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Who’s in charge?

If reputational risk lies somewhat apart from quantifiable first-tier risks such as credit risk, market risk and network risk, is there a danger that it is disregarded, and whose job is it to ensure that that does not happen? Asked to locate responsibility for managing reputational risk, respondents give a clear picture of the hierarchy.

At the top of the reputational risk team is the CEO, cited by 84% of respondents as the person with primary ownership of this area. Companies appear to believe that only the chief executive can take ultimate responsibility for ensuring that all parties are working in unison to protect reputation and manage crises. The CEO is also charged with sensing external perceptions of the organisation, a role backed up by the communications function. Interviewees also emphasised the importance of the CEO’s role in setting the right tone and standards of conduct to protect and enhance the company’s reputation. Responsibility is also shared more broadly among the board of directors as a whole, but only by 42% of respondents.

Only 39% of respondents identify the CRO or head of risk management as bearing major responsibility. Significantly, the heads of business units are given equal weighting. In contrast to the CEO’s role, the CRO’s chief area of responsibility is a more technical one, focused on attempting to quantify threats to reputation and policing systems to make sure they are properly enforced. This is an obvious enough division of labour according to expertise. As Ken Akoundi, senior vice-president for risk management (CRO) at Optima Management in New York, puts it, “A lot of these senior people do this more based on years of experience than on a model or framework. My job is about creating the framework.”

While the role of standard-bearer for the brand belongs to the CEO and the board, many risk managers

Reputation: Risk of risks

Which of the following have major responsibility for managing reputational risk within your company? Please check as many as apply. (% respondents)

CEO/President/Chairman

84

Board of directors 42

Chief risk officer (CRO)/Head of risk management 39

Head of business units

39

Communications manager

35

CFO

33

Compliance officer

33

Chief operating officer 28

Marketing manager 24

Head of country operations 23

Brand manager 13

Media agency 11

Other 5

Source: Economist Intelligence Unit, 2005

emphasise the importance that all staff members are aware of their part, and play it fully. According to Artur Damasceno, vice-president of audit at ABN AMRO, “[reducing reputational risk] starts with your personal example as an employee and a citizen… Everybody should be involved [in protecting reputation], otherwise it would not be sustainable.”

The CEO’s role in leading this “reputational team” seems pivotal, but some companies reveal doubts about whether anyone is investing sufficient time and resources into reputational risk management in practice. One response in the survey that is particularly revealing is the high level of concern expressed by executives about the fact that no one has taken formal responsibility for reputational risk. This is considered a major obstacle to effective risk management by 39% of respondents, making it one of

© The Economist Intelligence Unit 2005

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