Managing Reputational Risk
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Reputational risk management involves identifying and mitigating risks that could damage an organization's reputation. It is important because reputation is an intangible asset that can impact value growth, market opportunities, and competitive advantage. Reputational risks stem from actions that reduce stakeholder trust and can include regulatory issues, fraud, management changes, or negative publicity. Effective reputational risk management identifies key risks, assesses their potential impact, and ensures timely responses to issues in order to promote trust between an organization and its stakeholders.
Managing Reputational Risk
- 1. Managing reputational risk Eneni Oduwole Jan. 2009
- 2. Contents What is reputation? Attributes of reputation How can reputation be damaged? What is reputational risk management? Attributes of reputational risk management Benefits of reputational risk management Managing reputational risk Rating reputational risk Indicators of levels of reputational risk
- 3. What is reputation? It is : an intangible asset not a brand the sum total of all stakeholders’ experience public information regarding an organization’s trustworthiness It also assures: premium value growth opportunities to shareholders (value growth resulting from managerial experience, innovation, intellectual property) continued comparative advantage
- 4. Attributes of Reputation
- 5. How can reputation be damaged? Actions that result in stakeholders lose of trust and confidence Public perception of organization’s standards drop Sudden change of management; no succession planning Adverse regulatory reports and sanctions Increased incidences of fraud Consistent unfavourable ratings Continued decline in share price
- 6. What is Reputational Risk Management? It is the current and prospective impact on earnings and capital arising from negative public opinion It measures the change in perception of a company It is linked with customer expectations regarding an organization’s ability to conduct business securely and responsibly
- 7. Attributes of Reputational Risk
- 8. Benefits of Reputational Risk Management Identifies key risks that can affect an organization's reputation adversely Assesses potential impact Ensures timely and appropriate response to adverse public criticisms Enables a good work culture is promoted by Management Ensures effective communication and disclosure to all stakeholders Promotes commitment and trust between all stakeholders
- 9. Managing Reputational Risk Understand the value of the organization's reputation Treat reputational risk management holistically; understand inter-relationships within the business Have effective internal control & enterprise risk management frameworks Identify and prioritize relevant risk factors; communicate key risk areas to Management Ensure that an effective business continuity management plan is in place Build a culture of recruiting excellent people and effective people management practices Value your Customers
- 10. Rating Reputational Risk Reputational Risk can be rated as:
- 11. Indicators of levels of Reputational risk Indicators of Low risks include: Management fosters a well supported sound culture across the organization Management fosters a well supported sound culture across the organization
- 12. Indicators of levels of Reputational risk (co’td) Indicators of Moderate / Medium risks include: Management fosters a well supported sound culture across the organization The firm adequately self-regulates its risks Losses from fiduciary activities are manageable (whether no. of accounts, volume of assets, increased litigation or customer complaints)
- 13. Indicators of levels of Reputational risk (co’td) Indicators of High risks include: Management fosters a well supported sound culture across the organization