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The risk of risks reputation risk and resiliency Linda LOCKE

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The risk of risks reputation risk and resiliency Linda LOCKE

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The risk of risks reputation risk and resiliency Linda LOCKE

  1. 1. The Risk of Risks: Reputation Risk and Resiliency Linda LOCKE
  2. 2. The Risk of Risks: Reputation Risk and Resiliency Linda Locke Senior Vice President November 2014 llocke@standingpartnership.com Twitter: Reputationista
  3. 3. •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/Reputational_Risk1.pdf 2 The Risk of Risks
  4. 4. •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 3 It’s what keeps boards up at night
  5. 5. 4 Why? A strong reputation can bring long- term sustainability Based on: Financial stability Accounting conservatism Corporate integrity Transparency Sustainability Source: Trust Across America
  6. 6. 5 Reputation advantage: Apple
  7. 7. 6 Reputation penalty: BP
  8. 8. •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 7 Why focus on reputation?
  9. 9. •Strategic risks: Which risk areas had/have/will have the most impact on your business strategy? 8 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
  10. 10. 9 Reputation is the connective tissue between business strategy and stakeholder perceptions Financial stability Positive societal impact Responsible business operations
  11. 11. 10 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
  12. 12. 11 Companies are often not well-equipped to manage reputation risk Reputation literacy not on the risk agenda Risk literacy not on the reputation agenda
  13. 13. •Reputation = judgments and perceptions of others 12 Reputation is owned by stakeholders ‒Customers ‒Suppliers ‒Investors ‒Advocacy groups ‒Regulators ‒Policymakers ‒General public
  14. 14. •Risk is predictable, if…. 13 The question is whether companies 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
  15. 15. 14 Stakeholders expect resiliency
  16. 16. •Two sides of resiliency: ‒Prevent conditions of risk ‒Manage consequences of events 15 Resiliency: Ability to adapt to a continuously changing environment Source – Carnegie Mellon Software Engineering Institute
  17. 17. 16 Risk = Hazard + Outrage (Peter Sandman) Source: evolve24
  18. 18. 17 The most important objective of all Build enterprise-wide reputation competence
  19. 19. A resilient organization manages all types of risk 18 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
  20. 20. •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 they guess at the likely impact of risk issues on reputation. ‒Make them your allies. ‒Offer to participate in their planning sessions. ‒Help deepen reporting upward to include reputational risk data. 19 Likely internal allies: ERM and/or BC/DR Source: evolve24
  21. 21. 20 How to bring reputation into corporate risk processes Crisis/ Emergency Management Business Continuity/ Disaster Recovery Plan Risk Assessment/ Business Impact Analysis •Reputation crisis live event management •Dynamic event monitoring and reporting •Message management •Post-event analysis •Reputation crisis plan development •Scenario planning •Tabletop exercises •Live simulation •Ongoing monitoring •Stakeholder analysis •Reputation risk assessment •Risk training for comms team •Reputation training for risk team
  22. 22. 21 Where to begin: Incorporate reputation into risk management processes Reputation resiliency platform Develop mitigation strategies Set the agenda: Identify key risks Monitor; report to c-suite/board Build risk competency at strategic level: Internal alignment
  23. 23. 22 What Enterprise Risk Management teams require Deliverables: • Distinct, quantified reputation risk assessment • Baseline measurement • Integrated reputation risk reporting Outcome: • Defining reputation resiliency for organization • Expanding view of risk to include non-market, non- operational issues with impact to reputation • Addressing broader issues of concern to board
  24. 24. •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 •Engaged c-suite and boards can focus investment on managing, avoiding and mitigating risk •Expands the number and influence of reputation champions in the enterprise 23 Reputation risk planning drives organizational resilience
  25. 25. 24 Managing Reputation in Three Steps: Understand Perceptions of Stakeholders
  26. 26. 25 Understand How you are Perceived Relative to Competitors
  27. 27. 26 Understand the drivers that impact perceptions
  28. 28. Antecedents of Risk 27
  29. 29. 28 Stakeholders expect companies to share their values
  30. 30. 29 Stakeholders expect companies to share their values Gluttony Sloth Lust Wrath Hubris Envy Greed
  31. 31. 30 Values, vulnerabilities and outrage (See Business and Its Environment, David P. Baron, Pearson/Prentice Hall) Hubris Greed Gluttony Wrath Envy Sloth Lust Young Elderly Human Error Media-Attractive Abuse of Power Lack of Responsiveness Impoverished
  32. 32. The causes of outrage “Do I put up with this?”
  33. 33. “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
  34. 34. 33 Lest we forget…
  35. 35. 34 Our ultimate goal is trust Be trusted by the stakeholders who matter
  36. 36. Building, protecting and restoring reputations

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