Reputational risk: A risk management framework

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1 Reputational risk: A risk management framework Kasper Nielsen Executive Partner, Reputation Institute John Ludlow Deputy Chair, Airmic Tom Hoad Enterprise Risk Underwriter, Tokio Marine Kiln Wednesday 17 June 2015

2 REPUTATION MANAGEMENT REPUTATION RISK MANAGEMENT A Reputation Risk Management Framework Airmic Conference 17 June 2015

3 REPUTATION RISK CHALLENGE Reputation Risk is a top concern No clear method for measuring reputation risk But only 1/3 of Airmic members are actively managing it Lack of knowledge about the impact or reputation risks WHY? No clear framework to develop reputation risk management process 3

4 Agenda 1. The Challenge with Reputation Risk 2. The Reputation Risk Framework 3. How to measure Reputation Risk 4. How to manage Reputation Risk 5. How to Insure against Reputation Risk 6. Taking the next step in your Reputation Risk Management 2

5 Reputation Risk Management 3 key variables for Reputation Risk Management 1. Impact 2. Readiness 3. Monitoring The factor that describes how severe the event will impact the reputation. The factor that defines how ready the company is to identify and manage a negative event The process that tracks progress towards managing and mitigating reputation risk over time

6 Your success as a company relies on people supporting you Buying your products License to operate For them to support you they need to trust you. Trust you as a company that will deliver on its promises. A company who has a good reputation Investing in you Reporting on your point of view Delivering on our strategy 6

7 For your stakeholder to trust you, you need to deliver on their expectations They expect you to deliver on 7 dimensions: 1. Products / Services 2. Innovation 3. Workplace 4. Governance 5. Citizenship 6. Leadership 7. Financial Performance If you deliver on these 7 dimensions you will be in a situation where each stakeholder will be willing to support you. If you Do Not deliver you will lose support 7

8 Defining Reputation Risk A reputation risk is a negative event that will impact stakeholders perception of the organisation 8

9 Drivers of Reputation What matters most to each stakeholder? Customers Financial Community Regulators Employees Pick the 3 Dimensions that matter most to each stakeholder 9

10 Drivers of Reputation What matters most to each stakeholder? Customers Financial Community Regulators Employees Different Dimensions matter to different stakeholder 10

11 What is the Reputation Risk of these issues? Company has Child Labor in Supply Chain 11

Determining the Reputation Risk of an Issue Company caught in Accounting Malpractice Assess the Reputation Risk of these 3 issues Company Recall Products due to malfunction Company has Child Labor in

12 Determining the Reputation Risk of an Issue Company caught in Accounting Malpractice Assess the Reputation Risk of these 3 issues Company Recall Products due to malfunction Company has Child Labor in Supply Chain To what extent will this event REDUCE people s belief that your organisation 1. offers high quality products and services? 2. is an innovative company? 3. treats its employees well? 4. behaves ethically and is open & transparent in its business dealings? 5. it supports good causes & protects the environment? 6. is a company with strong leadership and a clear vision? 7. delivers good financial results? 12 13

13 Determining the Reputation Risk of an Issue How much will this issue reduce people s belief that we deliver on each of the 7 dimensions? Use a 1-7 point scale 1 not at all 4 somewhat 7 very much 13 11

14 Determining the Reputation Risk of an Issue How much will this issue reduce people s belief that we deliver on each of the 7 dimensions? Use a 1-7 point scale 1 not at all 4 somewhat 7 very much 14 15

15 Determining the Reputation Risk of an Issue How much will this issue reduce people s belief that we deliver on each of the 7 dimensions? Use a 1-7 point scale 1 not at all 4 somewhat 7 very much Company has Child Labor in Supply Chain 15 16

16 Reputation Risk Assessment Company caught in Accounting Malpractice Company Recall Products due to malfunction Company has Child Labor in Supply Chain 17

17 Reputation Risk Assessment Company caught in Accounting Malpractice Company Recall Products due to malfunction Company has Child Labor in Supply Chain 17

18 Reputation Risk Management Now you have an assessment to manage from You have made the Intangible Tangible 18

19 Reputation Risk Management 3 key variables for Reputation Risk Management 1. Impact 2. Readiness 3. Monitoring The factor that describes how severe the event will impact the reputation. The factor that defines how ready the company is to identify and manage a negative event The process that tracks progress towards managing and mitigating reputation risk over time

20 Reputation Risk Readiness John Ludlow

21 Resilience = Risk and Crisis Management 22

22 But where do I start..? At the top! Your Board is worried about reputation To achieve reputation resilience build capability Reputation Risk Management Reputation Crisis Management Build a coalition of change Risk Management Enterprise Risk Management Crisis Management Insurance Strategy Corporate Brand Corporate Communications Key stakeholder relationship owners Government Relations, CR, HR, Marketing, Procurement, Operations 25

23 Develop a vision of integrated capability Align internal (economic) stakeholder measurement programmes Employees (HR) Customers (Marketing) Suppliers/Partners (Procurement) Align with media monitoring (Corporate Communication) Emerging Issues Trends Effectiveness of Corporate Communication Align with Enterprise Risk Management cycle Major Risk Review and Senior Leaderships Risk Registers Align with Strategic Planning cycle Integrate actions and projects into Capital and Revenue budgets Prepare crisis management plans and scenario test them with leadership Foreseeable risks especially cross functional issues 26

24 IHG Example Reputation Risk Measurement Tool Reputation Risk Measurement Mitigate Risks Identify Opportunities Engage Leadership Build Competencies 27

25 Reputation Insurance Prevent risk from arising with risk engineering Funding of response costs associated with crisis management Review existing liability policies for coverage Consider policies to cover additional costs of crisis such as crisis communication and other specialist consultants Funding of recovery works associated with strategic impacts such as loss of revenue, market share or reputation ratings 28

26 Reputation Insurance How can this help your business? Thomas Hoad Enterprise Risk Underwriter

27 Building the Roadmap Reputation Institute approach Start small and look for easy wins Engage key internal stakeholders in the process from the start Make sure tangible results are exploited from the outset Share results internally among key leaders, look for points of views, to build positive momentum and buy-in 27

28 The Process is Ready Reputation Risk Framework

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