The risk of risks: Reputation risk and resiliency Sept. 2014
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Transcript of The risk of risks: Reputation risk and resiliency Sept. 2014
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The Risk of Risks:
Reputation Risk and Resiliency
Linda Locke
Senior Vice President
September 2014
Twitter: Reputationista
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Whom do you love?
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• 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
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The Risk of Risks
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• 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
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You know it when you see it, but do you
know how to measure/manage it?
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Reputation = judgments and perceptions of others
Customers
Suppliers
Investors
Advocacy groups
Regulators
Policymakers
General public
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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
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Reputation risk is present when we do not
deliver on stakeholder perceptions
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• 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
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What keeps boards up at night?
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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.
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FINANCIAL TIMES: Biggest threat to BNP
Paribas could be to its reputation 6/30/2014
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• 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
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Why is this a reputation risk?
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• Strategic risks: Which risk areas had/have/will have the
most impact on your business strategy?
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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
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Reputation advantage
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Reputation penalty
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• 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
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Why reputation matters
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Reputation is the connective tissue between
business strategy and governance
Financial
stability
Positive
societal
impact
Responsible
business
operations
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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
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Clients are often not well-equipped to
manage reputation risk
Reputation literacy not
on the risk agenda
Risk literacy not on the
reputation agenda
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• Reputation = judgments and perceptions of others
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Reputation is owned by stakeholders
‒ Customers
‒ Suppliers
‒ Investors
‒ Advocacy groups
‒ Regulators
‒ Policymakers
‒ General public
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• 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
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Stakeholders expect resiliency
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• Two sides of resiliency:
‒ Prevent conditions of risk
‒ Manage consequences of events
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Resiliency: Ability to adapt to a continuously
changing environment
Source – Carnegie Mellon Software Engineering Institute
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Risk = Hazard + Outrage
Source: evolve24
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• 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
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What should insurers do?
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• 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
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Measuring reputation
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Identify the dimensions of reputation
How do
you make
me feel?
Source: Reputation Institute
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• 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
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Conduct risk assessments
Probability
Low High
Impact
Low
H
igh
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• 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
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• 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
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Conduct a gap analysis
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• Forcefield analysis
‒ Identify the forces that oppose/help the
company achieve its reputation goals
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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
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• 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
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Identify the scenarios likely to impact
stakeholder perceptions
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• 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.
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Create enterprise-wide alignment
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• 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.
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Build bridges
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A resilient organization manages all types of
risk
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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
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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
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• 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.
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Where do I start?
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• 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
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SEC reporting on reputation risk not yet
rigorous or consistent
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• 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
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Reputation risk planning drives
organizational resilience
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The causes of outrage
“Do I put up
with this?”
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Stakeholders expect companies to share
their values
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Stakeholders expect companies to share
their values
Gluttony
Sloth
LustWrath Hubris
Envy
Greed
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Values, vulnerabilities and outrage
Hubris
Greed
Gluttony
Wrath
Envy
Sloth
Lust
Young
Elderly
Human Error
Media-Attractive
Abuse of Power
Lack of Responsiveness
Impoverished
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“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
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Our ultimate goal is trust
Be trusted by the stakeholders
who matter
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Building, protecting and
restoring reputations