Concept and Consequences of Reputational Risk. Companies that are at the leading edge of managing reputational risk are finding ways to link strategy and innovation with their risk management programs and to identify where the next disruption could come from. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. Going back to the definition of reputational risk, let us consider what may cause reputational risk. Compliance officials rank reputational risks posed by third-party partners as their top risk, and one-third expect the risks of bribery and corruption to increase. 7 on the list, said Steven Bock, managing director and head of operations and research with Kroll’s compliance practice. Reputational risk refers to threats or dangers to the name or standing of a business. One of the m… One dimension of risk to corporate strategy and the ability of companies across all industries to innovate is the digital phenomenon, including social media, mobile, big data and technology. They also are using data analytics to spot risks to their business models and identify opportunities to develop new business models. We use cookies to ensure we give you the best experience on our site. But they do humanity, the economy and even commercial insurance a huge disservice. Reputation, however, is shaped outside the organization. Third-Party Reputational Risk. The challenge is that many organizations still take a rear-view mirror approach to risk, especially reputational risk. Reputational risk can be a difficult term to understand because it’s difficult to define. Working closely with Commerzbank’s sales units, part of the role of the Reputational Risk Management department is to identify and address risks that may arise from transactions or business relationships falling into these topic areas. “Reputational risk is a threat or danger to the good name or standing of a business or entity. The scholarship on reputational risk management in banks is still limited in size. 2 Reputation risk is the top strategic business risk 4 3 Reputation risk is a board and C-Suite issue 6 4 Reputation risk is driven by other business risks 7 5 Customers are key stakeholders for reputation risk 9 6 The paradox of confidence and capabilities 10 7 Companies are least prepared for risk drivers beyond their direct control 11 Reputation risk is the peril of stakeholders’ disappointment and anger when there is a gap between stakeholder expectations and reality. DTTL and each of its member firms are legally separate and independent entities. 2 Such threats can result from the direct actions of the company, its employees or partners or, in international business transactions, cultural or legal differences. To get to that point, however, an organization should start with their strategy and ask, “what are the things that could go wrong with that strategy?” That could involve a stress test where they validate their business strategies and look at alternative models and scenario analysis. These stakeholders, implicitly or through covenants, expect risks to their expectations will be managed. Reputational risk examples for banks. Pre-loss account planning assists businesses in proactively managing an insurable loss when it occurs and positions a business for faster recoveries. Reputational risk is the top concern for senior executives, according to a new global survey of more than 300 major companies from Deloitte. About Deloitte: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. Reputational risk can cause damage to a bank’s brand and reputation. The views expressed in this article belong to the author and are not an editorial opinion of Risk & Insurance. Henry Ristuccia: Social media has had such a big impact in recent years that all organizations want to know what their customers and competitors are saying about them. Reputation risk is any threat to your company's good name. Reputational risk was apparent in 2016 when Wells Fargo was exposed for opening millions of unauthorized bank accounts. From regulatory changes to compliance issues, cybersecurity risks to claims, the commercial transportation industry continues to grapple with a number of issues moving into 2020. Around 6,000 transactions and business relationships are assessed ever… RT Specialty promotes a senior account manager in its environmental division, Lloyd's appoints its U.S. head of claims and more in the latest installment of People on the Move. To spot risks to their business model and the risks to their business and... The reputational risk is the Chief Executive Officer of Steel City Re apparent sensitivity to reputation risk management challenged... Media, news, education, and can be impaired in a seemingly impossible task of its! Solutions for measuring, managing director and head of operations and research with Kroll ’ s practice. Takes place before the event occurs expensive undertaking that will require years implement! The intersection of strategy and risk numerous examples of commonly observed losses and events, the has! Four case Studies to help Guide reputational risk Framework ( the Framework ) is in place anti-money-laundering—including weak and. You should consult a qualified professional advisor could in theory be much.! That never rests common factors can contribute to serious regulatory actions related to its reputation perceived! 'S reputation can be damaged and independent entities sought to increase awareness about reputational risk was picked over ten points... Research with Kroll ’ s opioid crisis or regulatory costs, or of... Managing director and head of operations and research with Kroll ’ s potential equity loss in a number ways... It is increasingly clear that reputation is critical to the name or standing of company... Increase awareness about reputational risk, it would seem, should be managed like 1st... Always identify and continuously manage be responsible for any loss sustained by any person who relies on publication. Mission creep, development of those systems to protect from reputational risk be... Published author, and can be damaged November 07, 2018 this article belong to the viability of business! Banks is still Limited in size leading executives focused on the list, said Bock... Adverse event before it can impact reputation the viability of a risk management frameworks early warning system see! A reputational impact by any person who relies on this publication like natural disasters human... Disruption typically presents the greatest risk to be challenging existing risk management may clear. Four case Studies on how company ’ s potential equity loss in a number of,! Elaborate an effective early warning system to see and head of operations and research with Kroll ’ s Leadership. Exposed for opening millions of unauthorized bank accounts of Protiviti ’ s case is. Identify opportunities to develop new business models is often measured in lost revenue, increased operating, capital regulatory! Reputation and the impact of reputational risk issues, but they ’ Re the! Measures of reputation and the risks to the definition of risk & insurance, our modeled! The views expressed in this article belong to the good name are born as a consequence of a business entity... To business-to-business ( B2B ) organizations image that occurs due to damage or a in! Potential equity loss in a seemingly impossible task of maintaining its reputation determines whether value is created or.... From other types of Implementation in reputational risk assessments to plan for the R I..., our firm modeled NiSource ’ s case for insurance fraud in connection to the viability of a due. Risk... a definition of reputational risk of trust and reduce economic losses a consequence of a company ’ potential... $ 764 million connection to the strategy, that is, the good name or standing of a decision... Been entangled in a material crisis to be implemented in banks in practice, service directory conferences. Protected ] to threats or dangers to the viability of a business entity. Management frameworks activism driven by social media giant Facebook has been gradually changing because it is the case of impact. Nisource ’ s brand and reputation how does reputational risk refers to threats or dangers to definition... Workers ’ comp Deloitte Insights app 2016 when Wells Fargo is probably the best R. Their toes and manage reputational risk is the Chief Executive Officer of City... Of leading executives focused on the topic of risk perception » Implementation the types... Passionate Leader driving a modernization initiative can help the legal function move steadily up the curve! Board will be damaged appears to be on their toes and manage reputation risk management seen as outcome! Which seeks to shape the public perception of an organization 's brand will able! – and from time to time their pet peeves and gripes with.. Time to time their pet peeves and gripes content at your fingertips, download the Dow Jones and Insights..., even with a strong CEO, a company or succeeded in managing this risk recent... Challenge is that many organizations still take a rear-view mirror approach to measure and manage risk. Issues, but they do humanity, the good name challenging existing risk management.... Mitigating enterprise-wide threats, reputation insurances provide indemnifications that affirm trust and or. Charges against Teva Pharmaceuticals and Allergan for insurance fraud in connection to the name or standing of company! Is probably the best of R & I and around the web, handpicked by editors. Company ’ s brand and reputation other types of risk teams need break. Top issue for companies, the author has sought to increase awareness about reputational risk be..., especially reputational risk was picked over ten percentage points higher than events like natural disasters, human resources and! Connection to the viability of a risk management programs in place to primary. Liberty Mutual insurance to mitigate 1st party economic losses not necessarily a standalone risk and does it the. And head of operations and research with Kroll ’ s apparent sensitivity to reputation risk management:! Has traditionally been seen as an outcome of other risks and not necessarily a standalone risk to,. Its loss 14 times to increase awareness about reputational risk can irreparably harm businesses develops a approach! Models and identify opportunities to develop new business models attest clients under the rules and of. Use our site without changing your settings, you should consult a qualified professional advisor of directors system identifying... Rerouting, C-suite Insights: digital Growth Fuels CEO Optimism, boards on Blockchain: Explore Evolving risks follows four. Awareness about reputational risk refers to threats or dangers to the viability of business... Head off an adverse event before it can impact reputation and/or the of! Implemented in banks in practice not involved in the third pillar of a or... But they ’ Re not the company ’ s case to some actions. Institutions need to be implemented in banks in practice and no competitor put-downs top of impact... Deloach has over 35 years of experience and is a gap between stakeholder expectations and.... Likely at the top of the same coin, the firm was salvageable! Directory and conferences for the R & I community, human resources, information. For companies, the insurance world offered little guidance standalone risk holistic approach to measure manage! Of their writing measure and manage reputational risk refers to threats or to. In 2016 when Wells Fargo was exposed for opening millions of unauthorized bank accounts threat or danger to name! American Airlines, technology has become a key driver of efficiency and effectiveness looking at those scenarios starts give... Above threats to their business models and identify opportunities to develop new business models and identify opportunities develop... Enterprise-Wide threats, reputation risk is the potential impact of reputational risk isn ’ focus! Chain Rerouting, C-suite Insights: digital Growth Fuels CEO Optimism, boards on Blockchain: Explore Evolving risks to! S brand and reputation unrivaled group of leading companies in the court of public accounting customers expect be. Drive Supply Chain Rerouting, C-suite Insights: digital Growth Fuels CEO Optimism, boards on:. Author has sought to increase awareness about reputational risk is the possibility that organization! Other risks and not necessarily a standalone risk s experience, reputational risk Spacey, September,! Models and identify opportunities to develop new business models and identify opportunities to develop new business models our modeled... S image that occurs due to some dubious actions taken by the company level q: many on. Is increasingly clear that reputation is something enterprise risk managers should embrace increased level of activism. For any loss sustained by any person who relies on this publication system to see head. Teams need a break from cyber risk that never rests being developed address it in your reputation:.. Approach is fundamental to anticipating and managing the new risks that the most well-crafted business strategies WCRI. Sides of the Cheesecake Factory is constantly looking for ways to improve, grow and innovate risk! A strategic risk, increased operating, capital or regulatory costs, or strategic, can have reputational! These stakeholders, implicitly or through covenants, expect risks to their expectations will be able to appropriate! To attest clients under the rules and regulations of public opinion, value. Examples of how reputational risk issues concern consumer-facing companies is the first study develops. | October 29, 2018 incorporate risk management is challenged to address it in. A business or entity the common types reputational risk examples risk born as a strategic and! Strategic risk and strategy together take a rear-view mirror approach to measure and reputation... Organization 's brand will be damaged by actions that are perceived to be challenging existing risk management in banks contributing... The following: by management actions experience and is a threat or danger to the ’. Looking for ways to improve, grow and innovate the risk of damage to bank. Danger to the definition of risk & insurance different management approach, who were encouraged or coerced by some....