Companies View Reputational Risk as Most Challenging

A study conducted across 15 countries within the Europe, Middle East and Africa (EMEA) region finds that 92% of companies believe reputational risk to be the most challenging category of risk to manage.

The survey and a report entitled ‘Reputation at Risk’, both issued by multiline property and casualty insurer ACE Group, reveals that while 81% of companies surveyed see reputation as their most significant asset, most admit that they struggle to protect it. The ACE report identifies a number of key reasons why companies in the region often find reputational risk challenging to manage:

  • Seventy-seven per cent of companies find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional, more tangible risks.
  • Sixty-eight per cent of companies believe information and advice about how to manage reputational risk is hard to find, compounding the sense of uncertainty and confusion about how best to manage it.
  • Sixty-six per cent of companies feel inadequately covered for reputational risk from an insurance perspective.
  • Fifty-six per cent of companies say social media has greatly exacerbated the potential for reputational risk to affect their business. 

The report also proposes solutions to adopt, including:

  • Companies need a clear framework for managing reputational risk. Effective management of traditional risks will help avoid reputational events, and management teams need to put in place a culture and instil a risk appetite across the company that will reduce the potential for crises to emerge in the first place. In addition, taking a multi-disciplinary approach that involves the CEO, PR specialists and other business leaders will also help to build the broader perspective that is necessary for identifying and managing less obvious reputational risks.
  • Companies should work harder at measuring how their reputation is perceived. Understanding perceptions of key stakeholders, their interplay and their impact on corporate reputation, is essential for tracking and managing reputational risk effectively. Companies must ensure that they are collecting an outside-in perspective to complement their own internal perspective.
  • Companies should sharpen up their crisis management plans to keep pace with today’s faster-moving world. ACE’s research suggests that many companies may be over-confident in their abilities to respond to a crisis. Regular review and testing including the incorporation of social media scenarios will allow a faster response when disaster strikes.
  • The insurance market can do more to help companies manage reputational risk. This includes the provision of more holistic solutions that include crisis response assistance. It also includes helping companies to take a reputational lens to more traditional risks to evaluate the reputational consequences in each case.

“Reputational risk can be difficult to predict,” said Andrew Kendrick, president, ACE European Group. “However, some clear pointers emerge from our research as to the source of companies’ key worries.

“One of these is the globalisation of business, with complex supply chains, expansion into new markets and the challenge of maintaining consistent standards across multiple borders all giving cause for concern. The other noticeable theme is regulation. Post-crisis, compliance has taken on a new importance and businesses of all shapes and sizes are more keenly aware of its relationship to their corporate reputation.

“Professional risk engineering can help to improve risk management processes and governance, allowing clients to manage the more traditional risks better and reducing the likelihood of a reputational event in the first place.” 

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