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Reputation: Risk of risks

the biggest barriers to managing reputational risk successfully. It suggests that satisfaction with the current allocation of responsibility is not high.

to monitoring threats to reputation, only 51% describe their capabilities as good, while 34% describe them as adequate and 15% as poor—more than for any other area.

Room for improvement

The lack of consensus regarding reputational risk management strategies and the shortage of established tools for the job are reflected in the patchy levels of satisfaction expressed by risk managers in their efforts in this area. More than 60% appear happy with their communications with customers, and this matches the priority given above to monitoring customer opinion. A further 33% consider their capabilities in this area to be adequate, and only 7% class them as poor. When it comes to communicating with other stakeholders, the level of satisfaction is markedly lower: 48% declare good capability, 38% adequate and 13% poor. This implies that the lower frequency with which opinion is monitored among these groups, as indicated above, is not through lack of desire among risk managers.

Substantial confidence is expressed in organisations’ ability to enforce strong controls on governance and compliance. However, when it comes

The difficulty of controlling risks to reputation arising from third-party partnerships is reflected in the relatively low level of satisfaction expressed with capabilities to ensure ethical practices throughout the supply chain. This is a particularly elusive area of risk management. Damage to the reputation of a business partner, adviser or auditor can be transferred to the organisation by simple association, and is less easily repaired than the cost of an unpaid bill or an unmet contract. “If their reputation is good, mine is probably good too,” says Dr Raghavan.

The lowest level of confidence, despite the emphasis given to it in other questions, concerns the capability to manage crises. Here, those judging their position as excellent (10%) are outweighed by those who say they are poor (11%) in this area.

Opinion is divided over whether reputational risk can be quantified. Just over one-half of respondents believe it can, compared with one-quarter who think it cannot. It would be reasonable to expect that those most confident in their ability to express reputational

How would you rate your company’s capabilities in the following areas?

(% respondents)

Excellent

Good

Adequate

Poor

Very poor

Communicating with customers 19

41

33

61

Enforcing strong controls on governance and compliance 17

40

36

61

Monitoring threats to reputation 12

39

34

13

2

Ensuring ethical practices throughout the supply chain 14

35

40

91

Communicating with external stakeholders (other than customers)

11

37

38

13

Crisis management 10

34

45

10 1

Source: Economist Intelligence Unit, 2005

© The Economist Intelligence Unit 2005

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