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Reputation damage becoming greater risk management concern

Reputation damage becoming greater risk management concern

SASKATOON, Saskatchewan — Recognizing that consumer backlash in the wake of a poorly handled crisis can be financially devastating to a business, reputation risk is quickly becoming one of the greatest concerns to organizations throughout North America, risk management experts say.

In fact, damage to reputation and/or brand has moved up to No. 4 from No. 6 among the Top 10 risks identified in Aon's 2011 Global Risk Management Risk Ranking, moving ahead of business interruption and failure to innovate to meet customer needs.

Given that this intangible asset may represent more than 60% of a company's market value, damage to reputation can cause a company to not only lose share price, but also customers, revenue, investors and even employees, noted risk management experts speaking during a session titled “Reputation at Risk — High Stakes” presented during the 2012 RIMS Canada Conference, held this week in Saskatoon, Saskatchewan.

But mitigating the impact of reputational risk requires an immediate and calculated response, especially given the speed at which bad news travels today, according to John Crean, national managing partner of Toronto-based National Public Relations, Canada's largest public relations firm.

While traditional media outlets can issue news reports within minutes after a crisis, social media is even faster, he said, adding, “Twitter informs the mainstream media now.”

Mr. Crean suggested that Johnson & Johnson, often lauded for its quick response to recall Tylenol in 1982 within days after several bottles of the popular pain medication were found to be contaminated, would probably be criticized today for moving too slow.

“Fast is the new good. Don't wait for the perfect response or the perfect amount of information. The instinct of most executives is to not pull the trigger, but you need to get out there fast,” Mr. Crean said. “And just because you're not talking doesn't mean no one else is. Get engaged in the conversation.”

To respond effectively, businesses “really need to be prepared in advance” with a crisis response plan, Mr. Crean said.

Besides quick response, Mr. Crean also suggested that organizations in crisis appeal to people's emotions because “emotion trumps stats.”

“Mistakes happen,” Mr. Crean said. “The media and public are forgiving. Say 'I'm sorry.'”

In addition, organizations should “show, don't tell,” Mr. Crean said, pointing to the use of video to document the rescue of 33 trapped Chilean miners in 2010 as a successful example of this.

“Reputation risk is always among the top five risks” identified by companies, “but it also the most esoteric,” said Jeanette Lawrence, assistant vice president of professional liability at Chartis Canada in Toronto, who spoke during the session. “It is difficult to isolate where the risk could be generated from.”

To get a handle on the scope of this risk, organizations should evaluate their “reputation equity,” analyze what drives it, and develop and implement a reputation recovery strategy, said Mathieu Denarnaud, a broker specializing in product recall and crisis management in Aon Risk Solutions' Global Broking Centre in London, who also spoke during the session.

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