Managing Risks to Reputation: From Theory to Practice
Managing Risks to reputation – From theory to practice
Risks to reputation are not anymore part of the emerging risks; in fact, they have been on the risk management radar for over a decade now. However, the last year of this first decade of the 21st century seems to have seen a burst of incidents all over the economic spectrum that tainted the reputation of even well established companies. BP suffered their third blow of the decade with the oil spill in the Gulf of Mexico, Toyota product recall was a warning to the automobile giant that blog can be damaging, not to speak of the SEC suit against Goldman Sachs. If these may be PR disasters to some extent, it would be very casual to not investigate all those event in depths as the root causes are probably not in faulty communication, but rather in faulty operations, faulty governance, etc.
Warren Buffett (Chairman and CEO, Berkshire Hathaway) warned long ago: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you‘ll do things differently.”
The teachings to draw from this quote are manifold. Firstly, it demonstrates that risk is a social construct [Douglas, Wildawsky, 1982]. Secondly, it shows that people tend to perceive it only as a threat and totally miss the dual aspect of risk. Thirdly, it implies that people should react and learn from past errors and improve their behaviour.
Therefore, it is not surprising that managing reputational risk has now become a major preoccupation for businesses in the private, public and not-for-profit sectors.
In the aftermath of the Enron, WorldCom, the credit crunch and other corporate catastrophes, more stringent corporate governance and regulatory compliance requirements, strengthened regulator powers, the growing influence of pressure groups and rising stakeholder expectations have sharpened the focus on business reputation. Added to this, the advent of real-time global telecommunications and 24/7 media scrutiny
Risks to reputation are not anymore part of the emerging risks; in fact, they have been on the risk management radar for over a decade now. However, the last year of this first decade of the 21st century seems to have seen a burst of incidents all over the economic spectrum that tainted the reputation of even well established companies. BP suffered their third blow of the decade with the oil spill in the Gulf of Mexico, Toyota product recall was a warning to the automobile giant that blog can be damaging, not to speak of the SEC suit against Goldman Sachs. If these may be PR disasters to some extent, it would be very casual to not investigate all those event in depths as the root causes are probably not in faulty communication, but rather in faulty operations, faulty governance, etc.
Warren Buffett (Chairman and CEO, Berkshire Hathaway) warned long ago: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you‘ll do things differently.”
The teachings to draw from this quote are manifold. Firstly, it demonstrates that risk is a social construct [Douglas, Wildawsky, 1982]. Secondly, it shows that people tend to perceive it only as a threat and totally miss the dual aspect of risk. Thirdly, it implies that people should react and learn from past errors and improve their behaviour.
Therefore, it is not surprising that managing reputational risk has now become a major preoccupation for businesses in the private, public and not-for-profit sectors.
In the aftermath of the Enron, WorldCom, the credit crunch and other corporate catastrophes, more stringent corporate governance and regulatory compliance requirements, strengthened regulator powers, the growing influence of pressure groups and rising stakeholder expectations have sharpened the focus on business reputation. Added to this, the advent of real-time global telecommunications and 24/7 media scrutiny