Last week I organised and hosted a roundtable event at the Royal Society of Arts in London on the difficult subject of how to better manage business risk through reputation.
It was an off-the-record executive discussion, kindly sponsored by RiiЯ (Risk2Reputation
). Their thoughtful CEO Tom Vesey
took part alongside 16 senior executives from the retail, banking, oil & gas, consulting, hospitality, and legal sectors.
It was a fascinating couple of hours. Here’s some of what we discussed below.
• Sharing the ‘outside in’ perspective of stakeholders is key, particularly at board level, to provide a counter-balance to the corporate received wisdom
• Leadership is about what you do when there is a decision to make beyond the book of rules
• In the hospitality sector, intangible asset value is huge, given the wide degree of franchising
• Some view reputation is a ‘second order’ risk, as it is often the result of the manifestation of another risk
• However, there are other clear examples (McDonald’s crisis over child marketing) which were clearly driven by reputation only
• Protecting reputation is about identifying challenges before they become a catastrophes and relying on your business values to guide you through the crisis
• Much of the fluctuation of risk in business can be managed if executives have financial and stakeholder sentiment data in advance
• Individual stakeholder sentiment is very different from overall reputation, which is the aggregate of all relevant parties’ opinions of an organisation. Likewise resilience is not the same as reputation and can only be built on sustained, high regard
• Senior managers in many businesses are delusional about how they view reputational risk. Many believe it still to be a PR issue not an operational issue
• Managing culture change to put financial metrics/numbers on risks to reputation is vital to solving that problem of delusion.
• Companies who try too hard to be loved have further to fall, particularly if they believe their own hype but fail to deliver
• Investors in large oil and gas companies ARE now listening to external stakeholders, such as NGOs, as much as other sources when it comes to asking questions about risk management in IR meetings.
• With regard to the integration of reputational risk two way communications is vital to moving from reactive to proactive risk management. Risk management must be positioned as an ‘enabler’ rather than a ‘blocker’ in decision making
• Business units must own risk and consult with communications/reputation risk experts at an early stage in the commercial planning cycle
• Cross discipline collaboration on taking stakeholder perspectives into account (risk management, reputation, R&D, design) is a major factor in protecting value and improve risk management
• One excellent example of awareness of risk is that a firm X (a major gas company) had sold its logistics network but maintained branding on the lorries. Risk management did not see this as a risk. Stakeholders did – as liquid natural gas tankers can explode in a community. If the gas firm’s logo is on that vehicle, it represents clearly both a public relations and a management issue for the company concerned
• The Bank Account of Goodwill analogy used in CSR works well in reputational risk. Sometimes to advance strategy, you will need to make withdrawals and lower reputational resilience; other times you will need to invest. The key is understanding the firm’s overall reputational resilience.
• The Rana Plaza disaster demonstrated that companies which were engaged in actively managing risk were able to respond better to the disaster and have been clearly regarded more favourably since the incident
• Reputational risk can be managed more effectively when clearly linked by management to business continuity, with costs associated with reputational loss and gain
• Balance is key in managing risk: When you make risk management everyone’s job you can easily blur the lines between good decision making and efficient business practices. i.e. if everyone queries all decisions for risk reasons you may have much slower decision making
• Managing reputational risk is both an art and a science: Whilst storytelling is key to making lessons stick, KPI’s showing the disciplinary risks to individuals are also key
• A risk-attuned, aware and outside engaged corporate culture is vital to help spot “Black Swan” events and warn of important reputational risks
• The best “meta risk” indicators that a firm holds is its level of reputational resilience. When starting out, a series of small steps to build the business case for better collaboration between risk and reputation management is optimal, followed by internal communication of the results
• There’s a clear separation problem in many companies between data collection, where it exists, people working on the ground and the orders that come from on high
• Explaining how people fit into the bigger risk and reputation picture is a major challenge, but it must be a picture they can recognise on a day to day basis. Reputational risk awareness must somehow be concrete for them
• If management can align reputational P&L with management KPIs, and base those KPIs on a reputational resilience index that is one potential, proven solution
• 80% of the challenge is internal education, alongside company behaviour, and working out how to make reputational risk count for individual employees, day to day
• One technique used successfully is a simple three bullet point summary message to all employees after an incident, so they can remember the company line and response easily
• But the best solution is to be able to demonstrate to internal audiences, especially top management, the financial impact of reputational on value. Maintaining a good reputation will then become part of decision making
) sponsored the event. RiiЯ is a leading, research consultancy, which helps change excellent firms into resilient firms, thereby protecting and enhancing corporate value. RiiЯ do this by analysing the financial impact of reputational fluctuation on value, thereby improving management decision-making.
RiiЯ also help optimise resources within the firm – from communications, risk management and sustainability executives – so reputation is managed proactively within the ecosystem of stakeholders. For further information, please contact Tom Vesey at firstname.lastname@example.org
, or on +33 6 28 91 00 99.