The Conference Board Finds that Reputation risk Management is on the Rise in the U.S.
March 17, 2009
But Many Companies Still Have a Long Way to Go in Protecting Their Reputations
NEW YORK, NY – March 17, 2009 – A growing number of major global companies are investing substantial resources to manage their reputation risk and have increased their efforts to do so over the last three years, according to a new report from The Conference Board, the global business research and membership organization.
“Safeguarding reputation is even more critical today because companies have developed successful ways to make reputation risk management part of their overall risk management,” says Ellen Hexter, Director, Enterprise Risk Management at The Conference Board and co-author of the report with Sandy Bayer, President of Bayer Consulting. “In addition, different stakeholder groups are becoming more sophisticated in how they drive corporate reputations. Critics on the Internet can now transmit their opinions and complaints around the world with ease. Most importantly, consumers have high expectations that companies will not only produce quality products and services, but also will act ethically in their creation and distribution.”
The report defines reputation as how a company is perceived by each of its stakeholder groups and reputation risk as the risk that an event will negatively influence stakeholder perceptions. Many reputation risks are the secondary result of other, more traditionally recognized risks. For example, if a manufacturer produces an unsafe product, it may lose customers and is likely to suffer financial costs due to a product recall, both of which impact reputation. Reputations may be damaged for any number of reasons, including that stakeholders perceive a company to be unethical.
“Although reputation is the quintessential intangible asset, a strong corporate reputation yields concrete benefits – higher market value, stronger sales, and an increased ability to hire the best and the brightest,” says Bayer.
The report is based on the findings of The Conference Board Reputation Risk Research Working Group and a survey of 148 risk management executives of major corporations. More than three quarters of the respondents to the survey said their companies are making a substantial effort to manage reputation risk (82 percent) and they have increased focus in this area over the last three years (81 percent).
Other key findings of the study:
Reputation risk should be managed throughout the organization. Although communication is of critical importance in responding to a risk event, a company’s reputation should be considered during the preparation and execution of strategy and new projects, which hasn’t been the case in most companies.
Reputation risk is often not incorporated into risk management. Only 49 percent of executives surveyed said that the management of reputation risk was highly integrated with their enterprise risk management (ERM) function or another risk oversight program.
Assessing reputation risks is a top challenge. Fifty-nine percent indicated that assessing the perceptions and concerns of stakeholders was an extremely or very significant issue, making it the highest-ranked challenge.
Media monitoring has become more sophisticated. Today, there are tools to assess whether coverage is positive, neutral or negative; the credibility of publications; the prominence of coverage, etc.
Efforts are being made to quantify the value of reputation. A select group of companies is making progress in this area by working with specialist consulting firms to quantify the impact of reputation on share price.
Social media are gaining influence, but most companies are ignoring them. Although consumers and investors are increasingly gathering information from blogs, online forums, and social networking sites, only 34 percent of the survey respondents said they extensively monitor such sites, and only 10 percent actively participated in them.
The findings spurred the following recommendations from The Conference Board Research Working Group: 1) Actively involve boards of directors in reputation risk management; 2) Demonstrate to leaders and management teams in business units the impact of their actions on reputation; 3) Integrate reputation risk management with ERM or other risk management programs; 4) Quantify the value of reputation; 5) Use and nurture employees as corporate ambassadors.
“Boards of directors, senior management, and operating management should demonstrate an active commitment to strong reputation management,” conclude the authors. “While crises are sometimes inevitable, a company’s reputation when it is most vulnerable and how the organization responds can have an enduring impact on how it is perceived for years to come.”
About The Conference Board
For over 90 years, The Conference Board has created and disseminated knowledge about management and the marketplace to help businesses strengthen their performance and better serve society. The Conference Board operates as a global independent membership organization working in the public interest. It publishes information and analysis, makes economics-based forecasts and assesses trends, and facilitates learning by creating dynamic communities of interest that bring together senior executives from around the world. The Conference Board is a not-for-profit organization and holds 501(c)(3) tax-exempt status in the United States. For additional information about The Conference Board and how it can meet your needs, visit our website at www.conference-board.org.
