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Risk Management and Reputation

Companies depend on their reputations. A good reputation, one through which the public sees an organization as dependable, ethical, and worth spending their hard earned money on, means success and increased revenues. A bad reputation on the other hand, one marred by scandal, illicit activities, and unethical behavior, can do irreparable harm to the company, even going so far as sink many organizations. As valuable as a strong reputation may be even in the best of times, with the current state of the economy making it harder and harder for companies to survive as it is, failing to take something as important as their reputation into account is nothing but ignorance at work. However, a recent survey of executives at numerous global organizations showed that these individuals ranked issues of reputation and brand barely within the top twenty their major concerns, with shifting laws and liquidity coming in at the top of the list. It seems then that only those who have faced a close call in the past are able to fully recognize and appreciate the importance of these matters; after all, you often don’t know what you had until it’s gone.

What so many seem to overlook is the fragile nature of their company’s reputation, the catastrophic effects that just one incident or rumor can have, and the extent of the potential damage. To those who have witnessed firsthand the severity of these issues, all will now attest to the importance of keeping their organization’s reputation and brand as a major priority at the forefront of their risk management strategies. Some have said that perhaps the best way to address these matters is indirectly, by targeting those subjects that could potentially lead to reputational risks through their failure, such as focusing on compliance with all relevant corporate governance regulations and laws, as well as anti-corruption laws, and any other rules that may apply within a given industry. However, it has also been pointed out that perhaps the most difficult aspect of tackling reputational risk is the matter of quantifying these risks and attaching an appropriate monetary value to their handling.

While some have said that in a time of crisis, anything goes, and you can expect to dump loads of money into solving the problem without regard for any potential return on investment. Another complication of properly addressing reputational risk management is the fact that it plays a role in so many other risk areas and can therefore often be lost among those other topics. However, in order to handle these risks effectively, companies will need to begin viewing this subject as being separate from all other risk matters, and focus on the defense of their reputation based on its own specific needs and strategies. A number of various strategies exist for efficiently quantifying how much companies should invest in the protection of their reputations, such as viewing the subject with regard to shareholder satisfaction, or, perhaps more effectively, as an intangible value. But however a company chooses to address reputational risks, the important thing is that they do so before it is too late and it becomes an issue of sink or swim as they try to recover from some unforeseen blow.

Published by Conselium Executive Search, the global leader in compliance search.  
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