Prepare for Code Red

Today’s thought piece examines how companies and their CEOs view reputational risk. It’s part of the continuing series of excerpts from the position paper “Beyond the Bottom Line: 20 Ways to Reduce Reputational Risk.” You can download the entire paper right now, including the 20 reputational risk scenarios designed to help you cope with various situations.

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To see how reputational risk works in the real world, “Beyond the Bottom Line” offers 20 scenarios as templates to help you and your organization manage shocks to your reputation’s system.

The scenarios range from cybersecurity isHand helpsues (pegged as the number one potential threat by many executives) to ill-advised new media outbursts; from a toxic chemical release to a CEO’s indiscretions. While any single company is unlikely to face all 20 of these troubles, all firms can find something to which they can relate in their ongoing business affairs.

Some common threads within each scenario: Companies that managed reputational threats sufficiently prepared as best they could and assessed their performance afterward in an effort to improve future performance. Leadership took seriously the need for preparation and review.

Any worthwhile crisis expert will tell you that no one is capable of accurately anticipating the precise calamity you might face. There are simply too many moving parts. Like the airline pilot who doesn’t know if he’ll hit wind shear, clear air turbulence, or a flock of birds, he must be prepared to react to something unexpected at that exact moment in time. So it is with any blows your reputation may suffer, deserved or not. These 20 scenarios offer a range of reactions in hopes that one or more of them will resonate with your particular circumstances. You must be ready to analyze your situation carefully. An incident that has little impact on one organization could represent a full-blown reputational crisis for another.

Fully 81 percent of companies view reputation as their number one asset according to a July 23, 2013, Reuters account of the report “Reputation at Risk,” issued by the insurer ACE. Executives at these companies also admit that they find reputational risk tricky to manage.

In the survey, 77 percent of companies found it problematic to evaluate the financial impact of reputational risk on their business. Sixty-eight percent found it difficult to locate advice about managing reputational risk.

Still, there is hope that smart companies are beginning to see a link between risk management and development of business strategy. As one respondent to the Marsh/RIMS study “Organizational Dynamics: A Focus for Effective Risk Management” noted, “There is significantly more interest, buy-in, and enthusiasm from our executives about looking at strategic risk rather than just operational or financial business risk.”

Another participant said, “I wish there were some way we could measure success by thought leadership or by the value we bring to our business partners,” adding in a burst of candor. “But I can’t figure out a metric for that.”

What steps do you take in your attempts to measure reputational risk?

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