Roundtable  Event:  “How  to  Manage  Business  risk  through  Reputation”    

An  off-­‐the-­‐record  executive  discussion,  which  took  place  in  central  London  on  February  26  2014  

 Meeting  notes  and  concluding  bullets  

 Below  is  a  summary  of  the  views  of  17  executives  from  the  retail,  banking,  oil  &  gas,  consulting,  hospitality,  and  legal  sectors    

• Sharing  the  ‘outside  in’  perspective  of  stakeholders  is  key,  particularly  at  board  level,  to  provide  a  counter-­‐balance  to  the  corporate  received  wisdom  

• Leadership  is  about  what  you  do  when  there  is  a  decision  to  make  beyond  the  book  of  rules  

• In  the  hotel  sector,  intangible  asset  value  is  huge,  given  the  wide  degree  of  franchising    

• Some  view  reputation  is  a  ‘second  order’  risk,  as  it  is  often  the  result  of  the  manifestation  of  another  risk  

• However,  there  are  other  clear  examples  (McDonald’s  crisis  over  child  marketing)  which  were  clearly  driven  by  reputation  only  

• Protecting  reputation  is  about  identifying  challenges  before  they  become  a  catastrophes  and  relying  on  your  business  values  to  guide  you  through  the  crisis  

• Much  of  the  fluctuation  of  risk  in  business  can  be  managed  if  executives  have  financial  and  stakeholder  sentiment  data  in  advance  

• Individual  stakeholder  sentiment  is  very  different  from  overall  reputation,  which  is  the  aggregate  of  all  relevant  parties’  opinions  of  an  organisation.  Likewise  resilience  is  not  the  same  as  reputation  and  can  only  be  built  on  sustained,  high  regard  

• Senior  managers  in  many  businesses  are  delusional  about  how  they  view  reputational  risk.  Many  believe  it  still  to  be  a  PR  issue  not  an  operational  issue  

• Managing  culture  change  to  put  financial  metrics/numbers  on  risks  to  reputation  is  vital  to  solving  that  problem  of  delusion.    

• Companies  who  try  too  hard  to  be  loved  have  further  to  fall,  particularly  if  they  believe  their  own  hype  but  fail  to  deliver  

• Investors  in  large  oil  and  gas  companies  ARE  now  listening  to  external  stakeholders,  such  as  NGOs,  as  much  as  other  sources  when  it  comes  to  asking  questions  about  risk  management  in  IR  meetings.  

• With  regard  to  the  integration  of  reputational  risk  two  way  communications  is  vital  to  moving  from  reactive  to  proactive  risk  management.  Risk  

management  must  be  positioned  as  an  ‘enabler’  rather  than  a  ‘blocker’  in  decision  making  

• Business  units  must  own  risk  and  consult  with  communications/reputation  risk  experts  at  an  early  stage  in  the  commercial  planning  cycle    

• Cross  discipline  collaboration  on  taking  stakeholder  perspectives  into  account  (risk  management,  reputation,  R&D,  design)  is  a  major  factor  in  protecting  value  and  improve  risk  management  

• One  excellent  example  of  awareness  of  risk  is  that  a  firm  X  (a  major  gas  company)  had  sold  its  logistics  network  but  maintained  branding  on  the  lorries.  Risk  management  did  not  see  this  as  a  risk.  Stakeholders  did  -­‐  as  liquid  natural  gas  tankers  can  explode  in  a  community.  If  the  gas  firm’s  logo  is  on  that  vehicle,  it  represents  clearly  both  a  public  relations  and  a  management  issue  for  the  company  concerned  

• The  Bank  Account  of  Goodwill  analogy  used  in  CSR  works  well  in  reputational  risk.  Sometimes  to  advance  strategy,  you  will  need  to  make  withdrawals  and  lower  reputational  resilience;  other  times  you  will  need  to  invest.  The  key  is  understanding  the  firm’s  overall  reputational  resilience.    

• The  Rana  Plaza  disaster  demonstrated  that  companies  which  were  engaged  in  actively  managing  risk  were  able  to  respond  better  to  the  disaster  and  have  been  clearly  regarded  more  favourably  since  the  incident  

• Reputational  risk  can  be  managed  more  effectively  when  clearly  linked  by  management  to  business  continuity,  with  costs  associated  with  reputational  loss  and  gain  

• Balance  is  key  in  managing  risk:  When  you  make  risk  management  everyone’s  job  you  can  easily  blur  the  lines  between  good  decision  making  and  efficient  business  practices.  i.e.  if  everyone  queries  all  decisions  for  risk  reasons  you  may  have  much  slower  decision  making  

• Managing  reputational  risk  is  both  an  art  and  a  science:  Whilst  storytelling  is  key  to  making  lessons  stick,  KPI’s  showing  the  disciplinary  risks  to  individuals  are  also  key  

• A  risk-­‐attuned,  aware  and  outside  engaged  corporate  culture  is  vital  to  help  spot  “Black  Swan”  events  and  warn  of  important  reputational  risks    

• The  best  “meta  risk”  indicators  that  a  firm  holds  is  its  level  of  reputational  resilience.  When  starting  out,  a  series  of  small  steps  to  build  the  business  case  for  better  collaboration  between  risk  and  reputation  management  is  optimal,  followed  by  internal  communication  of  the  results  

• There’s  a  clear  separation  problem  in  many  companies  between  data  collection,  where  it  exists,  people  working  on  the  ground  and  the  orders  that  come  from  on  high  

• Explaining  how  people  fit  into  the  bigger  risk  and  reputation  picture  is  a  major  challenge,  but  it  must  be  a  picture  they  can  recognise  on  a  day  to  day  basis.  Reputational  risk  awareness  must  somehow  be  concrete  for  them  

• If  management  can  align  reputational  P&L  with  management  KPIs,  and  base  those  KPIs  on  a  reputational  resilience  index  that  is  one  potential,  proven  solution  

• 80%  of  the  challenge  is  internal  education,  alongside  company  behaviour,  and  working  out  how  to  make  reputational  risk  count  for  individual  employees,  day  to  day  

• One  technique  used  successfully  is  a  simple  three  bullet  point  summary  message  to  all  employees  after  an  incident,  so  they  can  remember  the  company  line  and  response  easily    

• But  the  best  solution  is  to  be  able  to  demonstrate  to  internal  audiences,  especially  top  management,  the  financial  impact  of  reputational  on  value.  Maintaining  a  good  reputation  will  then  become  part  of  decision  making  

 The  event  was  organised  and  moderated  by  Tobias  Webb  of  Stakeholder  Intelligence  and  Ethical  Corporation.  For  more  information  or  to  inquire  about  further  events  see  tobiaswebb.blogspot.co.uk  or  email/call  tobias.webb@stakeholderintel.com  +44  (0)  7867416646    RiiЯ  (Risk2Reputation)  sponsored  the  event.  RiiЯ  is  a  leading,  research  consultancy,  which  helps  change  excellent  firms  into  resilient  firms,  thereby  protecting  and  enhancing  corporate  value.  RiiЯ  do  this  by  analysing  the  financial  impact  of  reputational  fluctuation  on  value,  thereby  improving  management  decision-­‐making.  RiiЯ  also  help  optimise  resources  within  the  firm  -­‐  from  communications,  risk  management  and  sustainability  executives  -­‐  so  reputation  is  managed  proactively  within  the  ecosystem  of  stakeholders.  For  further  information,  please  contact  Tom  Vesey  at  tom.vesey@risk2reputation.com  ,  or  on  +33  6  28  91  00  99.