Managing reputation risk - Deloitte

1 Managing reputation risk Laura Toni, Deloitte Romania November 28, 2014. Executive summary What is your company's reputation worth? According to a study by the World Economic Forum performed in Here are examples of ways 2012, on average more than 25 in which reputations can be percent of a company's market tarnished value is directly attributable to its reputation . Executives in financial services firms are forced to Leading technology firms are And in a highly connected world resign after their employees blasted by the public and were customers, operations, were caught manipulating media for poor working supply chains, and internal and markets or making reckless conditions at their suppliers'. external stakeholders are trades. factories. scattered across the planet and where reputations can be globally Leading retailers take big New websites have readers attacked with just a few keystrokes reputation hits and sales redirected to fake news, that number is likely to be even plummet after losing large damaging their credibility.

2 Higher today. Due to this, a amounts of customers and and the credibility of online company's reputation should be credit card data to cyber news in general. managed like a priceless asset attacks. and protected as if it is a matter of life and death, because from In many cases, problems such as these can be prevented or business and career perspective, contained if the organization actively manages reputation risk. that's exactly what it is. But how? 2. 2014, for more information, contact Deloitte Romania What is the reputation risk? We don't see reputation risk management as having a start date and end date . (Vivek Karve, Chief Financial Officer, Marico). reputation risk is a top strategic business risk, being a key business challenge. A reputation risk that is What not properly managed can quickly escalate into a major strategic crisis.

3 Responsibility for reputation risk resides with the highest levels of the organization board and C- Who Suite. reputation risk is driven by a wide range of other business that must all be actively managed. Toping the list are risks related to ethics and integrity, such as fraud, bribery, and corruption. Next come security risks , including both physical and cyber breaches followed closely by product and service risks (product safety or service issue), such as those related to safety, health, and the environment. Third-party relationships are another rapidly emerging area, with companies increasingly being held accountable for the actions of their How suppliers and vendors. Customers are most important stakeholders for Managing reputation risk. Other key stakeholders includes regulators, senior executives, employees and investors.

4 But in a world increasingly influenced by social media and instant global communications, Managing customer expectations and perceptions is critical to success. 3. 2014, for more information, contact Deloitte Romania What is the reputation risk? continues We don't see reputation risk management as having a start date and end date . (Vivek Karve, Chief Financial Officer, Marico). Companies are least confident when is comes to risks that are beyond their direct control. Such risks include third-party ethics, competitive attacks, and hazard or other catastrophes. Companies are most confident about Managing reputation risk drivers for which they have direct control, such as risks related to regulatory compliance, employees and executive misconduct. reputation problems have the biggest impact on revenue and brand value.

5 The biggest How impacted areas for the companies who had previously experienced with negative reputation event were revenue and loss of brand value, followed by the regulatory investigations. Companies should start investing to improve their capabilities for Managing reputation risk : in technology, such as analytical and brand monitoring tools, in developing or improving their crisis management and scenario planning areas. Companies should be fully aware of their exposure to reputation risk. 4. 2014, for more information, contact Deloitte Romania reputation risk is a top strategic business risk Expectation versus performance reputation risk is created when performance does not match expectations. Ultimately, how a company manages the expectations and performance related to its reputation determines whether value is created or destroyed.

6 reputation risk or opportunity? Here are key elements that shape reputation risk. reputation opportunity reputation risk Performance Time 5. 2014, for more information, contact Deloitte Romania reputation risk is a top strategic business risk Expectation versus performance reputation risk is created when performance does not match expectations. Ultimately, how a company manages the expectations and performance related to its reputation determines whether value is created or destroyed. Setting expectations. Measuring performance. reputation impact. Stakeholder expectations are Perceived performance in driven An event's effect on reputation established based on: by: can be positive or negative: history 1. Actual performance: reputation 1. reputation opportunity: the - Backward looking is mostly determined by what a company exceeds expectations company does, not what it says.

7 And its reputation is enhanced. - Company track record and performance 2. Company strategy 2. Communication: Effective 2. reputation risk: The company communication with stakeholders falls short of expectations and his - Forward-looking and the media can help shape reputation is damaged. - Established by the company opinions and reputation . - Communicated to the public 6. 2014, for more information, contact Deloitte Romania reputation risk is a top strategic business risk Ethics and Integrity, Security, Product and Services A company's reputation is affected by its business decisions and performance across a wide range of areas. Quality an organization's willingness to adhere Financial performance shareholders, to quality standards goes long way to enhancing investors, lenders consider financial performance its reputations.

8 Product defects and recalls have when assessing firm's reputation an adverse impact. Corporate social responsibility - Security - Strong infrastructure to Actively promoting sound defend against physical and environmental management and cybersecurity threats helps avoid social responsibility programs reputation risk security breaches that could helps create a reputation safety net . damage a company's reputation . that reduces risk. Innovation firms that have differentiate Crisis response Safety Strong Stakeholders keep a safety policies affirm themselves from their Ethics and Integrity . competitors through close eye on how a that safety and risk Firms with strong innovative processes company responds to management are the ethical policies are and unique products difficult situations. Any top strategic priorities more trustworthy in the tend to have strong action during a crisis for the company, eyes of stakeholders.

9 Name recognition and can ultimately affect the building trust, and value company's reputation . creation. high reputation value. 7. 2014, for more information, contact Deloitte Romania Managing reputation risk In order to manage reputational risk effectively, it is essential to systematically track evolving stakeholder expectations. Here are three steps to consider: Where to look? What to analyse? How to move forward? Identify stakeholders and data Identify factors that indicate Use insights from identifying sources for stakeholder changes in stakeholders reputation risks to inform information: expectations and potential ongoing risk management consider both internal and external reputation risk: decision: stakeholders including regulators, identify elements of your strategy apply the analysis of key risk employees, and customers and operating environment that indicators to ongoing decision tap into varied data sources for a could affect reputation making more complete perspective design an analytical framework take early action on evolving use independent and objective data around the identified elements stakeholders expectations and to track stakeholders perceptions and develop automated tracking unmet expectations to allow time look at all level of the organization implement reputation risk for recalibration as needed look at your crisis management and monitoring develop an organizational culture business continuity management design key risk indicators to where the strategy for Managing framework.

10 Process and teams so monitor potential reputation reputation risk is constantly to immediately and effectively react impact recalibrated in response to in the event of a crisis. emerging information 8. 2014, for more information, contact Deloitte Romania Five lessons about crisis management From an accident that disrupts a supply chain to a social media controversy, companies manage minor crisis all the time. It's part of doing business. But dealing with a major crisis is different. A single big event or a combination of small events can trigger a major crisis that threatens the very survival of the business. These critical situations expose an organization's readiness and responsiveness testing its values, leadership, and character at a time when there is no room for error. Some things to consider in your approach to crisis management: Every decision Response time Don't wait until a You can When a crisis during a major should be in crisis hits to get emerge seems like it's crisis can affect minutes not ready stronger over, it's not.