Blatter resigns as FIFA president: a lesson in reputational risk

Blatter resigns as FIFA president: a lesson in reputational risk

Blatter resigns as FIFA president: a lesson in reputational risk The dramatic resignation of FIFA President Sepp Blatter last week and the shadowy allegations leading up to it have spurred worldwide reflection on power, greed, temptation and the world of professional sports.

In a risk management context, however, the events are all too familiar – the loss of a once-respected brand and the financial fallout that inevitably ensues.

Blatter’s surprise resignation follows his re-election as president of the global football governing body. Blatter was re-elected despite allegations hounding FIFA, including suspicion that multiple officials have been accepting bribes from sports marketing companies and even accepted bribes for Qatar to host the 2022 World Cup.

More than 1,000 workers have died while building the stadium for the event, and 4,000 more are estimated to perish by its completion.

As various government bodies launch investigations and file charges against FIFA for these offenses, Blatter himself admits the organisation needs a “profound restructuring.”

And while the possible relocation of the 2022 World Cup raises valid questions about global insurance policies, FIFA’s fall from grace asks a more nuanced question about risk management in the 21st century – can reputational risk ever truly be insured against, and if so, how effectively?

There is no arguing against reputational fallout as an emerging risk.

In fact, global executives labelled damage to brand and reputation as the number one risk facing companies today in Aon’s 2015 Global Risk Management Survey.

“A business reputation, particularly the trust placed in the organisation by its customers, may be irrevocably blemished due to perceived or actual breaches in its ability to conduct business ethically, securely, or responsibly,” said Loretta Worters of the Insurance Information Institute.

While reputational risk can encompass many things – such as pollution or product recalls – in the case of FIFA, the damage is more nebulous. Ethical challenges, governance issues and allegations over business practices dominate the negative narrative.

While FIFA’s current insurance status is unknown, the case itself provides a reasoned argument for the purchase of reputational risk insurance coverage – particularly for large companies and well-known brands.

The coverage gives the insured the ability to consult with experts whenever a threat to reputation is identified, or at the first sign of negative publicity. It also connects the insured to experts who can develop a communications strategy and manage the disclosure of sensitive information before it becomes public.

Some coverage options can also provide cover for the cost of communications in response to bad publicity, including television, print and online advertising, as well as the launch of a social media campaign.

The cost of monitoring the brand after negative publicity may also be covered.

Of course, there is only so much an insurance policy can do to diffuse loss due to reputational fallout. According to a global survey conducted by ACE, more than three-quarters of respondents agree that it is difficult to quantify the financial impact of reputational risk on their businesses.

As such, providing sufficient monetary assurance through reputational risk insurance is difficult.

“Nevertheless, we believe there is much that insurers and brokers can do collectively to help their clients,” ACE said.

“This could include the evolution of new more holistic insurance solutions that involve the input of crisis and PR specialists. More generally, it should involve professional risk engineering to improve risk management processes and governance.”