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Multinational firms need broad risk management but find it difficult to achieve

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Effective reputation risk management on a global scale requires a consistent, collaborative effort that encompasses the entire breadth of a company's executive and operational leadership.

Unfortunately, reputation risk experts say, that level of collaboration often is difficult for even highly sophisticated multinational firms to achieve, given the geographic, cultural and often industrial diversity of their global footprint.

“Multinational spreads are really where the greatest amount of reputational risk exists, because there are so many opportunities for weak links in terms of your reputation management,” said Leslie Gaines-Ross, chief reputation strategist at New York-based public relations and brand consulting firm Weber Shandwick. “No one person within a company has the level of insight that's needed to really foresee many of these risks, and that's why you need a collaborative culture within your organization.”

While companies have improved their overall awareness of potential threats to their corporate brand and reputation, the extent to which they've been able to minimize their exposure to those risks remains debatable at best, experts say.

In London-based Aon P.L.C.'s 2013 Global Risk Management Survey, released in April, educational and nonprofit groups ranked reputational damage as the single biggest risk facing their organizations. Similarly, food processing and distribution companies, hotels, hospitality companies, banks, pharmaceutical and biotechnology companies, real estate firms and retailers cited damage to their firms' reputation or brand as either their second- or third-most pressing risk.

But despite the heightened awareness, the percentage of firms worldwide that lost income as a result of damage to their reputation ballooned to 40% in 2013 from just 8% in 2011. The percentage of companies that said they were confident in their readiness to respond to reputation risks fell during the same two-year stretch, to 57% in 2013 from 61% in 2011, according to Aon's survey.

“There is definitely more awareness of the risks, but the sad thing is you still see a lot of the same things happening today that you saw 10 years ago, and oftentimes the companies in question aren't any more prepared for it than they were then,” said Randy Nornes, a Chicago-based executive vice president at Aon Risk Solutions.

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One critical shortfall experts noted in companies' approach to protecting their reputation at the multinational level is the lack of a formalized structure by which reputation management strategies are developed and implemented.

“The idea is to really break down reputation risk into elements that actually mean something to the organization,” Mr. Nornes said. “It starts with a mapping process of all of your company's stakeholders. From there, you begin to drill down all of the likely scenarios that could impact customers, investors, employees or regulators.”

To the extent that such a structure has been developed, experts say companies also often make the mistake of limiting their risk manager's role in the process of reputation management to post-incident analysis and troubleshooting.

“In general, the risk function is usually brought to the reputation management table after a specific company event or some kind of episodic industry event,” said John Patterson, a New York-based senior adviser at the Reputation Institute.

Experts said it is also critical for senior corporate leaders to recognize that even if their company's primary business operations are entirely domestic, viral damage to their company's brand or reputation can result from disasters and scandals that occur within their supply chain. The deadly collapse of an apparel factory in Bangladesh this year — and the weeks' worth of unfavorable press that came with it — eventually motivated Minneapolis-based Target Corp. and several other U.S.-based retailers and clothing brands to form the Alliance for Bangladesh Worker Safety, which to date has pledged up to $142 million to improve safety and working conditions at more than 500 factories (see story, page 28).

“Target manages its brand and reputation maniacally in the U.S., but they're only just this year beginning to put together a global reputation management team,” Mr. Patterson said, though he added that Target made the decision to develop its global reputation protection strategy prior to the factory collapse.

A spokeswoman for Target declined to comment on the company's reputation risk management strategy.

“They're a fresh example of a large company that's had very a good reputation management strategy at home for years but are realizing that they have very little reputation capital to fall back on outside of the U.S.,” Mr. Patterson said. “The governance and the leadership that companies like Target, in the light of something like Bangladesh, are coming into in question. As a result, that industry now has to think about reputation risks, and not just reputation management from a growth and marketing perspective.”

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