What Grade Would You Give Your Reputational Risk?
If you were to create a report card for your organizational risk, where would you fall?
Reputation risk is a topic that has gained significant momentum across risk management professionals. Many high-profile studies highlight the importance of closely monitoring factors that could impact reputation.
According to a recent Deloitte survey, 87 percent of of respondents rated reputation risk as the most important strategic risk for their companies, but an underwhelming 19 percent gave themselves an "A" on their ability to manage that risk.
So, why the disconnect? The answer could be as simple as re-evaluating the contents of your risk appetite statement.
If risk appetite statements are an opportunity to define organizational objectives, then the inclusion of reputation risks in a risk appetite statement is necessary. Think of it as preparing for an exam with no study guide. You could guess at what will be on the test, but isn't it better to review everything and be prepared no matter what questions are asked?
As a key risk indicator in the risk appetite statement, an organization should systematically monitor any opportunities for risk exposure that could damage its reputation—instead just monitoring a few risk factors and hoping no surprises arise.
What would those potential exposures include? Social media is what you may think of first, but a company's reputation is also largely impacted by performance and business decisions. The survey suggests including the following factors on your report card when monitoring reputation risk:
- Financial performance
- Quality standards
- Ethics and integrity
- Crisis response
- Corporate social responsibility
Thinking through those, does that change your overall score? Have you dropped at all?
Involving senior management in the process of integrating reputation risk into the organizational culture is critical. Senior management can help to open the lines of communication about factors contributing to reputation risks and implement potential action plans to mitigate those exposures.
When it comes to reputation management, being proactive and prepared is always the best strategy. No company can afford to wait for things to go wrong to measure its reputation. With continuous monitoring, communication, and training, you should have a much easier time keeping up your organization's risk GPA.