Building trust means managing both the conditions and consequences of reputation risk. This presentation looks at how to integrate reputation management and reputation risk into the enterprise, across functions.

1. The Risk of Risks: Reputation Risk and Resiliency
Linda Locke
Senior Vice President
September 2014
Twitter: Reputationista

2. 1
Whom do you love?

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
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The Risk of Risks

4. •Corporate inversion: Walgreens plans move to Switzerland to escape U.S. taxes
•Two Stocks to Profit as Corporate America Rushes Abroad
•Bangladesh Factory Collapse: Death Toll Climbs Past 1,000
•Cruise Line’s Woes Are Far From Over as Ship Makes Port
•For Homophobia-Free Pasta, Buy American
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You know it when you see it, but do you know how to measure/manage it?

5. 4
Reputation = judgments and perceptions of others
Customers
Suppliers
Investors
Advocacy groups
Regulators
Policymakers
General public

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The question is whether clients deliver on the expectations of their stakeholders
Risk is predictable, if….
•You know your stakeholders
•You understand what drives their perceptions
•You are aware of their values
•You listen to them

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Reputation risk is present when we do not deliver on stakeholder perceptions

8. •Reputational risk a top concern for boards
‒75% 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
Annual Board of Directors Survey 2014 -Concerns About Risks Confronting Boards –EisnerAmp
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What keeps boards up at night?

9. Situation
The French bank had ~ $30B in trades between 2002 -2009 with Sudan, Iran, and Cuba, prohibited by US banking regulations.
Costs: Fines of ~ $9B; guilty pleas, suspension of ability to clear dollars, criminal conviction.
Impact: Analysis by Consensiv.com:
•Rock bottom reputation premium
•Peak reputation value risk
•Net reputational health of only 10% of the company's potential.
•Equity down about 9% ($7.5B) since the beginning of the year with loss attributable to reputation around $5B.
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FINANCIAL TIMES: Biggest threat to BNP Paribas could be to its reputation 6/30/2014

10. •FT: The bank’s oil financing deals may be seen as propping up the government of Sudanese President Omar al-Bashir, who has been indicted by the International Criminal Court for alleged war crimes.
Branding
•BNP PARIBAS: The bank for a changing world
•Committed to being a responsible bank
•Being prepared to take risks, while ensuring close risk control
•Following a strict ethical code
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Why is this a reputation risk?

11. •Strategic risks: Which risk areas had/have/will have the most impact on your business strategy?
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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

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A strong reputation can bring long-term
sustainability
Source: Trust Across America
Based on:
Financial stability
Accounting
conservatism
Corporate integrity
Transparency
Sustainability

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Reputation advantage

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Reputation penalty

15. •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
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Why reputation matters

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Reputation is the connective tissue between business strategy and governance
Financial
stability
Positive
societal
impact
Responsible
business
operations

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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

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Clients are often not well-equipped to manage reputation risk
Reputationliteracy not on the risk agenda
Riskliteracy not on the reputation agenda

19. •Reputation = judgments and perceptions of others
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Reputation is owned by stakeholders
‒Customers
‒Suppliers
‒Investors
‒Advocacy groups
‒Regulators
‒Policymakers
‒General public

20. •Risk is predictable, if….
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The question is whether clients 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

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Stakeholders expect resiliency

22. •Two sides of resiliency:
‒Prevent conditions of risk
‒Manage consequences of events
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Resiliency: Ability to adapt to a continuously changing environment
Source –Carnegie Mellon Software Engineering Institute

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Risk = Hazard + Outrage
Source: evolve24

24. •Get input from reputation and crisis managers on sources
•Bridge the gap between reputation and risk literacy
•Help clients manage traditional risks better to reduce the likelihood of a reputation risk event
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What should insurers do?

25. •Reputation measurement
‒Use custom or third party survey of key stakeholders that cover major dimensions of reputation, as well as key attributes
‒Identify what drives reputation for each stakeholder group
‒Compare results by stakeholders
‒Compare results to competitors
‒Share results from board level down, throughout organization
‒Build messaging plan that incorporates the drivers of reputation
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Measuring reputation

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Identify the dimensions of reputation
How do you make me feel?
Source: Reputation Institute

27. •Reputation risk assessments
‒Facilitate a dialogue with senior leadership to identify issues that cause risk to reputation
‒Map out likelihood vs. expected impact of each issue
‒Build proactive plans to address high impact/high probability issues
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Conduct risk assessments
Probability
Low High
Impact
Low High

28. •Reputation monitoring
‒Budget for a platform that can track the public dialogue about the company and its competitors
‒Find a program that identifies drivers of negative emotion, including outrage, so you can set priorities, identify trajectory of risk
‒Build a regular reporting program to track how perceptions have changed and identify when to signal to the c-suite that risk is serious
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Monitor stakeholder perceptions
Source: evolve24

29. •Diagnostic gap analysis: Compare perceptions of internal and external audiences
‒If internal audience thinks the company meets/exceeds expectations, while external stakeholders think it performs weakly, it may be an opportunity for expanded communications
‒If external audiences think the company performs well but internal audiences think it doesn’t, it is likely a risk waiting to blow up
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Conduct a gap analysis

30. •Forcefieldanalysis
‒Identify the forces that oppose/help the company achieve its reputation goals
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Help the company understand the externalities or forces that impact its aspirations
Reputational Goal: How you want your stakeholders to perceive you
Driving ForceFOR Reputation
Goal
Score
1-5
Driving ForceAGAINST Reputational Goal
Score
1-5

31. •Scenario planning
‒Identify scenarios that have or are likely to cause risk
‒Consider how the organization appears from the outside in
‒Create plans that reflect the POV of key stakeholders
‒Lead tabletop exercises to test plan; identify weaknesses
‒Develop messaging platform that shifts with likely follow-on events
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Identify the scenarios likely to impact stakeholder perceptions

32. •Internal alignment: Build enterprise-wide reputation competence
‒Turn employees into advocates. Help them answer the question of what positive impact the company has on society.
‒Create reputation champions through all the business units. Help them integrate reputation risk planning and mitigation into their work.
‒Share data. Offer analysis of new products, major changes in customer service, M&A, expansion.
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Create enterprise-wide alignment

33. •Finding internal allies: ERM + BC/DR
‒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 are guessing at the likely impact of risk issues on reputation.
‒Make them your allies. Offer to participate in their planning sessions. Help flesh out their reporting upward to include reputational risk data.
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Build bridges

34. A resilient organization manages all types of risk
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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

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Opportunity to bring reputation into risk management processes
Reputation resiliency
platform
Develop mitigationstrategies
Set the agenda:
Identify key risks
Monitor;
report to
c-suite/board
Build risk competency
at strategic level: Internal alignment

36. •Examine SEC filings for references to reputation risk to determine what worries your leadership. Also, examine competitors’ filings.
•Examine all the negative sentiment expressed publicly in the past 12 months. Rank by degree of negativity, credibility of source, likely impact.
•Engage the Enterprise Risk Management and Business Continuity teams to see what they have included in their plans for reputation risk. Make them your allies. Offer reputation risk impact analysis.
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Where do I start?

37. •SEC mandated in 2005 that firms include risk factors in Form 10-K to present “the most significant factors that make the company speculative or risky.”
•Business literature suggest directors/executives consider reputation a primary source of market valuations.
•One analysis of Reputation Risk Materiality* showed:
•Energy: Disclosers outperformed non-disclosers
•IT: Non-disclosers had a 60% lower ROE
•Consumer: Disclosers underperformed, with 33% lower ROE
*http://consensiv.com/wp-content/uploads/2013/09/Significance-of-Reputation-Risk-Materiality-Disclosure-for-Public-Companies1.pdf
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SEC reporting on reputation risk not yet rigorous or consistent

38. •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
•Engaging c-suite and boards can result in focused investment for managing, avoiding and mitigating risk
•Expands the number and influence of reputation champions in the enterprise
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Reputation risk planning drives organizational resilience

39. The causes of outrage
“Do I put up
with this?”

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Stakeholders expect companies to share their values

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Stakeholders expect companies to share their values
Gluttony
Sloth
Lust
Wrath
Hubris
Envy
Greed

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Values, vulnerabilities and outrage
Hubris
Greed
Gluttony
Wrath
Envy
Sloth
Lust
Young
Elderly
Human Error
Media-Attractive
Abuse of Power
Lack of Responsiveness
Impoverished

43. “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: RegesterLarkin

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Our ultimate goal is trust
Be trusted
by the stakeholders
who matter

45. Building, protecting and restoring reputations