Failure to protect against reputation risk suggests an “inadequacy of management”, Arthur J. Gallagher’s head of Asia tells StrategicRISK

Speaking to SR following the launch of Arthur J. Gallagher’s new Asia-Pacific reputation risk practice, Dick Heath said that alongside loss of revenues and market share, failure to put in place adequate risk management and mitigation strategies could result in both board and shareholder dissatisfaction with management.

The broker’s Asia boss and regional head of financial and professional risks said that it was now commonly assumed that responsibility for an organisation’s reputation rested “fairly and squarely” with the CEO.

“Failure to protect against reputation risk directly reflects as an inadequacy of management,” he said.

“This in turn could manifest as an increased exposure to directors’ and officers’ liability claims, in addition to the financial losses that have been incurred.”

Heath said reputation risk could be defined in a number of ways.

“It is often referred to as the risk of risks, meaning that it is a consequential risk,” he said.

“The damage to the brand as a result of the reputation risk occurring is felt financially in many ways, including loss of earnings, falls in share price, increased costs, loss of staff and loss of market share.

“There are many examples of brand damage. Almost daily, organisations are being reported in the press for a variety of events that have occurred to them affecting their reputation, from faulty products to market manipulation, the examples are numerous.”

Methods of protection

In terms of what companies could implement to protect themselves against reputation risk and brand damage, Heath recommends crisis management and communications plans, and “a real commitment to the management and protection of an organisation’s brand”.

“Ensuring that, where possible, the organisation understands and upholds the expectations of its internal and external stakeholders is key, so knowing the brand shadow and having a robust and tested plan to counter a negative shift in perception is paramount,” he said.

“Remember that by virtue of the fact that reputation risk is the risk of risks, most events that give rise to a reputation event cannot be prevented in that they are out of leftfield, representing worst case scenarios.”

Heath said that reputation risk was a growing problem “as a result of the growth of the internet”.

“Organisations must understand the importance of active reputation management,” he advised.

“They must resource for it and fund for it, and have a structured process in place to understand it, plan for it and react as effectively as possible to an event.”

This approach must run throughout the organisation, Heath added, as it was cross-functional and would fail if “internal silos” were allowed to exist.

“Silos will prevent the successful implementation of a pan-organisational approach,” he said.

“The ability to insure reputational damage is very new; not many organisations understand that this is available.

“Combining active reputation management, tested mitigation strategies and insurance will ensure the best possible outcome for organisations facing a reputation event.”