While reputational risk is a growing concern for companies and their leaders, there are steps they can take to increase their reputational resilience, according to a new report from Steel City Re.
“With a record number of CEOs losing their jobs last year and the number of reputation-based lawsuits over board-level oversight surging, corporate leaders need a preemptive reputational risk management strategy,” said Nir Kossovsky, CEO of Steel City Re. “Ninety per cent (90%) of the S&P 500 refer to reputation in their SEC filings as a material risk – but most never describe their strategy for mitigating it.”
Kossovsky said that reputational risk is not just a marketing problem – it can be a real danger to a company’s health.
“When boards disclose reputation as a material risk without truly understanding it or appropriately mitigating it as a governance and operational problem, they are putting themselves and their companies in even greater peril,” he said.
According to Steel City Re, companies can forge greater reputational resilience by following a seven-point checklist:
- Ensure that the company’s board understands the true nature of reputational risk – economic damage and losses resulting from the behavior of angry and disappointed stakeholders, not just negative media coverage.
- A board committee should oversee the company’s enterprise-wide policies, practices and procedures that manage and mitigate reputational risk.
- Senior management should set appropriate stakeholder expectations by bridging marketing and risk management silos, so that aspirational messaging doesn’t outstrip the company’s actual performance.
- The Treasury understands the peril of reputational risk is to cash flow – as opposed to balance sheet – and is prepared to fund reputation losses with insurance captives or risk transfer solutions.
- Risk management should continually assess stakeholder expectations, accounting for rapidly changing cultural and political events. It should have a clear understanding of all operational and financial options to manage and mitigate potential losses from those perils.
- The company should deploy preemptive, simple, and easy-to-understand risk management strategies to inform and substantiate the marketing department’s messaging.
- Key stakeholders should appreciate and value the company’s mitigation and governance efforts.