Managing Reputational Risk

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Brief Introduction to Reputational Risk from an Operational Risk Management perspective

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Managing Reputational Risk

  1. 1. Managing reputational risk<br />Eneni Oduwole<br />Jan. 2009<br />
  2. 2. Contents<br />What is reputation?<br />Attributes of reputation<br />How can reputation be damaged?<br />What is reputational risk management?<br />Attributes of reputational risk management<br />Benefits of reputational risk management<br />Managing reputational risk<br />Rating reputational risk<br />Indicators of levels of reputational risk<br />
  3. 3. What is reputation?<br />It is :<br />an intangible asset<br />not a brand<br />the sum total of all stakeholders’ experience <br />public information regarding an organization’s trustworthiness<br />It also assures:<br />premium value growth opportunities to shareholders (value growth resulting from managerial experience, innovation, intellectual property)<br />continued comparative advantage<br />
  4. 4. Attributes of Reputation<br />
  5. 5. How can reputation be damaged?<br />Actions that result in stakeholders lose of trust and confidence<br />Public perception of organization’s standards drop<br />Sudden change of management; no succession planning<br />Adverse regulatory reports and sanctions<br />Increased incidences of fraud<br />Consistent unfavourable ratings<br />Continued decline in share price <br />
  6. 6. What is Reputational Risk Management?<br />It is the current and prospective impact on earnings and capital arising from negative public opinion<br />It measures the change in perception of a company<br />It is linked with customer expectations regarding an organization’s ability to conduct business securely and responsibly<br />
  7. 7. Attributes of Reputational Risk<br />
  8. 8. Benefits of Reputational Risk Management<br />Identifies key risks that can affect an organization's reputation adversely<br />Assesses potential impact <br />Ensures timely and appropriate response to adverse public criticisms<br />Enables a good work culture is promoted by Management<br />Ensures effective communication and disclosure to all stakeholders<br />Promotes commitment and trust between all stakeholders <br />
  9. 9. Managing Reputational Risk<br />Value your Customers<br />Understand the value of the organization's reputation <br />Treat reputational risk management holistically; understand inter-relationships within the business<br />Have effective internal control & enterprise risk management frameworks<br />Identify and prioritize relevant risk factors; communicate key risk areas to Management<br />Ensure that an effective business continuity management plan is in place<br />Build a culture of recruiting excellent people and effective people management practices<br />
  10. 10. Rating Reputational Risk<br />Reputational Risk can be rated as:<br />
  11. 11. Indicators of levels of Reputational risk<br />Management adequately responds well to market or regulatory changes<br />The firm adequately self-regulates its risks<br />Indicators of Low risks include:<br />Management fosters a well supported sound culture across the organization<br />Losses from fiduciary activities are low (whether no. of accounts, volume of assets, increased litigation or customer complaints)<br />Management fosters a well supported sound culture across the organization<br />
  12. 12. Indicators of levels of Reputational risk (co’td)<br />Management adequately responds well to market or regulatory changes<br />The firm adequately self-regulates its risks<br />Indicators of Moderate / Medium risks include:<br />Management has a good record of correcting problems<br />Losses from fiduciary activities are manageable (whether no. of accounts, volume of assets, increased litigation or customer complaints)<br />Management fosters a well supported sound culture across the organization<br />
  13. 13. Indicators of levels of Reputational risk (co’td)<br />Management does not anticipate or adequately respond to market or regulatory changes<br />The firm’s self-regulation of its risks is insufficient<br />Indicators of High risks include:<br />Losses from fiduciary activities are significant (whether no. of accounts, volume of assets, increased litigation or customer complaints)<br />Management has not initiated or has a poor record of correcting problems<br />Management fosters a well supported sound culture across the organization<br />

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