The document discusses reputation risk management. It summarizes that hackers had broken into two Korean sites, Nate and Cyworld, exposing the personal details of 35 million members. It then discusses reputation risk and how companies currently measure operational and financial risks but not reputation risk. It provides an example of a large US pharmaceutical company that evaluates problems that could affect reputation only for major decisions. Finally, it outlines strategic steps for reputation risk management including assessing reputation through media analysis, objectively evaluating reality, and closing gaps between reputation and reality through action.

1. Reputation Risk Management
Alchemist

2. Nate, Cyworld Security Breach
Puts Private Info of 35 Million at Risk
The Korean Communications Commission (KCC) annaounced today that hackers had broken into
Nate and Cyworld, potentially exposing the personal details of some 35 million members of the tw
o sites.
How are you going to act?

3. proactive
Reputation Risk Management
Crisis Management

4. There has been no Reputation Risk Management
 Financial Risk  Reputation Risk
 Operational Risk • Difficulty
• Factoring into Capital Adequacy
• Basel II Intenationl accord for regulating requirment
capital requirements for large international
banks
• Operation risk
– The risk of loss resulting from
inadequate or failed internal
processes, people and systems
or from external events.
How to Measure
– Excludes Reputation Risk Quantify
Recognize as Capital ?

5. Example – Current Status
A Large US Pharmaceutical Company
Relatively Well-doing company
 For Operational Finacial Risk  For Reputation Risk
• COSO Framework • Evaluation of Problems that could
affect Reputation
• Committee Of Sponsoring
Organizaions of the Tradeway • Problems
Commission – Pending lawsuit
– Weak product-testing
• Framework for procedures
Enterprise Risk Management (ERM) – Product-liability concerns
– Control systems for detecting
fraud
• Only when Major Decisions
• Involving aquisitions
• Informally
• Unevenly

6. Example – Current Status
A Large US Pharmaceutical Company
Relatively Well-doing company
 For Operational Finacial Risk  For Reputation Risk
• COSO Framework • Evaluation of Problems that could
affect Reputation
• Committee Of Sponsoring
Organizaions of the Tradeway • Problems
Commission – Pending lawsuit
– Weak product-testing
• Framework for procedures
Enterprise Risk Management (ERM) – Product-liability concerns
– Control systems for detecting
fraud
• Only when Major Decisions
• Involving aquisitions
• Informally
• Unevenly

7. There has been no Reputation Risk Management
 Financial Risk  Reputation Risk
 Operational Risk • Difficulty
• Factoring into Capital Adequacy
• Basel II Intenationl accord for regulating requirment
capital requirements for large international
banks
• Operation risk
– The risk of loss resulting from
inadequate or failed internal
processes, people and systems
or from external events.
How to Measure
– Excludes Reputation Risk Quantify
Recognize as Capital ?

8. TrainingIQ AAA
 How SMART are U ? GPA
Note taking AA
Go to Library
SSAT
Buy Textbooks BBB
DCAT
Solve Problems BB
Strategic / Determinants
Criteria Steps Inteligence Reputation
Assess Reputation AAA
Evaluate Reputation-Reality Gap
Reality AA
Close Gaps Belief & Expectations
Changing
Monitor Changing belief & expectations BBB
Weak Internal Coordination
Put ONE person in charge BB
Strategic/ Steps
Criteria Determinants Reputation Risk
How to Measure
Quantify
?
Inteligence Reputation
Reputation Risk
Recognize as Capital

9. Determinant and Step
Reputation - by Others
• • events
Several Environment-friendly
• RefineryExplosion
• Positioned as a
- killing 15
responsible corporation
• Leak in a
that cares about the
corroded pipeline Reputation-Reality Gap
environment
at Prudhoe bay
• “Beyond Petroleum” Changing Belief & Expectations
• Allegations of
campaign
tax evasion in Weak Internal Coordination
•
Russia Multibillion-dollar initiative
• Allegations of
to expand ots alternative-
propane market business Criteria / Determinants
energy
manipulation
Assess Reputation
Evaluate Reality
Reality – by Me Reputation - by Others Close Gaps
Strategic Steps
Gap

10. Determinant and Step
 Assess Reputation
Reputation-Reality Gap • Media Analysis
Changing Belief & Expectations • Most important
– Rather than surveys
Weak Internal Coordination
» From Customers, Employees, Investors, NGOs
• Media Strategy
Criteria / Determinants
• Stay above Awreness threshold
• Make Stories in leading media
Assess Reputation – Over 20% to be positive
Evaluate Reality – Less 10% to be negative
Close Gaps • Secure Share of voice
– Over 35% to keep negative stories minimum
– Over 50% to win critics
Strategic Steps • Having complete context
• Reputation of a company is a function of
– Others reputation
– Relative reputaton of the industry overall

11. Determinant and Step
 Evaluate Reality
Reputation-Reality Gap • Objective Evaluation
Changing Belief & Expectations
• Pitfall
Weak Internal Coordination
– Overestimating own capabilities
– Believe they have good reputation
Criteria / Determinants
• Measurement
Assess Reputation – Contextual
Evaluate Reality – Objective
Close Gaps – quantative
Strategic Steps

12. Determinant and Step
 Close Gaps
Reputation-Reality Gap • Actual character > Reputation
Changing Belief & Expectations
• Strengthen reputation by
Weak Internal Coordination
– Investor relations program
– Corporate communications program
Criteria / Determinants
• Reputation > Actual character
Assess Reputation
Evaluate Reality • If unjustifiably positive
Close Gaps • Should do either
– Improve its capabilities, behavior, performance
– Moderate stakeholders’ perceptions
» In careful, measured ways
Strategic Steps

13. Determinant and Step
• GE in 2005Leading Company
A
• Ecomagination initiative
– Doubling its R&D Reputation-Reality Gap
investment in Developing
Cleaner Technologies Changing Belief & Expectations
– Reduced greenhouse Weak Internal Coordination
emissions
Criteria / Determinants
• New Expectation created
– Companies to be eco-
friendly Assess Reputation
Evaluate Reality
Close Gaps
• Painkiller Vioxx Monitor Changing Belief & Expectations
• Caused Heart attack
• New Expectation created
Strategic Steps
Adhere to old standard – Drug companies to
disclose more detaild
results and analysis of
clinical trials

14. Determinant and Step
 Monitoring changing Belief & Expectations
Reputation-Reality Gap • Regular surveys
Changing Belief & Expectations • From employees, customers, other stakeholders
• Whether data suggests that Reputation-Reality gap is
Weak Internal Coordination
materializing or widening
• Experts surveys
Criteria / Determinants • Political, Demographic, Social trends
• Influencial NGO
Assess Reputation • Activists
Evaluate Reality
– Environmental, Wages, Working
Close Gaps
conditions, Labor practices
Monitor Changing Belief & Expectations
• Media monitoring
• How fast and to what extent belief and expectations
change
Strategic Steps

15. Determinant and Step
 Weak Internal Coordination
• Marketing department vs. Developers
Reputation-Reality Gap • In Software company
• Large advertising for a new product
Changing Belief & Expectations
– Before developers identify bugs
Weak Internal Coordination
Criteria / Determinants
 Put ONE person in charge
Assess Reputation • In charge of all those 5 steps
Evaluate Reality • Candidates
Close Gaps
• Can be
Monitor Changing Belief & Expectations
Put ONE person in charge – COO, CFO,
– Heads of Risk management, Strategic
planning, Internal audit
Strategic Steps
• Cannot be
– Heads of Marketing, Corporate
communications, General counsel