Reputation risk is often overlooked

The financial crisis has put the issue of reputational risk squarely on the corporate agenda.

The drubbing that banks took in the court of public opinion in the aftermath of the financial crisis was phenomenal. Unfortunately, companies tend to disregard reputational risks when they consider the entire enterprise risk management ball of wax. Many companies wait until after an incident before they consider the effects on their brand. These effects can be deep and lasting, however.

According to the Reputation Review 2012 report, sponsored by Aon and issued by Oxford Metrica, among the 10 companies that suffered the most reputational damage in 2011, two lost almost 90 percent of their value, seven lost more than a third, and only one has recovered to the point where its value is higher than it was before last year's events.

As noted by CFO magazine, "Reputational risk is greater than ever because of social media and the 24/7 nature of news, which make it tough for a company's message to stay ahead of a big story. When an event requires a public statement, if the company hasn't already ironed out how to incorporate the opinions of company attorneys into what such a statement says, and hasn't thought out how to negotiate internally what may be said, the reaction will be unacceptably slow...If it turns out that what's said is 'too watered down,' then people will fill in the blanks on their own."

Banks have learned this the hard way. Other companies would be wise to learn from their blunders.

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