the risk of risks: reputation risk and resiliency sept. 2014
DESCRIPTION
Building trust means managing both the conditions and consequences of reputation risk. This presentation looks at how to integrate reputation management and reputation risk into the enterprise, across functions.TRANSCRIPT
The Risk of Risks:
Reputation Risk and Resiliency
Linda Locke
Senior Vice President
September 2014
Twitter: Reputationista
1
Whom do you love?
• The Economist Intelligence Unit survey:‒ “Reputational risk emerged as the most significant threat to a
business.”
‒ Reputation is prized, and vulnerable
‒ Major source of competitive advantage
‒ Difficult to categorize and quantify‒ http://www.acegroup.com/eu-en/assets/risk-reputation-report.pdf
• Zurich:‒ 70% of consumers say they avoid buying a product if they don’t like
the company behind it
‒ Consumers are 350% more likely to purchase products from
companies they like and trust
‒ Executives say 60% of a firm’s market value is attributable to reputation‒ http://static.knowledgevision.com/account/idgenterprise/assets/attachment/Zurich_092012_RiskManagement_KV/Rep
utational_Risk1.pdf
2
The Risk of Risks
• Corporate inversion: Walgreens plans move to
Switzerland to escape U.S. taxes
• Two Stocks to Profit as Corporate America Rushes
Abroad
• Bangladesh Factory Collapse: Death Toll Climbs Past
1,000
• Cruise Line’s Woes Are Far From Over as Ship Makes
Port
• For Homophobia-Free Pasta, Buy American
3
You know it when you see it, but do you
know how to measure/manage it?
4
Reputation = judgments and perceptions of others
Customers
Suppliers
Investors
Advocacy groups
Regulators
Policymakers
General public
5
The question is whether clients deliver on
the expectations of their stakeholders
Risk is predictable, if….• You know your
stakeholders• You understand
what drives their perceptions
• You are aware of their values
• You listen to them
6
Reputation risk is present when we do not
deliver on stakeholder perceptions
• Reputational risk a top concern for boards
‒ 75% 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
Annual Board of Directors Survey 2014 - Concerns About Risks Confronting Boards – EisnerAmp
7
What keeps boards up at night?
Situation
The French bank had ~ $30B in trades between 2002 - 2009 with Sudan,
Iran, and Cuba, prohibited by US banking regulations.
Costs: Fines of ~ $9B; guilty pleas, suspension of ability to clear dollars,
criminal conviction.
Impact: Analysis by Consensiv.com:
• Rock bottom reputation premium
• Peak reputation value risk
• Net reputational health of only 10% of the company's potential.
• Equity down about 9% ($7.5B) since the beginning of the year with
loss attributable to reputation around $5B.
8
FINANCIAL TIMES: Biggest threat to BNP
Paribas could be to its reputation 6/30/2014
• FT: The bank’s oil financing deals may be seen as
propping up the government of Sudanese President Omar
al-Bashir, who has been indicted by the International
Criminal Court for alleged war crimes.
Branding
• BNP PARIBAS: The bank for a changing world
• Committed to being a responsible bank
• Being prepared to take risks, while ensuring close risk
control
• Following a strict ethical code
9
Why is this a reputation risk?
• Strategic risks: Which risk areas had/have/will have the
most impact on your business strategy?
10
World of strategic risk is changing: Deloitte
41% Brand
28% Economic Trends
26% Reputation
2010
40% Reputation
32% Business model
27% Economic trends/
Competition
29% Economic trends
26% Business model
24% Reputation/ Competition
Today 2016
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A strong reputation can bring long-term
sustainability
Source: Trust Across America
Based on:
Financial stability
Accounting
conservatism
Corporate integrity
Transparency
Sustainability
12
Reputation advantage
13
Reputation penalty
• The intangibles can comprise more than 60% of a
company’s value
• Public perception impacts profitability, book value, sales
• Strong reputation can result in strong stock price growth
• Investors use reputation in purchase decisions
• Companies with a strong reputation can:
‒ Charge premium prices
‒ Hire the best candidates
‒ Attract the best business partners
• A strong reputation can be a competitive differentiator
14
Why reputation matters
15
Reputation is the connective tissue between
business strategy and governance
Financial
stability
Positive
societal
impact
Responsible
business
operations
16
Two challenges to managing reputation
Reputation is not
owned by the
company; it can
only influence it
Reputation is built
by decisions made
across the
organization
17
Clients are often not well-equipped to
manage reputation risk
Reputation literacy not
on the risk agenda
Risk literacy not on the
reputation agenda
• Reputation = judgments and perceptions of others
18
Reputation is owned by stakeholders
‒ Customers
‒ Suppliers
‒ Investors
‒ Advocacy groups
‒ Regulators
‒ Policymakers
‒ General public
• Risk is predictable, if….
19
The question is whether clients deliver on
the expectations of their stakeholders
‒ You know your
stakeholders
‒ You understand
what drives their
perceptions
‒ You are aware of
their values
‒ You listen to them
20
Stakeholders expect resiliency
• Two sides of resiliency:
‒ Prevent conditions of risk
‒ Manage consequences of events
21
Resiliency: Ability to adapt to a continuously
changing environment
Source – Carnegie Mellon Software Engineering Institute
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Risk = Hazard + Outrage
Source: evolve24
• Get input from reputation and crisis managers on sources
• Bridge the gap between reputation and risk literacy
• Help clients manage traditional risks better to reduce the
likelihood of a reputation risk event
23
What should insurers do?
• Reputation measurement
‒ Use custom or third party survey of key stakeholders that cover
major dimensions of reputation, as well as key attributes
‒ Identify what drives reputation for each stakeholder group
‒ Compare results by stakeholders
‒ Compare results to competitors
‒ Share results from board level down, throughout organization
‒ Build messaging plan that incorporates the drivers of reputation
24
Measuring reputation
25
Identify the dimensions of reputation
How do
you make
me feel?
Source: Reputation Institute
• Reputation risk assessments
‒ Facilitate a dialogue with senior leadership to identify issues that
cause risk to reputation
‒ Map out likelihood vs. expected impact of each issue
‒ Build proactive plans to address high impact/high probability
issues
26
Conduct risk assessments
Probability
Low High
Impact
Low
H
igh
• Reputation monitoring
‒ Budget for a platform that can track the public dialogue about the
company and its competitors
‒ Find a program that identifies drivers of negative emotion,
including outrage, so you can set priorities, identify trajectory of
risk
‒ Build a regular reporting program to track how perceptions have
changed and identify when to signal to the c-suite that risk is
serious
27
Monitor stakeholder perceptions
Source: evolve24
• Diagnostic gap analysis: Compare perceptions of internal
and external audiences
‒ If internal audience thinks the company meets/exceeds
expectations, while external stakeholders think it performs
weakly, it may be an opportunity for expanded communications
‒ If external audiences think the company performs well but
internal audiences think it doesn’t, it is likely a risk waiting to
blow up
28
Conduct a gap analysis
• Forcefield analysis
‒ Identify the forces that oppose/help the
company achieve its reputation goals
29
Help the company understand the externalities or
forces that impact its aspirations
Reputational Goal:
How you want your
stakeholders to
perceive you
Driving ForceFOR
ReputationGoal
Score 1-5
Driving ForceAGAINST
Reputational Goal
Score 1-5
• Scenario planning
‒ Identify scenarios that have or are likely to cause risk
‒ Consider how the organization appears from the outside in
‒ Create plans that reflect the POV of key stakeholders
‒ Lead tabletop exercises to test plan; identify weaknesses
‒ Develop messaging platform that shifts with likely follow-on
events
30
Identify the scenarios likely to impact
stakeholder perceptions
• Internal alignment: Build enterprise-wide reputation
competence
‒ Turn employees into advocates. Help them answer the question
of what positive impact the company has on society.
‒ Create reputation champions through all the business units. Help
them integrate reputation risk planning and mitigation into their
work.
‒ Share data. Offer analysis of new products, major changes in
customer service, M&A, expansion.
31
Create enterprise-wide alignment
• Finding internal allies: ERM + BC/DR
‒ The Enterprise Risk Management, Business Continuity and
Disaster Recovery teams all have reputation risk on their
agendas.
‒ They likely do not have data or baseline measurement, so are
guessing at the likely impact of risk issues on reputation.
‒ Make them your allies. Offer to participate in their planning
sessions. Help flesh out their reporting upward to include
reputational risk data.
32
Build bridges
A resilient organization manages all types of
risk
33
Ability to manage risks
and function/adapt
throughout the
lifecycle of operational
disruptions
Ability to maintain
good stakeholder
perceptions and
supportive behavior
at all times
Operational
Resiliency
Reputation
Resiliency
34
Opportunity to bring reputation into risk
management processes
Reputation resiliencyplatform
Develop
mitigation
strategies
Set the agenda:
Identify key risks
Monitor;
report to
c-suite/board
Build risk competency
at strategic level: Internal alignment
• Examine SEC filings for references to reputation risk to
determine what worries your leadership. Also, examine
competitors’ filings.
• Examine all the negative sentiment expressed publicly in
the past 12 months. Rank by degree of negativity,
credibility of source, likely impact.
• Engage the Enterprise Risk Management and Business
Continuity teams to see what they have included in their
plans for reputation risk. Make them your allies. Offer
reputation risk impact analysis.
35
Where do I start?
• SEC mandated in 2005 that firms include risk factors in
Form 10-K to present “the most significant factors that
make the company speculative or risky.”
• Business literature suggest directors/executives consider
reputation a primary source of market valuations.
• One analysis of Reputation Risk Materiality* showed:• Energy: Disclosers outperformed non-disclosers
• IT: Non-disclosers had a 60% lower ROE
• Consumer: Disclosers underperformed, with 33% lower ROE
*http://consensiv.com/wp-content/uploads/2013/09/Significance-of-Reputation-Risk-Materiality-Disclosure-for-Public-Companies1.pdf
36
SEC reporting on reputation risk not yet
rigorous or consistent
• Business units that understand reputation risks shift
planning and design to accommodate stakeholder
perceptions
• Strategy that addresses drivers of reputation deepens
trust – and supportive behavior – among stakeholders
• Data that measures the reputational impact of crisis
response helps improve response next time
• Engaging c-suite and boards can result in focused
investment for managing, avoiding and mitigating risk
• Expands the number and influence of reputation
champions in the enterprise
37
Reputation risk planning drives
organizational resilience
The causes of outrage
“Do I put up
with this?”
39
Stakeholders expect companies to share
their values
40
Stakeholders expect companies to share
their values
Gluttony
Sloth
LustWrath Hubris
Envy
Greed
41
Values, vulnerabilities and outrage
Hubris
Greed
Gluttony
Wrath
Envy
Sloth
Lust
Young
Elderly
Human Error
Media-Attractive
Abuse of Power
Lack of Responsiveness
Impoverished
“Do I put up
with this?”
Pressure Groups“Have I noticed
pressure groups
focusing on it?”
Awareness“Was there a
problem? Did you let
me know about it?”
Choice
“Did I choose to
take the risk or
was it imposed on
me?”
Nature“Is the risk natural
or man-made?”
Dread“Do I fear
this risk?”
Detectability“Can I touch/see it?
Is it quantifiable/
Containable?”
Media“Have I read about
it/seen it in the
news?”
Equity“What does the risk do for me?
Is anyone bearing the risk who
doesn’t benefit from it?”Scientific View“Do experts understand
it? Do they
agree/disagree about
it?”
The causes of
outrage
Source: Regester Larkin
43
Our ultimate goal is trust
Be trusted by the stakeholders
who matter
Building, protecting and
restoring reputations