Ask the Chief Executive Officer, Founder or Chairman of an organization about his key concerns and one thing which will never skip the list is the ‘Reputational Risk’. It is certainly a very challenging task to protect a firm’s reputation given the increasing competition in the market on one end and dynamic social and economic conditions of global market on the other.
Imagine a Rolls Royce standing in the street without a garage! I know it’s difficult to imagine that, but considering the value of an asset, ‘reputation’ or ’goodwill’, and the kind of risks it is exposed to, it is very much similar to the previous scenario. Tremendous development of global media and other communication channels, increased levels of regulatory controls are some of the issues which expose an organization to Reputational Risk.
The factor which leaves risk managers baffled about ‘Reputational Risk’ is that it is not possible to easily categorize and compute them. It is widely agreed that the root causes of the risks impacting the reputation of an organization are primarily derived from the market, operational or capital risks. While the root causes are still widely debated, it is more likely that the reputation takes a big hit primarily because of inefficient adherance to regulatory and legal requirements which is growing with time and ever increasing number and complexity of regulatory and legal requirements. Due to the numerous cases of immoral actions taken in the organization (in many cases by a very small group of influential individuals), it is can be considered as a major root cause of reputational risk. While legal, regulatory and unethical practices are certainly the forerunners, the quality of delivery of the product or service too follows closely in scenarios where failure to deliver to the basic industry standards leads to very high proportion of customer dissatisfaction multiplying the negative impact on the reputation. Being an ‘Employer of choice’ is also one of the critical aspects for an organization to survive with a clean reputation.
Imagine a Rolls Royce standing in the street without a garage! I know it’s difficult to imagine that, but considering the value of an asset, ‘reputation’ or ’goodwill’, and the kind of risks it is exposed to, it is very much similar to the previous scenario. Tremendous development of global media and other communication channels, increased levels of regulatory controls are some of the issues which expose an organization to Reputational Risk.
The factor which leaves risk managers baffled about ‘Reputational Risk’ is that it is not possible to easily categorize and compute them. It is widely agreed that the root causes of the risks impacting the reputation of an organization are primarily derived from the market, operational or capital risks. While the root causes are still widely debated, it is more likely that the reputation takes a big hit primarily because of inefficient adherance to regulatory and legal requirements which is growing with time and ever increasing number and complexity of regulatory and legal requirements. Due to the numerous cases of immoral actions taken in the organization (in many cases by a very small group of influential individuals), it is can be considered as a major root cause of reputational risk. While legal, regulatory and unethical practices are certainly the forerunners, the quality of delivery of the product or service too follows closely in scenarios where failure to deliver to the basic industry standards leads to very high proportion of customer dissatisfaction multiplying the negative impact on the reputation. Being an ‘Employer of choice’ is also one of the critical aspects for an organization to survive with a clean reputation.
Effective and timely communication is the most important remedy which will prevent or repair the impact of reputational risk. There are several instances when incidents leading to reputational risk have been managed with minimal impact through clear and appropriate communication. This not only helps manage external factors but also the critical and fluid asset in the form of employees. While the leadership team plays a very important role in the task of effective communication, it is equally important for an organization to make an appropriate investment in a formal and independent risk management body which can monitor all the above factors and recommend necessary preventive or mitigating steps to manage the reputational risk.
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