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Large companies worry about reputational risks


CHICAGO—Damage to reputation emerged as the most frequently cited risk concern by large businesses surveyed in a forthcoming Global Risk Management Survey by Aon.

The survey was conducted by Aon Global Risk Consulting in late 2006 to early 2007, and is based on responses from 320 organizations in 29 countries. All had annual revenues of at least $1 billion.

The businesses listed both traditionally insurable concerns such as business interruption and traditionally noninsurable concerns such as market environment among their top concerns (see chart).

"I find it interesting that five out of the top 10 risks are not traditionally insurable," said Ruth Joplin, Chicago-based managing director of Aon Global Risk Consulting and the survey's project leader. In addition to damage to reputation and market environment, these traditionally noninsurable risks included concerns such as regulatory and legislative changes and failure to attract or retain staff, she said.

"The findings of this survey demonstrate the dynamic nature of risk as management priorities shift over time," according to a draft of the survey. "Whereas senior management and risk managers have traditionally been concerned with operational and financial risk, they now have to deal with issues as diverse, complex and esoteric as reputation crises, sustainability, labor unrest, pandemics and the impact of new regulation all around the world."

Ms. Joplin said the concern about reputation risk is "not all that unusual in organizations of this size" that operate globally.

"They depend on reputation to a greater degree than organizations may have in the past because there's been a shift in the paradigm of business." Organizations are "less reliant on brick and mortar resources" than on their ability to grow based on reputation, she said. "They depend on their reputation more than anything else to secure favor with creditors, people, customers and business partners."

When asked to rank both their current priorities and those of the next two years, respondents cited risk identification, quantification and analysis as the first step in the enterprise risk management process both now and during the next two years.

But the companies put managing risk on an enterprisewide basis as their second priority over the next two years, Ms. Joplin pointed out.

"We were pleased to hear that organizations are planning to shift toward managing risk on a more enterprisewide basis in the coming two years," she said. "This will be essential for managing the broader base of risk identified."

Aon expects to release the report in May.