Managing Reputational Risk

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Managing ReputationalRisk
Vicki Nuttall Sky Network Television
Limited May 2006
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Loss of reputation - top organisational risk

• 85 of international firms consider brand their
  most important asset.

tangible
brand

• Respondents ranked loss of reputation their
  greatest risk.

Source Interbrand /Citibank and Knight, RF
Pretty, DJ, Reputation Value - the case of
Corporate catastrophes
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What is Reputation?

• Reputation is
• an intangible asset
• greater than brand
• offering premium value growth opportunities to
  shareholders
• sum total of all stakeholders experience

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Reputation - competitive advantage

• Reputation includes brand and a premium for
  latent value such as managerial expertise,
  innovation, intellectual property.

tangible
brand
premium
Knight, RF Pretty, DJ, Reputation Value - the
case of Corporate catastrophes
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Management of reputation is crucial to
maintenance of value advantage
If I lost all of my factories and trucks but
kept the name Coca-Cola, I could rebuild my
business. If I lost my name, the business would
collapse. CEO, Coca-Cola
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How can reputation be damaged?

• Reputation is damaged when something is done that
  causes stakeholders to lose trust in an
  organisation.
• It does not matter whether it is real it is the
  perception that counts.
• Reputation can be destroyed very rapidly.
• Last Saturdays Herald tied Telecoms recent
  approach to a well known 1990s UK jewellery
  case.

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Managing Reputational Risk

• Understand the value of your entitys reputation.
• Treat reputation holistically.
• Understand interrelationships within the
  business.
• Identify and prioritise the main causes of
  reputational risk.
• Communicate these causes to key management.
• Have a crisis plan when all else fails.

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Catastrophes impact reputation

• Research supports that the impact of a crisis on
  a firms market value can be explained by the
• direct financial consequences, and
• the managerial skills not previously taken in to
  account.
• The latter has been identified as the most
  significant factor.
• A crisis provides a unique opportunity for the
  financial markets to evaluate management prowess.

Pretty, DJ Risk Financing Strategies the
impact on shareholder value.
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Crises are unavoidable but can be optimally
managed
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Key Managerial Responses

• The managerial responses identified as having a
  significant impact on the outcome are
• Communications
• Media management
• Timely and effective operational response.
• These aspects have a complex relationship and
  should be addressed in a coordinated and
  simultaneous manner.
• Experience shows that the best results are
  obtained from a planned balanced team approach.

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• A crisis provides the unique opportunity for you
  to demonstrate managerial prowess and expertise
  to stakeholders
• thus enhancing Reputational
• Value.