Discussion of reputation risk and how to incorporation reputation management into a business in order to build resiliency and growth. Presented at the 3rd International Reputation Management Conference in Istanbul, Turkey, in November 2014

1. The Risk of Risks: Reputation Risk and Resiliency
Linda Locke
Senior Vice President
November 2014
llocke@standingpartnership.com
Twitter: Reputationista

2. 1
Whom do you love?

3. •The Economist Intelligence Unit survey:
‒“Reputational risk emerged as the most significant threat to a business.”
‒Reputation is prized, and vulnerable
‒Major source of competitive advantage
‒Difficult to categorize and quantify
‒http://www.acegroup.com/eu-en/assets/risk-reputation-report.pdf
•Zurich:
‒70% of consumers say they avoid buying a product if they don’t like the company behind it
‒Consumers are 350% more likely to purchase products from companies they like and trust
‒Executives say 60% of a firm’s market value is attributable to reputation
‒http://static.knowledgevision.com/account/idgenterprise/assets/attachment/Zurich_092012_RiskManagement_KV/Reputational_Risk1.pdf
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The Risk of Risks

4. •Reputational risk a top concern for boards
‒63% of directors see reputational risk as top concern…and concerns are growing
‒Primary concerns cover product quality, liability, customer satisfaction
‒Secondary concerns: integrity, fraud, ethics
‒Three-fourths of directors seek broad-based risk assessment… and they want to know more
Third Annual Board of Directors Survey 2012 -Concerns About Risks Confronting Boards –EisnerAmp
3
What keeps boards up at night?

5. 4
A strong reputation can bring long-term sustainability
Based on:
Financial stability
Accounting conservatism
Corporate integrity
Transparency
Sustainability
Source: Trust Across America

6. 5
Reputation advantage

7. 6
Reputation penalty

8. •The intangibles can comprise more than 60% of a company’s value
•Public perception impacts profitability, book value, sales
•Strong reputation can result in strong stock price growth
•Investors use reputation in purchase decisions
•Companies with a strong reputation can:
‒Charge premium prices
‒Hire the best candidates
‒Attract the best business partners
•A strong reputation can be a competitive differentiator
7
Why focus on reputation?

9. •Strategic risks: Which risk areas had/have/will have the most impact on your business strategy?
8
World of strategic risk is changing: Deloitte
41%
Brand
28%
Economic Trends
26%
Reputation
2010
40%
Reputation
32%
Business model
27%
Economic trends/
Competition
29%
Economic trends
26%
Business model
24%
Reputation/ Competition
Today
2016

10. 9
Reputation is the connective tissue between business strategy and stakeholder perceptions
Financial
stability
Positive
societal
impact
Responsible
business
operations

11. 10
Two challenges to managing reputation
Reputation is not owned by the company; it can only influence it
Reputation is built by decisions made across the organization

12. 11
Clients are often not well-equipped to manage reputation risk
Reputationliteracy not on the risk agenda
Riskliteracy not on the reputation agenda

13. •Reputation = judgments and perceptions of others
12
Reputation is owned by stakeholders
‒Customers
‒Suppliers
‒Investors
‒Advocacy groups
‒Regulators
‒Policymakers
‒General public

14. •Risk is predictable, if….
13
The question is whether clients deliver on the expectations of their stakeholders
‒You know your stakeholders
‒You understand what drives their perceptions
‒You are aware of their values
‒You listen to them

15. 14
Stakeholders expect resiliency

16. •Two sides of resiliency:
‒Prevent conditions of risk
‒Manage consequences of events
15
Resiliency: Ability to adapt to a continuously changing environment
Source –Carnegie Mellon Software Engineering Institute

17. 16
Risk = Hazard + Outrage (Peter Sandman)
Source: evolve24

18. •Reputation measurement
‒Use custom or third party survey of key stakeholders that cover major dimensions of reputation, as well as key attributes
‒Identify what drives reputation for each stakeholder group
‒Compare results by stakeholders
‒Compare results to competitors
‒Share results from board level down, throughout organization
‒Build messaging plan that incorporates the drivers of reputation
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Opportunities to solve problems for clients
Opportunity

19. 18
Measuring the dimensions of reputation
How do you make me feel?
Source: Reputation Institute

20. •Reputation risk assessments
‒Facilitate a dialogue with senior leadership on issues they think cause risk to reputation
‒Map out likelihood vs. expected impact of each issue
‒Build proactive plans to address high impact/high probability issues
19
Opportunities to solve problems for clients
Probability
Low High
Impact
Low High

21. •Reputation monitoring
‒Identify a platform that can track the public dialogue about your company and its competitors
‒Find a program that identifies drivers of negative emotion, including outrage, so you can set priorities, identify trajectory of risk
‒Build a regular reporting program to track how perceptions have changed and identify when to signal to the c-suite that risk is serious
20
Opportunities to solve problems for clients
Source: evolve24

22. •Diagnostic gap analysis: Compare perceptions of internal and external audiences
‒If the internal audience thinks the company meets/exceeds expectations, while external stakeholders think it performs weakly, it may be an opportunity for expanded communications
‒If external audiences think the company performs well but internal audiences think it doesn’t, it is likely a risk waiting to blow up
‒Eccles, Robert G., Jr., Scott C. Newquist, and Roland Schatz. "Reputation and Its Risks." Harvard Business Review85, no. 2 (February 2007): 104–114.
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Opportunities to solve problems for clients

23. •Forcefieldanalysis
‒Identify the forces that oppose/help the company achieve its reputation goals
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Opportunities to solve problems for clients
Reputational Goal: How you want your stakeholders to perceive you
Driving ForceFOR Reputation
Goal
Score
1-5
Driving ForceAGAINST Reputational Goal
Score
1-5

24. •Scenario planning
‒Identify scenarios that have or are likely to cause risk
‒Consider how the organization appears from the outside in
‒Create plans that reflect the POV of key stakeholders
‒Lead tabletop exercises to test plan; identify weaknesses
‒Develop messaging platform that shifts with likely follow-on events
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Opportunities to solve problems for clients

25. •Internal alignment: Build enterprise-wide reputation competence
‒Turn employees into advocates. Help them answer the question of what positive impact the company has on society.
‒Create reputation champions through all the business units. Help them integrate reputation risk planning and mitigation into their work.
‒Share data. Offer analysis of new products, major changes in customer service, M&A, expansion.
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Opportunities to solve problems for clients

26. •Finding internal allies: ERM + BC/DR
‒The Enterprise Risk Management, Business Continuity and Disaster Recovery teams all have reputation risk on their agendas.
‒They likely do not have data or baseline measurement, so are guessing at the likely impact of risk issues on reputation.
‒Make them your allies. Offer to participate in their planning sessions. Help flesh out their reporting upward to include reputational risk data.
25
Opportunities to solve problems for clients

27. •Examine SEC filings for references to reputation risk to determine what worries your clients’ leadership. Also examine their competitors’ filings.
•Examine all the negative sentiment expressed publicly in the past 12 months. Rank by degree of negativity, credibility of source, likely impact.
•Engage the Enterprise Risk Management and Business Continuity teams to see what they have included in their plans for reputation risk. Make them your allies. Offer reputation risk impact analysis.
26
Where do I start?

28. A resilient organization manages all types of risk
27
Ability to manage risks and function/adapt throughout the lifecycle of operational disruptions
Ability to maintain
good stakeholder perceptions and
supportive behavior
at all times
Operational
Resiliency
Reputation
Resiliency

29. •Business units that understand reputation risks shift planning and design to accommodate stakeholder perceptions
•Strategy that addresses drivers of reputation deepens trust –and supportive behavior –among stakeholders
•Data that measures the reputational impact of crisis response helps improve response next time
•Engaged c-suite and boards can focus investment on managing, avoiding and mitigating risk
•Expands the number and influence of reputation champions in the enterprise
28
Reputation risk planning drives organizational resilience

30. 29
Opportunity to bring reputation into risk management processes
Reputation resiliency
platform
Develop mitigationstrategies
Set the agenda:
Identify key risks
Monitor;
report to
c-suite/board
Build risk competency
at strategic level: Internal alignment

31. 30
What Enterprise Risk Management teams require
Deliverables:
•Distinct, quantified reputation risk assessment
•Baseline measurement
•Integrated reputation risk reporting
Outcome:
•Defining reputation resiliency for organization
•Expanding view of risk to include non-market, non- operational issues with impact to reputation
•Addressing broader issues of concern to board

32. 31
The most important objective of all
Build
enterprise-wide
reputation
competence

33. 32
Business Continuity management typically lacks a reputation focus
Crisis/
Emergency Management
Business Continuity/
Disaster Recovery
Plan
Risk Assessment/ Business Impact Analysis
•Reputation crisis live event management
•Dynamic event monitoring and reporting
•Message management
•Post-event analysis
•Reputation crisis plan development
•Scenario planning
•Tabletop exercises
•Live simulation
•Ongoing monitoring
•Stakeholder analysis
•Reputation risk assessment
•Risk training for commsteam
•Reputation training for risk team

34. Antecedents of Risk
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35. 34
Stakeholders expect companies to share their values

36. 35
Stakeholders expect companies to share their values
Gluttony
Sloth
Lust
Wrath
Hubris
Envy
Greed

37. 36
Values, vulnerabilities and outrage (See Business and Its Environment, David P. Baron, Pearson/Prentice Hall)
Hubris
Greed
Gluttony
Wrath
Envy
Sloth
Lust
Young
Elderly
Human Error
Media-Attractive
Abuse of Power
Lack of Responsiveness
Impoverished

38. The causes of outrage
“Do I put up
with this?”

39. “Do I put up
with this?”
Pressure Groups
“Have I noticed pressure groups focusing on it?”
Awareness
“Was there a problem? Did you let me know about it?”
Choice
“Did I choose to take the risk or
was it imposed on me?”
Nature
“Is the risk natural
or man-made?”
Dread
“Do I fear
this risk?”
Detectability
“Can I touch/see it?
Is it quantifiable/
Containable?”
Media
“Have I read about it/seen it in the news?”
Equity
“What does the risk do for me? Is anyone bearing the risk who doesn’t benefit from it?”
Scientific View
“Do experts understand it? Do they agree/disagree about it?”
The causes of outrage
Source: RegesterLarkin

40. 39
Managing Reputation in Three Steps: Understand Perceptions of Stakeholders

41. 40
Understand How you are Perceived Relative to Competitors

42. 41
Understand the drivers that impact perceptions

43. 42
Lest we forget…

44. 43
Our ultimate goal is trust
Be trusted
by the stakeholders
who matter

45. Building, protecting and restoring reputations