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Risky Business: The Whys and Hows of Effective Reputational Risk Management

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The (abbreviated) version of a talk to MBA students, internal auditors, risk managers, HR and communications executives in Malaysia on the challenges of managing reputational risk, and how they can best be overcome

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Risky Business: The Whys and Hows of Effective Reputational Risk Management

  1. 1. RISKY BUSINESS THE WHYS & HOWS OF EFFECTIVE REPUTATIONAL RISK MANAGEMENT Universiti Utara Malaysia, Kuala Lumpur June 27, 2019 CHARLIE POWNALL
  2. 2. Agenda 2 • The nature of reputational risk today • Managing reputational risk • Emerging risks • Wrap-up
  3. 3. Corporate reputation drivers 3
  4. 4. Reputation is a top risk 4Source: AON Global Risk Management Survey - 2019
  5. 5. Source: EIU/Clifford Chance - 2014 Reputation is the top risk during a crisis 5
  6. 6. Reputational risk – definition 6 ‘The potential loss to financial capital, social capital and/or market share resulting from damages to an organisation’s reputation.’ ‘Often measured in lost revenue, increased operating, capital or regulatory costs, or destruction of shareholder value.’ Source: Wikipedia, 2019
  7. 7. Meta or standalone risk? 7 Indirect • Strategic • Financial • Societal • Environmental • Operational • Technological • Legal/regulatory • etc Direct • Negative rumours • Mis/dis-information • Deepfakes, impersonations, etc • Hate speech and other inappropriate content • Competitor smears • Political attacks • Short-seller attacks • etc
  8. 8. Reputational risk challenges 8 1. Changing stakeholder expectations and behaviours 2. Unpredictable nature of many reputational risks 3. Unwillingness to recognise or tackle root causes 4. Poor leadership understanding 5. Lack of solid performance metrics 6. Ill-defined ownership and decision-making 7. Insufficient strategic thinking and doing 8. Inadequate classical risk management 9. Need for high quality response to negative events 10. Pressure on transparency and openness
  9. 9. #1 Changing expectations and behaviours 9 • Transparency, openness • Honesty, integrity • Values, ethics • Discrimination • Environment • etc • Regularly track stakeholder needs, expectations and behaviours • Understand gaps between expectation and behaviour • Understand shifts in belief and behaviour • Develop ‘outside-in’ perspective
  10. 10. #2 Unpredictable nature of reputational risks 10 • Organisational and ecosystem complexity • Internet/digital – anonymity, mobile chat, dark web, etc • Behaviour - ethos, culture, incentives, communications, trustworthiness, skill, experience, relationships, integrity, motivation • Lead from the top • Ensure strong values and a consistent culture across the board • Engage thoroughly and in good faith
  11. 11. #3 Unwillingness to recognise & tackle root causes 11 • Desire to protect vested interests • Tendency to frame problems too narrowly • Emotion, bias and groupthink cloud proper analysis • Always be as objective as possible • Use external investigators and advisers • Learn from your own and others’ failures
  12. 12. #4 Poor leadership understanding 12 • Board focus on financial and operational risks • Fluid, irrational, unquantifiable nature of reputational risk • Brand vs reputation • Educate leaders with evidence-based business case • Regular board and management training • Recruit Board directors with general business and behavioural skills
  13. 13. #5 Lack of solid performance metrics 13 • Share price is a poor guide to reputation • Sentiment can shift quickly and seemingly arbitrarily • Set clear, realisable objectives • Focus on impact rather than sentiment, reach etc • Focus on major markets and issues
  14. 14. #6 Ill-defined ownership and decision-making 14 • At Board and management level • Tendency for reactive, ad hoc decision-making • Audit and/or risk committee ownership • Dedicated reputation committee • HR, legal, corp/public affairs • Chairman or CEO
  15. 15. #7 Insufficient strategic thinking and doing 15 • Inability to join the dots between business actions, stakeholder perceptions and corporate reputation • Siloed nature of many organisations • Conduct as part of regular risk planning • Consider in all major business decisions • Link reputational risk management to strategic planning, communications, issues management, crisis management, etc
  16. 16. #8 Inadequate classical risk management 16 • Highly centralised and formulaic • Three/four line of defence model is reactive and fails easily • Focus on financial and operational rather than behavioural risks • Board of directors as reputational risk • Focus on proactive control strategies eg. empower/reward rank and file employees • Deploy real-time risk tracking and flagging • Devolve risk management to key business units • Evaluate Board reputational risks
  17. 17. #9 Need for high quality response to a crisis 17 • Too many crisis/incident responses are seen as too slow, defensive or inadequate • Classic legal defences are proving less effective • Comprehensive, clear crisis plan and protocols • Crisis and incident response team training, incl. spokesperson/people
  18. 18. #10 Pressure on transparency and openness 18 • Widespread lack of trust in institutions • Transparency and openness increasingly seen as conditions of entry • Checkbox ticking perceived as inadequate • Cover-ups are easier to spot and are punished • Strategic transparency • Operational openness
  19. 19. Major ‘emerging’ risks 19 With significant potential reputational impact… • Climate change • AI and automation
  20. 20. Summary 20 • Understand your stakeholders • Beware behavioural, cultural and ethical risks • Educate leadership • Lead from the top • Manage risks strategically • Prepare thoroughly • Learn from failures • Be transparent and open
  21. 21. 21
  22. 22. 22 Thank you. +44 20 3856 3599 cp@charliepownall.com linkedin.com/in/charliepownall charliepownall.com

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