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ethical standards, and to co-ordinate the organisation’s response to reputational threats. By contrast, the chief risk officer has a more technical role, attempting to quantify or prioritise potential threats to corporate image, and policing risk policies to make sure they are properly enforced.

  • SMEs lag behind on reputational risk. Bigger

companies undertake more reputational risk management activities. For instance, four-fifths of respondents from organisations posting revenue in excess of US$10bn have implemented processes for crisis management, compared with just one-half for companies with revenue of US$1bn or below. Only half of SMEs formally monitor external perceptions of their companies, versus 61% of larger companies.

  • Communication is the key to crisis management.

Crisis management is the area where companies feel their capabilities are weakest when it comes to managing reputational risk. Only 10% say they are excellent at managing crises; 11% admit they are poor

Reputation: Risk of risks

or worse, and 44% say they are adequate. To improve their performance in these areas, organisations must learn how to communicate with customers and the media when things go wrong. Companies that have a communications strategy that enables them to respond quickly and effectively to “bad news” events, and which address issues openly and proactively, often emerge with their reputations in tact and even enhanced. Those that don’t may suffer heavy and, in some cases, irreparable damage.

The governance scandals of recent years have reminded companies of the value and vulnerability of corporate reputation. Incurring reputational damage can be fatal. By contrast, companies that establish a robust reputation have a strong competitive advantage when it comes to attracting and retaining customers and talented employees. Reputation is therefore an asset that needs to be nurtured and protected, but as this research shows, many companies still lack strategies and organisational structures to ensure this happens.

© The Economist Intelligence Unit 2005

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