The document discusses the importance of managing reputational risks for organizations. It states that reputation contributes over 25% on average to a company's market value and is a key driver of stakeholder behavior. It also notes that reputational risks have risen in recent risk surveys to become a top concern for executives. The document recommends that organizations conduct a thorough analysis of their reputational risks, prioritize them, and put plans in place to minimize high impact risks. It also emphasizes using a proactive rather than reactive approach to crisis management to mitigate reputational damage.

1. 28/12/15 14:15The importance of managing reputational risks.
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The importance of managing reputational risks.
Dec 28, 2015 1 view 0 Likes 0 Comments
Note: This article was first published in spanish and can be found here.
Reputation is a value driver through the favorable behaviors that generates in
the stakeholders and affects the income of organizations, which is of paramount
importance in their management.
In a previous article on trends in corporate reputation I mentioned that the
management of intangible assets is increasingly present in the roadmaps of
organizations. We live in a society where we not only must be good but also seem
so, as to generate a good reputation is necessary to be consistent between what we
say and what we actually do, a fact that is as true for companies and organizations
as for individuals.
According to the interesting study The Impact of Reputation on Market Value
made in 2012 by the founder of Reputation Dividend, Simon Cole, the
Albert Vilariño Alonso
Specialist in Corporate Social Responsibility (CSR),
Reputation and Corporate Communication,
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2. 28/12/15 14:15The importance of managing reputational risks.
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contribution of the reputation in the value of market capitalization of a
company is, on average, more than 25% of its value. Although that contribution
varies according to the size of the company and is normally higher as the
company is bigger, something that should not be surprising because the bigger
they are the best-known organizations are, and is also easier to have a valuation
of them.
If the mere fact of capitalization was not serious enough to manage the
reputation, it gives the company several advantages, eg higher direct sales, new
sales by recommendations of others, achieving and maintaining a license to
operate, or a greater attraction and retention of talent.
Therefore, corporate reputation is an asset that must be defended at all
costs, increased as much as possible and be treated by all means not to lose to a
lesser or greater extent, avoiding reputational damage.
According to the Aon Global Risk Management Survey 2009, the reputational
damage was on the 6th position in the Top 10 on urgent business risks, while in
2011 climbed to the 4th position. In 2014, according to Deloitte’s Global Survey of
executives on strategic risks, reputational damage had moved to the No. 1
position of the concerns of managers, without leaving any kind of doubts about its
importance.
How can we avoid or minimize the reputational damage?
Although it also depends on other variables, we will refer to two main factors to
avoid (or minimize cases where the damage is made) such damage: the
knowledge and management of reputational risks that the organization
faces and the right approach to crisis resolution.
We can say that a reputational risk is created when an organization is
performing below the expectations of society. Similarly, if the performance is
above expectations we can speak of a repetitional opportunity.
Generically, the main types of reputational risks that a company can face are
four:
- Natural: are determined by the natural environment with a low capacity to be
predicted in advance.

3. 28/12/15 14:15The importance of managing reputational risks.
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- Environmental: Caused by legislation or regulatory changes affecting a
particular sector.
- Operational: Those existing inherent risks in the production processes of the
business.
- Leadership related: They will depend on the overall management of the
organization in the exercise of its power.
It is vital to conduct a thorough analysis of all subtypes of specific risks
within the above that our company may have. First, through a weighting to
order them by importance according to the probability of occurrence and degree
of seriousness of the risk, and then making a specific plan so we can minimize
their occurrence within the possible and defining specific indicators that are
monitored and discussed periodically by the board.
According to Deloitte’s study, the main vectors of reputational risk for
executives today are: ethics / integrity (fraud, corruption, theft), products /
services (security problems with products and services, problems with health
and environment), security (physical and cyber) and financial (reporting,
accounting issues and credit rating).
In general, companies are better in managing risk in areas where they have
direct control, such as compliance with laws and regulations, or misconducts
by employees or management. Meanwhile, companies have more difficulties in
areas that do not have under control as those concerning ethical behavior of third
parties, competition attacks, or environmental problems or disasters.
It is also interesting to note that customers are the main stakeholder in
managing reputational risk, while other stakeholders and regulators, senior
executives, employees and investors also play an important role. But it is in this
society of immediacy and 2.0 governed by the "social media" where it is essential
to properly manage the requirements and expectations of customers if we want to
minimize the increased risks.
Regarding to who should be responsible of managing reputational risks, this
would be a task, in order of priority, of CEOs and Risk Management Directors
first, followed by the Board of Directors or CFOs .

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The approach in solving reputational crisis will be very important so they have
the least serious consequences. Instead of having a reactive approach, a
proactive one is needed. A company that has "done its homework" and has
followed the recommendations above will use a proactive approach based on the
anticipation of risks, analyzing the probability of success, managing the
expectations of stakeholders, designing a crisis manual, and monitoring and
evaluating the situation, and managing the subsequent the reputational damage
caused. As advantages, this approach allows, among other things, managing "in
positive", clearly identifying the stakeholders involved and the degree of
involvement, providing information faster and with greater clarity, and reducing
and repairing damage from confidence.
From the perspective of this proactive approach, the proper crisis management
will have 4 main keys to its success:
- The company must have activated the incident command, monitoring and early
warning systems.
- The organization must understand the environment and keep abreast of
the risks and possible solutions.
- The corporate culture of the company has to adjust to the demands of crisis
management.
- Managers and executives must be trained and know the procedures and their
proper application.
By contrast, using a reactive approach, the organization can not anticipate the
crisis, will lose the initiative and go "in tow" of events, it will not provide the
correct and quantitative information that stakeholders require, the
communication will be delayed and therefore will be less credible, and this will
lead to a much slower solution of the repetitional damage.
Last but not least, we must not fail to remember that a company that has a solid
reputation achieved with the passage of time will be more resistant to damage
and reputational crisis than one that does has not.
After everything said, it is clear the transcendence of the proper management
of reputational risks in the operation of organizations today, a significance that

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Albert Vilariño Alonso
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will certainly be bigger in the near future.
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Dec 27, 2015 115,363 views 1,894 Likes 192 Comments
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So what exactly is mindfulness?
Mindfulness is a simple yet effective form of meditation that enables you to gain
Reputational Risk, Reputation, Reputation Management
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