by the company…

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How the risk organizations handle reputation today

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They guess at reputation impact They guess at reputation impact

…but reputation is “owned” by stakeholders

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• Customers

• Suppliers

• Investors

• Advocacy groups

• Regulators

• Policymakers

• General public

Reputation = judgments and perceptions of others

Stakeholders’ perceptions develop via three channels

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• Direct experience with the company

• What others say about the company (online and off)

• What the company says about itself (marketing, PR, exec comments, etc.)

Photo: mack2happy

A resilient organization manages both operational AND reputation risk

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The ResilientOrganization

• In tune with changing stakeholder perceptions

• Willingness to consider implications for business strategy

• Enterprise-wide reputation competence

The ResilientOrganization

• In tune with changing stakeholder perceptions

• Willingness to consider implications for business strategy

• Enterprise-wide reputation competence

Operational Resiliency Ability to manage risks

and adapt throughout the lifecycle of disruptions to

protect revenue

Reputational ResiliencyAbility to maintain good stakeholder perceptions and supportive behavior

through disruption

Operational Resiliency Ability to manage risks

and adapt throughout the lifecycle of disruptions to

protect revenue

Reputational ResiliencyAbility to maintain good stakeholder perceptions and supportive behavior

through disruption

Positive reputation yields measurable value

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- Strong brand loyalty

- Returning high value customers

- Lower employee turnover

- Easier recruitment of high-caliber employees

- Higher investor confidence

- Positive regulatory environment

- Lower costs of capital

A company highly regarded by its stakeholders is more likely to enjoy:

The risk: Negative reputation exacts a measurable penalty

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- Increased customer churn- Elevated customer acquisition costs- Higher employee training costs

- Regulatory constraints- Increased cost of capital- Lower investor confidence- Increased vulnerability to competitors

A company viewed with distrust and outrage by its stakeholders is more likely to suffer:

Why reputation matters to business

v

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Provided by Trust Across America

Based on five factors:Financial stabilityAccounting conservatismCorporate integrityTransparencySustainability

Reputation penalty or advantage?

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BP Stock Price vs. DJIA: 2007-2012

20 Chart: Yahoo!

Finance

Reputation penalty or advantage?

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Finance

Apple Stock Price vs. DJIA: 2007-2012

The trajectory of reputational crises

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Corporate initiatives and messaging

Stakeholder experiences

Third party conversations

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Most important job for a reputation manager

Build

enterprise-wide

reputation

competence

Build

enterprise-wide

reputation

competence

Reputation competency requires the right tools and perspective

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Data-driven insight

Data-driven insight

24 x 7 monitoring

24 x 7 monitoring

Outside-in perspectiveOutside-in

perspectiveWillingness to engage, act

Willingness to engage, act

Enterprise-wide understanding

Enterprise-wide understanding

Balanced desire to protect revenue

AND reputation

Reputation competence = greater value to the organization

• Help lines of business understand competitive risks – and opportunities – to protect reputation.

• Shape strategy to address drivers of reputation.

• Measure the impact of your response to a crisis – to improve next time

• Escalate emerging risks to c-suite and board for shift in resources, strategy to mitigate risk

• Elevate the role of reputation management in the organization

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Reputation competency = predicting time to recovery from a crisis

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Daily reputation fluctuationDaily reputation fluctuation

Reputation competency means you bring strategic business insight

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Enterprise-wide competence aligns organizational action

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Pathway to enterprise-wide reputation competence, resiliency

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Enterprise risk management:

Integrate reputation into risk reporting

agenda

Enterprise risk management:

Integrate reputation into risk reporting

agenda

Business continuity management:

Incorporate reputation intelligence, mitigation

into crisis practices

Business continuity management:

Incorporate reputation intelligence, mitigation

into crisis practices

Bring insight into existing usiness processes

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Reputation resiliencyfor ERM

Reputation resiliencyfor ERM

Develop mitigation strategies

Develop mitigation strategies

Identify key risks; establish agenda

Identify key risks; establish agenda

Monitor; report to

c-suite

Monitor; report to

c-suite

Build risk competency at strategic level

Build risk competency at strategic level

Integrating reputation resiliencyinto risk organizations

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Deliverables:• Distinct reputation risk assessment• Set baseline measurement• Integrate reputation into reporting

Deliverables:• Distinct reputation risk assessment• Set baseline measurement• Integrate reputation into reporting

Opportunity:

• Define reputation resiliency for organization

• Expand view of risk to include non-market, non-operational issues with impact to reputation

• Address broader issues of concern to Board

Opportunity:

• Define reputation resiliency for organization

• Expand view of risk to include non-market, non-operational issues with impact to reputation

• Address broader issues of concern to Board

Outcome of ERM reputation process

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Defined organizational vocabulary for reputationDefined organizational vocabulary for reputation

Built culture of risk literacyBuilt culture of risk literacy

Defined drivers of risk, priorities for strategyDefined drivers of risk, priorities for strategy

Embed reputation intelligence into business continuity

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Risk Assessment (RA) and Business Impact Analysis (BIA)

Business Continuity Disaster Recovery

(BC/DR)

Business Continuity GovernanceBusiness Continuity Governance

Crisis and Emergency

Management

Crisis and Emergency

Management

Business Continuity

Disaster Recovery

Business Continuity

Disaster Recovery

Risk Assessment

Business

Impact Analysis

Risk Assessment

Business

Impact Analysis

Transformed resiliency program

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Reputation Resiliency Reputation Resiliency

Incorporatequantitativeanalysis ofreputation

impact

Incorporatequantitativeanalysis ofreputation

impact

Integrate reputation impactanalyses into planning for

disaster recovery

Integrate reputation impactanalyses into planning for

disaster recovery

Enhanceprocesses to include

reputation riskmonitoring

Enhanceprocesses to include

reputation riskmonitoring

Conduct exercises related to reputation risk scenariosConduct exercises related to reputation risk scenarios

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The

right tactics

are crucial

for success

The

right tactics

are crucial

for success

First step: Understand perceptions of all of your stakeholders …

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…Diagnose what is upsetting them…

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Second: Systematically mine the information environment, competitively…

Subheads in bold 24 pt

Text aligns at the top 24 pt• Bullet text

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…Over time….

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Commercials

Privacy Boat safety video

…Topically…

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…Looking for risk…

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Banking Fees

Consumer Debt

... Know the influencers of your reputation, and their impact …

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...And where you have strengths and weaknesses

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Third: Understand the role of emotion and apply to business strategy…

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…And communicate about the concerns stakeholders express…

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Media Analytics

Cheat sheet for reputation competence, organizational resiliency

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•Determine drivers for each group

•Identify emotions

•Map channels with impact

•Identify activities causing risk

•Identify link to business strategy

•Build internal competence

•Engage with stakeholders

•Communicate what matters

The ultimate goal of reputation risk competence

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Resiliency

Questions?

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We help you understand why people don’t trust your company, and what you should do about it.

Corporate reputation consulting

Strategy

Measurement

Internal Alignment

Issues Management

External Engagement

Strategic Communications

Crisis Planning, Management

Linda Locke

+1 314 435 3428

Twitter: Reputationista

Thank you.