Narim Conference: Risk managers told to step up reputation efforts

Risk managers must embrace the opportunity that this offers them to prove their worth and embrace new approaches to their job, they said.

Risk managers should use this opportunity to move beyond the role of pure insurance buyer. They must develop a more holistic approach to the discipline and ensure that reputational risk is fully embedded within a company’s enterprise risk management (ERM) framework, the experts advised.

Reputational risk and image damage was the theme of this year’s NARIM event.

Risk managers were told to develop a panoramic view of reputational risk and consider the threat from an ‘outside to in’ perspective, rather than focus on the risk purely from an internal perspective.

Following the recent high level of corporate governance failures and other major incidents such as the BP Deepwater Horizon oil spill and Toyota brake failures, managing reputational has become more important than ever before.

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The potential for risk to reputation has grown because of stricter compliance requirements, strengthened regulatory powers, the growing influence of pressure groups, rising stakeholder expectations and communications technology including, most recently, social media.

Paul Stamsnijder, founding partner of Reputatiegroep, an independent consultancy for reputational issues, told the record 310 attendees at the congress that this represents ‘the beginning of increased risk but also the beginning of increased opportunity.’

“Society has changed very quickly, everything has become more transparent and I think social media is the icing on the cake in this respect. So the difference between what happens externally and what you see internally has been eroded and totally faded away,” he explained at the event held on 26 to 27 of May in Noordwijk.

“The main message for risk managers is to get out of your comfort zone and not be a specialist who is looking only at the insurable risks, but look also at reputational risk and the immaterial parts of what a company stands for…If we handle these risk in a positive way and link our role to strategic and key decisions it will increase our reputation.” he said.

Risk management in general is at a cross roads, continued Mr Stamsnijder. One of the ‘best chances to get airtime at the top table’ is to help management to get to grips with their reputational risk, he added.

Mr Stamsnijder conceded that it is hard to put a value on reputation and therefore to prove to the powers that be that it is being managed correctly and with positive outcomes for an organisation’s bottom line. This is the main reason why much of the risk uninsurable, he added.

Risk financing of reputational risk is notoriously difficult and insurance options remain limited.

“But sometimes you have air-time with the board and you must try to shout in someone’s ear and educate your listeners that you can manage this risk in another way,” continued Mr Stamsnijder.

In a separate session at the congress entitled ‘Managing risk to reputation’, Koenraad van Hasselt of Risk2Reputation laid out how he believes the risk can be managed. His company has devised a new model that it says allows the risk to be measured and therefore more easily dealt with and monitored.

It involves obtaining information from all stakeholders about the potential risks to reputation from certain business strategies and then aggregating that data into one index.

Underlying reputation drivers can then be tracked over time and compared with past figures and competitors’ performance, explained Mr Van Hasselt.

Stakeholders include analysts, local communities, national government organisations, the media, regulators, clients and both current and future staff, he said.

The reputational risk expert also warned that an organisation’s stakeholders matter more than ever before and can exert more influence on a firm’s reputation.

Company expectations and powers have risen as companies have been forced, via legislation and a changing operating environment, to become more transparent.

“Stakeholders now have more power to hold companies to account and many are increasingly professional. Stakeholders, for example, have the mass media at their finger-tips to use when they see fit,” said Mr Van Hasselt.

“If any decide to stop believing you that is bad enough but it is even worse if they start influencing each other. You need to be able to measure how happy each group is. All stakeholders can affect your business and strategy,” he continued.

Risk managers must fully integrate reputational risk into their ERM approach, but also look beyond that approach, urged Mr Van Hasselt.

“Managing reputation is vital to any ERM approach and, with costly consequences, you ignore it at your peril. But whilst ERM is a crucial function, on its own is not enough to fully manage the risk. It only represents an experts assessment of an enterprise and the risks it faces from an ‘inside to outside’ view,” he continued.

Mr Van Hasselt explained that threats to reputation often come from outside of a company or organisation. As such risk managers should consider what stakeholders outside of his or her organisation can, or could, foresee. “And so risk managers also need to employ an approach that takes account of an ‘outside to inside’ approach,” he said.