The case for corporate reputational risk management

Reputational risk need to be managed systematically with as much rigour as financial, governance, operational or other risk. Over the past decades organisations have recognised both the need for and the benefit of sophisticated risk management systems. They have seen that professional risk management not only protects the business but helps support strategic decision making. One risk that has been ignored in corporate governance is reputational risk - a portion of the risk spectrum unfamiliar to most boards and managers. Reputational risk shares few characteristics with traditional risk. This makes reputational risk difficult to identify and mitigate using traditional methods. While reputational risk may seem unmanageably subjective, soft or complex there is no excuse not to manage it. On the contrary, when a risk is less familiar there is a need for greater governance, not less. Reputational risk arises both externally and internally. It is often intangible. Its assessment cannot always be based on known data and its existence may need to be inferred. Damage to corporate reputation however, is only too tangible. Better to infer and mitigate rather than ignore and miss reputational risks. Reputational risk exits as a risk in and of itself, and/or as a consequence of other risks. Either way, its a risk to be identified and managed. The lack of systematic reputational risk management in most organisations is itself a significant risk. In our experience only 10-20% of reputational risk is identified. Traditional risk auditors are not trained to identify reputational risk. External audit or review is vital as internal teams cant be as objective and may overlook risks as they are familiar and therefore dont raise warning signals. This uncertainty leaves organisations vulnerable. Known risks can be managed within an existing framework, whereas, unknown risks lead to poor strategic decision making. Crisis management alone is not sufficient reputation protection as approximately 70% of crises are preventable using a professional reputational risk management system. Further, crisis management plans do not constitute reputational risk management as once a crisis is occurring reputational damage is already occurring. Reputation risk management is therefore essential for both reputation management, good strategic decision making and the value of the company. www.dewintern.com