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Companies Taking Reputation Risk Management More Seriously
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Holmes Report
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Companies Taking Reputation Risk Management More Seriously

Reputation risk management is moving up the corporate agenda, with almost two-thirds (63 percent) of senior executives indicating that they are dedicating more time to the discipline.

Holmes Report

Reputation risk management is moving up the corporate agenda, with almost two-thirds (63 percent) of senior executives—including communications directors, heads of legal, CEOs and risk managers—indicating that they are dedicating more time to the discipline than they did two years ago, according to new research from UK law firm Schillings.

For the majority of those interviewed (72 percent), reputation risk is dealt with under the broader risk management framework. But a growing number of pioneers (17 percent) are starting to treat the management of reputation risk as a separate function with formal reporting to the board, and some companies have restructured their leadership team and reporting systems: five of the FTSE 100 have introduced steering groups to focus on reputation risk.

“That more time is being spent on this issue than ever may be due to a number of macro factors; heightened expectations around corporate transparency, new laws and regulation, the ability to mobilize campaigns quickly in the digital environment,” says the company.

“Whether a new job role dedicated solely to reputational risk management is necessary or not, a clear point of leadership is important. Where communications directors are good at the intuitive elements of reputational risk management, some felt they were lacking in the more structured tools required to capture risk information. Similarly, while risk managers are good at applying processes for assessing and managing uncertainty, they admit to finding the assessment of reputational risk more difficult, largely because they felt they do not have a deep understanding of how reputational issues can flare in the hands of media and third party detractors.”

The emergence of social media as a force to be reckoned with has exacerbated this problem: more than a quarter of respondents say that the new media landscape carries with it a serious threat.

“In our more connected world companies have to consider both how they act as a publisher of content and how they react to content created about them. The rules of engagement are far less clear cut, some respondents believe that saying nothing can often be as damaging as saying the wrong thing.”

On the other hand, social media can operate as an early warning system and are seen as crucial to safeguarding and enhancing reputation by both communication and legal professionals with over half (56 percent) seeing it as currently more of an opportunity than a threat.

“Ten years ago, the first you heard of a negative story might have been its appearance on the front page,” says the company in a report on its findings. “Today it is possible to spot stories building online before they ‘break’ in the mass media, leaving greater scope for preventative action. Handled sensitively knowledge of the law together with an understanding of the rules of engagement online can be coordinated to minimize an issue escalating into a crisis.”

The majority of respondents agreed that the main causes of reputational risk are as a direct consequence of business under-performance. The second most cited cause however, is a direct result of the actions of third parties. Specifically, respondents identified the issue of misinformation about the business entering the public domain either via an unprofessional press, competitors or disgruntled external stakeholders. Several interviewees mentioned “spurious accusations” that are difficult to counter as being serious concerns.

But despite the extra time being dedicated to it, it is clear that for many organisations reputation risk is still not a top table issue. More than a third (37 percent) of those interviewed cited lack of interest from the board as the biggest obstacle to making the changes they thought necessary to reputation risk management.

Moreover, there was no consistent answer to the question of who is responsible for reputation risk on a day-to-day basis. Many directors of legal or communications do not feel directly responsible for reputation risk and there is little consensus across companies on precisely who is responsible for the company’s reputation. Around a quarter of the guardians (23 percent of communications and 28 percent of legal) did not feel directly responsible for the risks to their company’s reputation.

Several participants in the study felt the lack of resources in terms of time, budget and manpower to spend on prioritizing reputation risk management, with many expressing a sense that senior management, in particular the board, needed to become more aware of reputation risk as a standalone item in the risk register. Some felt it would benefit the organization if there was a non-executive board director who had responsibility for reputation.

There is a fundamental tension at the heart of reputation risk management between communications and legal teams. Schillings’ summed up the tension as stemming from the fact that “legal departments are slow but considered, communications departments are fast but inherently reactive in their approach.”

Perhaps not surprisingly, the companies most likely to be confident in managing a negative reputation incident were the ones that had gone through a crisis in the last decade. And those most satisfied with how their company managed reputation risk had the closest working relationships between their departments.
 

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