Organisations have a number of options available to them when trying to enhance, sustain and protect their reputation. They can either have a Reputation Risk Committee or an Operational Risk Committee or both as follows:
1. Run a separate Reputation Risk Management Committee. Typical attendees should include PR, Communication, Corporate & Public Affairs, Advertising & Marketing, Brand Management, Regulatory Affairs, Safety, Health & Environment, Internal Audit, Risk Management, HR and Compliance function members.
The focus of this Committee is to discuss opportunities for building & sustaining reputation as well as to discuss reputation management and reputational risk issues. Each individual/department is required to supply a report of all reputational incidents / issues and opportunities and actions taken for building reputation. The minutes and reports of this meeting should go to the Operational Risk Committee.
2. Secondly, Reputation Risk should serve as part of a traditional Operational Risk Committee (ORC). This Committee normally comprises of all heads of departments in operations of a company. It meets on a fixed frequency to discuss risk issues - which are defined as operational issues / losses above a cut off limit/level. Each individual/department is required to supply a report of all Operational Loss Incidents / Issues to the Secretary/convener of the ORC. At this meeting each of these reports are discussed in detail by the ORC and analysed to help introduce necessary changes that would help prevent repeats of such - and save losses. Normally, an ORC is a recommendatory body - and the minutes of the ORC meetings are summarized and put up for approvals by top Management / Management Committee / Board of Directors.
In my opinion both of these approaches is necessary in a company. The focus of the RRC is to build, sustain and protect reputation whilst the ORC includes all types of risk and is useful for all attendees to see how various risks interact and can ultimately create reputational damage. In South Africa these two approaches will be in accordance with the recommendations of the King 2 Report on Corporate Governance.
The key for the success of these committees is to ensure that they do not become simple "report analyzing mechanisms" – but that they focus on and identifying and addressing loss / risk issues.
I recommend that all companies make these committees or forums mandatory.
Monday, 18 December 2006
Reputation Risk Definitions
Definitions create the lenses through which we look at the world. The renowned psychologist, Abraham Maslow said that if the only thing you have is a hammer, you tend to treat everything as a nail.
I start every workshop and presentation with definitions, so that I can establish a common framework in which I can work with my audience.In particular there are three definitions to describe reputation risk, each serving a slightly different purpose.
The first definition is that Reputation risk is the risk that an activity, action or stance performed or taken by a company or its officials will impair its image in the community and/or the long-term trust placed in the organisation by its stakeholders, resulting in the loss of business and/or legal action.
A practical example of that right now is highlighted by the headline: "Nokia postpones deal because of Siemens bribery probe!". Cell phone maker Nokia and telecommunications equipment maker Siemens are postponing the merger of their mobile-network units because of an ongoing investigation into allegations of bribery at Siemens.
The deal, which will create a new company called Nokia Siemens Networks, was supposed to be finalized January 1, 2007. But in a press release Thursday, Nokia said it expects the deal to close in March.
Nokia said it is postponing the deal because it is concerned about the ongoing bribery investigation that has already led to the arrest of several former Siemens employees, including Thomas Ganswindt, former head of the German company's telecommunications equipment division.
The second definition is that Reputation Risk is the loss of earnings that occur in a situation of negative public opinion. It normally results in loss of sales, share value decreases and breakdown of relationships. Many a crises have led to stock price decreases and impact in other areas of the business.
The 3rd definition is one that I use in my Stakeholder Reputation workshops. Reputation Risk emerges when the reasonable expectations of stakeholders are not met.
This definition requires a different view. It essentially involves taking a look at each stakeholders needs and expectations, matching the drivers of an organisation's reputation and minimising the gaps that exist.
From the above definitions it must be clear that essentially all risks and all related components of a company potentially impact on reputation risk. This implies that reputation needs to be systemically managed in organisations.
I start every workshop and presentation with definitions, so that I can establish a common framework in which I can work with my audience.In particular there are three definitions to describe reputation risk, each serving a slightly different purpose.
The first definition is that Reputation risk is the risk that an activity, action or stance performed or taken by a company or its officials will impair its image in the community and/or the long-term trust placed in the organisation by its stakeholders, resulting in the loss of business and/or legal action.
A practical example of that right now is highlighted by the headline: "Nokia postpones deal because of Siemens bribery probe!". Cell phone maker Nokia and telecommunications equipment maker Siemens are postponing the merger of their mobile-network units because of an ongoing investigation into allegations of bribery at Siemens.
The deal, which will create a new company called Nokia Siemens Networks, was supposed to be finalized January 1, 2007. But in a press release Thursday, Nokia said it expects the deal to close in March.
Nokia said it is postponing the deal because it is concerned about the ongoing bribery investigation that has already led to the arrest of several former Siemens employees, including Thomas Ganswindt, former head of the German company's telecommunications equipment division.
The second definition is that Reputation Risk is the loss of earnings that occur in a situation of negative public opinion. It normally results in loss of sales, share value decreases and breakdown of relationships. Many a crises have led to stock price decreases and impact in other areas of the business.
The 3rd definition is one that I use in my Stakeholder Reputation workshops. Reputation Risk emerges when the reasonable expectations of stakeholders are not met.
This definition requires a different view. It essentially involves taking a look at each stakeholders needs and expectations, matching the drivers of an organisation's reputation and minimising the gaps that exist.
From the above definitions it must be clear that essentially all risks and all related components of a company potentially impact on reputation risk. This implies that reputation needs to be systemically managed in organisations.
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